The Budget | 'It's a free ride when you've already paid...' | Connor Broadley

News & Insights | 7th March 2024

The Budget | ‘It’s a free ride when you’ve already paid…’

By Dan McKissock, Chartered Financial Planner

Wealth Planning

5 Min Read

Dan McKissock, one of our Chartered Financial Planners, shares his thoughts on this year’s Spring Budget.

“It’s like rain on your wedding day, it’s a free ride when you’ve already paid…”, sang Alanis Morrisette on her 1996 hit single ‘Ironic’. If the current polling number are to be believed, then the Chancellor’s continued emphasis on longer term growth throughout yesterday’s budget statement could certainly be viewed as ironic, with the next budget very likely to be delivered by a Chancellor of a different political hue.

So, what of the free ride? The 2% reduction in the main rate of National Insurance (NI) contributions, from 10% to 8%, was already being widely reported as fact by the time Jeremy Hunt stood up to the dispatch box. With an equivalent cut, from 8% to 6%, in the rate of NI paid by the self-employed, the Chancellor has, in effect, doubled down on the reductions he announced in last year’s Autumn Statement, which have only recently taken effect as of the beginning of this year.

We have, of course, ‘already paid’ for this ride. We’ve highlighted in previous commentary about the effect of fiscal drag – by maintaining the freeze on the income thresholds at which tax becomes payable, then more people will be brought into the tax system, or pay higher rates of tax, as their wages increase. This effect is further amplified in an environment of higher inflation, such as we continue to find ourselves in now.

Several outlets have already picked up on the tone of the message behind these reductions, namely, to reduce (or even eliminate completely) the difference in the amount of tax paid on earned income, compared to other sources of income, such as pensions, dividends, bank interest or rental income. In many ways, the stage for this has already been set, for example through the past alignment of the NI thresholds with those that apply for income tax.

At first glance, a simplification of the current system in favour of a fairer flat rate income tax would be a laudable aim, although politically it may prove to be a tough sell. For the time being, NI contributions remain ringfenced from wider government spending (the “consolidated fund”) and any government attempting to dismantle the current arrangements can expect stiff resistance. In addition, the implementation of any flat rate ‘income tax only’ system would need to consider the impact on retirees, who will of course have planned their retirement based upon the current basis of taxation. We will continue to closely monitor any developments in the context of our clients’ retirement plans.

Moving on to the world of pensions, it was reassuring to note that yesterday’s Budget did not feature any new changes to the rules relating to private pensions. It is worth highlighting that the measures announced in the March 2023 Budget to scrap the lifetime allowance (LTA) for pensions finally received Royal Assent on 22nd February. Following the current transitional year, these new rules will therefore take effect from 6th April 2024, as anticipated.

Looking beyond the biggest headline, there were several other key changes impacting personal finance, which were to be expected with a general election on the horizon.

Beginning with property, the current tax regime for furnished holiday lettings is due to be abolished with effect from the start of the 2025/26 tax year, a measure designed to remove the incentive to let out property on a short term basis to holidaymakers rather than as longer term tenancy to local residents. Anyone owning such a property should therefore consider their options and seek professional advice over the coming year, while the current rules remain in force. This will also act to close a loophole in the current rules, whereby profits from a furnished holiday let are treated as ‘relevant earnings’ to justify pension contributions – currently the only form of non-earned income which can be used for this purpose.

An unexpected move was the reduction in the rate of capital gains tax (CGT) applicable to residential property, down to 24% from 28%, and taking effect from the upcoming new tax year in April 2024. The existing Private Residence Relief will continue unchanged, meaning that the new tax rate will only apply to the sale of second homes, rental properties etc. Despite the cut in the rate of taxation, this measure is expected to increase overall tax receipts by encouraging disposals.

As financial planners, we are acutely aware that there are often many drivers, both financial and personal, behind a decision to sell a property. It is therefore difficult to say how much influence a modest reduction in the CGT payable would have on someone’s decision to sell. Nevertheless, this measure will naturally be welcomed by those looking to sell an affected property.

We were pleased to see that the government has taken action to reform the current system for the High Income Child Benefit Charge (HICBC). This has long been recognised as unfairly penalising families where one parent earns above the current £50,000 threshold, compared to a family with two working parents who could earn up to £100,000 between them and still receive the full benefit.

The overall aim of the proposed measures is to administer the HICBC on a household rather than an individual basis, with effect from April 2026. Since this will take some time to implement, and will require changes to the underlying legislation, interim measures will be introduced from 6th April 2024 – the individual income threshold will be increased to £60,000, and the rate of tapering will also be reduced such that only those earning over £80,000 will have their entitlement to child benefit fully withdrawn.

We must admit to raising an eyebrow at the proclamation of proposals for a new ‘UK ISA’, potentially offering the ability to invest a further £5,000 each year – in addition to the existing ISA allowance – on a tax-free basis into ‘UK-focussed assets’. As financial planners we naturally welcome the opportunity for clients to invest further funds on a tax-efficient basis but in it’s current form this plan raises many more questions than answers.

Glossing over the jingoistic connotations, ‘UK-focussed assets’ is a term which defies easy definition. There are any number of companies which, despite being listed on the London Stock Exchange, generate most of their revenue overseas, alongside foreign-owned firms who employ staff and conduct their business in the UK, actively participating in UK economic growth. Collective investment vehicles, such as exchange traded funds (ETFs), are commonly domiciled outside of the UK but can hold 100% UK-based assets.

At this stage, there is no clear timeline for the introduction of this new investment allowance. A consultation has been started to seek views on how to address these issues, and we will monitor any developments with interest.

The decision to scrap the remittance basis of taxation for non-UK domiciled individuals (the so-called ‘non-dom’ rules) had also been well telegraphed in advance of Wednesday’s speech, with this change due to take effect from April 2025. More interesting were the Chancellor’s comments about liability to inheritance tax (IHT) and also moving this away from using the concept of domicile, which can be counterintuitive and open to interpretation, towards a more strict residency-based definition.

This was somewhat confusing as it seemingly conflates two distinct issues – IHT, and the taxation of foreign income and gains for wealthy individuals making their home in the UK. A move towards clarity in the rules is always welcome and, once again, we will await the outcome of the consultation and resulting rule making process.

Outside of the effects already mentioned above, we can confirm no other changes to tax rates and thresholds, and the contribution allowances relating to pensions and ISAs remain unchanged.

Just as Alanis Morissette’s song “Ironic” famously lacks any examples of true irony, the financial world can sometimes present us with twists and turns that defy our initial expectations. Armed with knowledge, diligence, and a healthy dose of scepticism, we will continue to help our clients to navigate these waters with confidence.


Those who prefer to immerse themselves in the details can find further information on HM Treasury’s website using the following link: