“May you live in interesting times.”
So runs the famous curse. Chancellor John Healey may have wished that the times were somewhat less interesting as he delivered his first Budget, and the first of Andy Burnham’s premiership.
The Chancellor faces several familiar challenges: improving productivity, easing cost-of-living pressures, meeting growing demands for public spending, including defence, and maintaining the confidence of bond markets.
While this Budget was relatively modest in scope compared with some recent fiscal events, several measures could have meaningful implications for personal financial planning. Initial market reaction has been broadly neutral, suggesting investors were not surprised by the announcements.
Below, we highlight the measures we believe are most relevant to our clients.
Income tax on savings interest
Those who pay tax on savings interest will see the rate of tax increased. Basic rate taxpayers will now pay 24%, higher rate taxpayers will pay 44%, and additional rate taxpayers, 49%.
This makes holding excess cash in bank deposits even less attractive than it is today. Higher taxation of savings interest increases the value of tax-efficient wrappers such as ISAs. Investors who have not fully utilised their annual ISA allowance may wish to review this as part of their planning.
If your risk profile allows, you should also consider investing more in assets that produce dividends and capital gains, so as to benefit from the allowances and lower tax rates on offer.
Private Landlords
Likewise, income tax rate from property income have increased to 24% for basic rate, 44% for higher rate and 49% for additional rate taxpayers.
ISA Allowance changes scrapped
The reduction in the cash ISA allowance for under-65s, from £20,000 to £12,000 will not now go ahead. Good news for savers, especially given the increase in rates of tax on savings interest.
State Pension Tax Allowance
Pensioners with income equal to or lower than the full state pension will not pay income tax from April 2027.
This means that a pensioner with income of £13,036 will pay no income tax, representing a maximum annual saving of £93.20.
For every £3 over this income level, £1 of the additional allowance will be lost until the normal personal allowance of £12,570 is reached. So, if your income is over £14,434 next year, you will receive no additional allowance.
Cost-of-Living Measures
- £100 this winter for households in council tax bands A to D to help with energy bills.
- As expected, the 5p fuel duty cut has been extended. The real shock will come if fuel duty is ever increased in future.
- Gas standing charges to be scrapped
- Minimum wage to increase by 4%
- VAT cut on energy will be extended to July
Business Owners and Entrepreneurs
- Business Asset Disposal relief threshold halved.
- New “Founder’s Relief” a special 10% tax rate to apply to the first £10 million of gains for business founders.
- Young entrepreneurs allowance to help fledgling entrepreneurs with living costs.
- We await more detail on these measures.