ii experts react to UK Budget 2024

Interactive investor, the UK’s second-largest investment platform for private investors - and leading flat-fee platform, reacts to today’s hotly anticipated Budget announcement. Below, our market-leading experts outline the impact of the changes. 

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Capital Gains Tax (CGT)

Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “The change to the capital gains tax regime was a thinly veiled secret that has finally come to fruition after months of intense speculation. While the change will help the government plug the multi-billion-pound black hole, it could prove to be a real headache for investors.

“The double whammy of swingeing cuts to the CGT allowance in April and the rise in CGT rates provides extra impetus for investors to do what they should already be doing: making the most of tax-efficient wrappers like ISAs and pensions, which shield gains and income generated from investments from tax.”

Inheritance tax changes in April 2027

Craig Rickman, Personal Finance and Pensions Expert at interactive investor, comments: “Reeves’ move to scrap the IHT exemption on unspent pension savings is bold, and will be a blow to savers who have beefed up their retirement pots to harness the estate-planning perks.

“Presumably this means that your pension pot will form part of your estate on death and unless your heir is a spouse or civil partner, they will pay 40% tax on anything that exceeds your tax-free allowances. This will reduce the allure of cascading pension pots down generations.”

Pensions

Craig Rickman, Personal Finance and Pensions Expert at interactive investor, says: “Other than the decision to scrap the IHT-exemption on pensions, Reeves left everything else with the pension framework untouched, despite pre-Budget rumours which pointed towards heavy reform. Speculation had become so feverish that some savers were hooking out their tax-free cash in fear that the maximum would be axed or heavily reduced.

“But savers will have breathed a sigh of relief as maximum amount you can draw from your pension tax free remains at £268,275 (or 25% if lower), and 40% and 45% taxpayers can still claim upfront relief on contributions at their marginal rate.”

National Insurance hike for employers 

Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “A lot of the discussion leading up to the Budget centred around what constitutes ‘working people’. Regardless of your definition, the budget announcements are likely to impact every type of worker. In particular, the increase in NI for employers could also have a knock-on effect on wages offered by businesses and inflate the cost of the goods and services they offer to mitigate the heightened cost burden.

“This move could encourage employers to lean on the existing salary sacrifice regime, which is a win-win benefit that allows workers to lower their taxable income enough to avoid being ensnared by tax traps like the High-Income Child Benefit Charge and personal allowance withdrawal between £100,000 and £125,140. It also allows employers to reduce their National Insurance tax burden.

“The measure could also have a significant impact on a different yet equally important group of working people: freelancers and contractors who operate through an umbrella company to act as an intermediary between them and their clients.

“In most cases, the umbrella company employs a freelancer/contractor and pays their wages through PAYE. As such, the increase in NI for employers threatens to reduce the take-home pay for hundreds of thousands of freelancers. While any tax hikes may be passed down to the end client, this might not always be an option for freelancers in competitive sectors. 

“On the flip side, the employer NI exemption on salary sacrifice pension contributions has remained unchanged. This is welcome news for many umbrella contractors as this saving is passed directly on to them.”

Ending VAT relief for private schools

Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “As expected, Labour have committed to their plan of ending VAT relief for private schools. This will no doubt be a big blow to many hard-working parents. Controversially, the measure will take effect in the middle of the school year on 1 January 2025 and those affected should be aware of the measures in place to prevent tax avoidance on pre-paid fees. Labour will expect the schools themselves to shoulder the burden, but parents should be prepared to put more aside to ride the wave of fee increases.

“It's often the unintended consequences of a tax rise that are the most significant. Higher school fees will ultimately hit savings for those that don’t want to disrupt their child’s education. It’s another thing that savers will need to adapt to, making proper financial planning all the more important.”

Stamp duty on UK shares/trusts

Stamp duty on UK shares/trusts wasn’t referenced in this Budget, and is set to remain as is. At interactive investor, we believe this shouldn’t be the case and have long campaigned for its removal.

Richard Wilson, chief executive at interactive investor, says: “The government calls for growth, but like the Conservatives before, fails to grasp that to invest in Britain you really do need a stock market, and we are destroying ours with stamp duty. 

“The government says it is pro-business while taxing you to invest in British companies and making it free to invest in US companies. Yup! Madness!”

ISA allowance frozen until 2030

Myron Jobson, Senior Personal Finance Analyst at interactive investor, added: “The chancellor’s red box luckily didn’t contain any of the nasty surprises to ISAs that many had been expecting, including a potential lifetime cap. That’s good news for people who work hard and save sensibly.

“However, the deep freeze in ISA allowances until 2030 will hit the minority of investors who are able to make full use of them. A frozen ISA allowance amounts to a cut in real terms because it doesn’t keep up with inflation. Inflation reduces the purchasing power of money over time, meaning that a fixed ISA allowance allows you to save less in real terms each year if you are maxing out the allowance. As prices for goods and services increase, the value of the unchanged allowance diminishes, limiting the amount you can invest tax-free.

“Essentially, without adjusting for inflation, the frozen allowance leads to a de facto reduction in its value.” 

ISA simplification

Although ISA simplification wasn’t mentioned in this Budget, at interactive investor, we believe that was a real missed opportunity. 

Richard Wilson, chief executive at interactive investor, comments: “The government calls for growth. Then help working people to invest in growing the British economy. Fix the ISA. It’s a confused mess. We should reduce it to a single ISA. A massive miss to build confidence.”