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The Chancellor faced a challenging task of balancing the need to control inflation rates and respond to demands for tax cuts. Due to better-than-expected public finances, he was able to reduce national insurance contributions, increase working age benefits by the full inflation rate of 6.7%, and raise the state pension by 8.5% through the Triple Lock mechanism.
Regarding pensions, the removal of the lifetime allowance is scheduled to proceed in April 2024. The Chancellor has also introduced several proposals to bolster his Mansion House reforms, aiming to facilitate pension funds’ engagement in productive financial investments.
The following provides an overview of the key announcements affecting individuals:
Income Tax
Despite speculations about a potential reduction in income tax rates, there have been no changes.
Capital Gains Tax
No additional adjustments have been made to the Capital Gains Tax rates or allowances. It’s important to note that starting from 6 April 2024, the individual annual exemption allowance will reduce to £3,000.
Inheritance Tax
Contrary to the circulating rumours, there were no alterations to the Inheritance Tax rates. However, we will keep an eye out for potential changes in the Budget for 2024.
National Insurance (NI)
There were significant adjustments to National Insurance Contributions (NICs) with a threefold positive impact:
- The main rate of Class 1 employee NICs will decrease from 12% to 10% starting from 6 January 2024, benefiting 27 million working individuals. The average worker with a £35,400 income will experience a tax reduction of over £450.The employer rate remains unchanged at 13.8%.
- For the self-employed, the main rate of Class 4 self-employed NICs will be reduced from 9% to 8% starting 6 April 2024, benefiting approximately 2 million individuals.
- Self-employed individuals currently need to pay two separate NICs charges to qualify for contributory benefits. The government is set to implement a second reduction by abolishing Class 2 NICs for those earning £6,725 and above starting from 6 April 2024, while ensuring continued access to contributory benefits, such as the State Pension.
For those with profits below £6,725 and others who voluntarily pay Class 2 NICs to get access to contributory benefits, including the State Pension, the option to do so will remain at the current rate of £3.45 per week. Although there was a planned increase to £3.70, this adjustment will not proceed.
Collectively, these two reductions will result in an average saving of £350 for a self-employed individual with an income of £28,200 in the tax year 2024-25. Individual Savings Account (ISA)The limits for the Individual Savings Account (ISA) at £20,000, Junior ISA at £9,000, Lifetime ISA at £4,000 (excluding the Government bonus), and Child Trust Fund at £9,000 will stay unchanged at their current levels for the tax year 2024-25.
Pensions
Abolition of the Lifetime Allowance
The government has reaffirmed its decision to proceed with the abolition of the Lifetime Allowance from 6 April 2024. The Finance Bill is set to be presented to parliament shortly.
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