Chancellor Rachel Reeves unveiled significant changes in her latest Budget, impacting income tax, savings accounts, and various benefits. Key measures include the freezing of income tax thresholds until 2031, which could affect many individuals as pay rises may push them into higher tax brackets. Additionally, the Budget introduces new taxation for electric vehicles and alters savings limits for Individual Savings Accounts (ISAs).
The decision to freeze income tax bands means that the amount of income at which different tax rates apply will not adjust for inflation. This freeze extends for an additional three years beyond previous plans, creating a situation where salaries may increase, but individuals could find themselves paying more tax on a growing portion of their income. For those in Scotland, it’s important to note that the country maintains its own income tax rates.
In another notable change, from 2028, drivers of electric vehicles (EVs) and hybrids will face new road taxes calculated on a per-mile basis. This addition will be layered on top of existing road taxes. While the fuel duty remains frozen for the time being, calculating the mileage for taxation purposes presents challenges.
The Chancellor confirmed that from April 2024, wages for minimum wage workers will increase. The apprentice rate will rise from £7.55 to £8 an hour for eligible individuals.
Additionally, properties in England valued at over £2 million will incur a new council tax surcharge starting in April 2028. This surcharge will range from £2,500 for homes valued between £2 million and £2.5 million to £7,500 for properties worth £5 million or more. Although termed a mansion tax, this measure will affect around 100,000 properties, primarily in London and the southeast.
The Budget also signifies a historic freeze on regulated rail fares in England until March 2027, marking the first time in three decades that these fares have remained unchanged. This freeze pertains to season tickets and selected long-distance tickets, although operators retain the right to set prices for unregulated fares. Additionally, the current bus fare cap of £3 for a single journey will remain until March 2027.
For savers, the maximum amount that can be saved tax-free in a cash ISA will decrease from £20,000 to £12,000 annually. The government aims to encourage investment in riskier assets, though concerns have been raised about whether this will lead to fewer individuals opting for stocks and shares ISAs. Notably, the over-65s will still be allowed to save up to £20,000 in cash ISAs.
The Help to Save scheme, designed to assist low-income individuals on universal credit, will also be extended until 2028. Furthermore, the Chancellor announced the removal of the two-child cap for claiming universal credit or tax credits, effective from April 2024.
Changes to pension contributions are on the horizon as well. A £2,000 annual cap on pension contributions through salary sacrifice schemes will take effect from April 2029, potentially reducing incentives for pension savings. Employees can still benefit from income tax relief on their contributions, but this cap may alter saving patterns.
In terms of benefits, several key payments, including disability benefits and carer’s allowance, will rise by 3.8% in April, aligning with inflation rates. Additionally, the state pension will increase by 4.8%, reflecting growth in average wages. This adjustment could bring the state pension closer to being liable for income tax, reigniting discussions about the fairness of the triple lock mechanism.
Overall, the Budget introduced by Rachel Reeves outlines a series of changes that will affect various aspects of personal finance for many citizens. With implications for taxes, savings, and benefits, individuals are urged to stay informed about how these developments may impact their financial situations in the coming years.
