Will the Budget benefit you?
Workers will see National Insurance cut by a further 2p, the Chancellor announced in this week’s Budget, but pensioners will gain nothing from the reduction.
Although the National Insurance cut means an annual saving of £349 for someone earning £30,000, increasing to £749 for someone earning £50,000, thanks to the freezing of tax allowances in recent years, both the lowest and highest earnings will end up paying more tax overall.
According to calculations by Interactive Investor, someone earning £20,000 will face an extra tax burden of £81, rising to £1,064 for someone earning £100,000.
Alice Guy, Head of Pensions and Savings at interactive investor, said: “Despite the National Insurance cut, many families will still feel poorer than a few years ago as frozen tax thresholds and rising living costs erode the value of the National Insurance tax cut.
“Pensioners won’t benefit from the National Insurance cut as pensioners don’t pay National Insurance on their income. A pensioner with income of £20,000 will pay £230 more tax next year due to frozen tax thresholds, with nothing to mitigate the extra cost.”
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Child benefit reforms
Whilst the Budget gave pensioners little to celebrate, there was more positive news for families with children, with changes made to the High Income Child Benefit Charge (HICBC) that was introduced back in January 2013.
Under current rules, this tax charge applies to anyone with an income over £50,000 who gets Child Benefit – or whose partner gets it, and increases gradually for taxpayers with incomes between £50,000 and £60,000. It is equivalent to one per cent of a family’s child benefit for every £100 of ‘adjusted net income’, so once an individual’s adjusted net income is over £60,000, the charge is equal to the total amount of child benefit claimed.
From 6 April 2024 the threshold will increase to £60,000 with an extended taper so that the Child Benefit will only be fully repayable once your income is over £80,000. The current system will also be moved to a “household income” based system from April 2026.
However, Paul Falvey, at tax partner at BDO warned: “While the proposed reforms will address a longstanding unfairness which discriminates against households where there is just one higher earner, there will be significant practical challenges in changing the system so that it takes account of household income.
“While the transition measures are only due to last two years, we wouldn’t be surprised if they are extended beyond this date to allow time for HMRC to overcome these difficulties.”#
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No changes to Inheritance Tax
Prior to the Budget there was plenty of speculation that the Chancellor would announced reforms to Inheritance Tax (IHT), but he left the threshold at which IHT becomes payable unchanged at £325,000. It has been frozen at this level since 2009.
However, buried in the Budget small print there are changes outlined which could make it easier for Inheritance Tax to be paid before probate.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said:
“Rumours that inheritance tax would be changed have been rife in recent months, but they were noticeably absent in the speech. However, a trawl through the background documents shows that IHT changes could still be on the table with moves to ease the payment of inheritance tax before probate or confirmation.
“The documents say that from 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a ‘grant on credit’ from HMRC. This could help deal with the issue where families can't distribute the estate until they've paid IHT, and they can't pay IHT until they've got access to the estate. We look forward to more detail, but it has the potential to be a change that can do much to ease financial stress at the most difficult of times.”