Spring Budget 2024 - what it could mean for your finances

The 2024 Spring Budget will be announced tomorrow, with commentators expecting tax giveaways ahead of a general election later this year.

Chancellor Jeremy Hunt will deliver his latest Budget on Wednesday, 6 March. Analysts are hopeful that inflation remaining steady rather than rising in January could leave room for tax cuts in the red book to woo voters.

It comes after rumours of inheritance tax (IHT) changes failed to materialise during last year’s Autumn Statement. Some hope it could be altered this time around.

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There are also expectations of further cuts to National Insurance and ISA reforms, as well as the potential for changes to capital gains tax, child benefit and pensions. 

According to rumours, the government could also unveil a housing initiative in the form of 99% loan-to-value mortgages. although there are now suggestions that this policy has been scrapped.

This will most likely be the chancellor’s final fiscal update before a general election is held, as well as Rishi Sunak's last chance to convince the public to vote for him at the next national poll.

It all comes against a backdrop of a UK recession, lofty interest rates and record high taxation. With the country's economy still in a poor state, the Institute for Fiscal Studies (IFS), a thinktank, has warned that the case for tax cuts is "weak", and the chancellor should not go ahead with them unless he can spell out how it will afford them.

We look at what fiscal headroom the chancellor has to play with, the latest rumours around what could be announced, and how the Budget could affect your finances.

Will Hunt reduce spending to fund tax cuts in Spring Budget?

Hunt has said there is less flexibility for tax cuts in the 2024 Spring Budget than there was last Autumn. However, in interviews with Sky News and the BBC on Sunday (3 March), he suggested he could still announce tax cuts.

The latest public sector finances data shows the government had a record £16.7 billion surplus in January, the largest since records began in 1992. Borrowing over the current financial year was also £9.2 billion lower than the Office for Budget Responsibility (OBR) had forecast.

This could leave some room for tax cuts. But there are concerns this headroom has narrowed in recent weeks as a result of rising government debt servicing costs. Hargreaves Lansdown estimates the headroom Hunt had has gone down from around £18.2 billion to £12.5 billion. There have also been warnings from several other analysts and thinktanks that any tax cuts now may have to be reversed after the election.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, suggests any cuts could have "wider implications" beyond taxes and government spending. 

“There’s the question of whether putting money back in people’s pockets will fuel more price rises, so interest rates stay higher for longer," she says.

"For anyone with a mortgage due for renewal, this could leave them worse off than if taxes hadn’t budged. The government also stands to lose from higher inflation – which pushes up the cost of government debt, and could quickly erode any fiscal headroom."

Streeter says there’s also the question of how Hunt may free up cash in order to spend it on tax cuts. 

"There’s likely to be tax rises elsewhere, and so far all sorts of suggestions have been floated – from air fares to holiday lets and vapes," she adds.

"We’re also very likely to see more government spending cuts. At a time when public services are under pressure, and local governments are struggling to balance the books, there will be concerns about the impact of more cuts."

This news comes during a tough period for the Conservative Party. The Office for National Statistics' latest growth figures revealed that the UK dipped into recession in the final quarter of 2023. One of the five promises Rishi Sunak set out in 2023 was to grow the economy – so this is not a good look in what is very likely to be an election year.

Two by-elections also took place on 15 February in Wellingborough and Kingswood, and Labour overturned large Conservative majorities in both. Against this backdrop, the Spring Budget becomes even more politically charged.

Inheritance tax reform

Inheritance tax (IHT) is currently paid by fewer than 4% of estates but high house prices and frozen IHT thresholds mean more people are predicted to fall into the net.

It is a controversial charge as most of the wealth and assets people leave behind have already been taxed and it makes it harder to leave an inheritance to a loved one.

IHT reforms would be popular with traditional Tory voters and there are even suggestions the tax could be axed.

Other suggestions include cutting the IHT rate or increasing the tax-free thresholds.

“This will draw criticism that this will favour those who are better off at a time when people continue to struggle through the cost-of-living crisis,” says Streeter.

“However, it is certainly a tax in need of reform. Even increasing nil-rate bands and revisiting gifting allowances would play a major part in freeing many caught in the tax net and would enable more people to pass money down the generations, supporting their family members when they need it most.”

National Insurance cuts

National Insurance (NI) rates were cut during the Autumn Statement, and according to the latest rumours, Hunt is likely to unveil a further cut in the Spring Budget.

The government had been expected to cut income tax, but media reports suggest the chancellor is now focusing on NI, which will be cheaper to trim. 

A 2p cut in income tax would have cost £13.7 billion a year, while 2p off National Insurance would cost £9 billion and a 1p cut would cost less than a third, at £4.5 billion.

In terms of what a 1p reduction in National Insurance would look like on your payslip, someone earning £35,000 would potentially save £224.30 a year, while anyone on a salary of more than £50,270 could save £377, according to the accountancy firm HW Fisher.

Sam Dewes, tax partner at HW Fisher, comments: "The proposed reduction of employee National Insurance (NI) to 9% would close the gap between rates paid by employees and the self-employed [who pay 8% NI] to just 1% if there is no change to the self-employed NI rates."

He adds that there's been no mention in Budget leaks of reducing the employer's NI contribution, which remains high at 13.8%. Dewes also warns that if allowances and thresholds are not increased, there will be "persistent fiscal drag". 

AJ Bell suggests someone earning £35,000 per year would save £448.70 from a 2p cut to NI, rising to around £750 annually for anyone earning more than £50,000. 

“The government has recently cut NI but that hasn’t stopped rumours of a further cut to workers’ tax being handed out," says Laura Suter, director of personal finance at AJ Bell.

"The selling point of cutting National Insurance is that it is more targeted at workers, as it isn’t paid by those over state pension age. However, self-employed people are also still waiting for their previously announced cut to NI, due to come in in April, so another one so soon might feel premature."

Many financial experts are calling for the chancellor to break the threshold freeze and raise the personal income tax allowance or the threshold for the higher-rate band.

Sian Steele, head of tax at Evelyn Partners, comments: "The personal tax allowance was £12,500 in April 2019: if it had been raised in line with the consumer prices index it would have been set at around £15,150 last April and if we assume inflation of 6% for this financial year it would be about £16,000 by this April.

“Likewise, the higher-rate tax threshold which was £50,000 in April 2019 – and is drawing huge numbers of people into paying 40% tax - would have been raised to about £60,600 by this April and by next April would be well over £64,000.”

Holiday lets tax clampdown

Hunt is rumoured to be planning to fund tax cuts with a raid on furnished holiday let (FHL) reliefs.

Currently, owners of FHLs can benefit from full mortgage interest relief and a lower 10% capital gains tax rate.

The chancellor could cut back on these perks and reportedly raise £300 million to fund tax cuts elsewhere.

This would hit owners of holiday homes and those who rent out their property on Airbnb at a time when buy-to-let landlords have already seen rental growth slow and their own tax reliefs curbed.

Dividend and capital gains allowances restored

The amount investors can take from dividends or capital gains tax-free is set to halve from April to £500 and £3,000 respectively.

But could there be a last-minute pre-election respite?

‘’Halting plans to slash the thresholds for dividend tax and capital gains tax would relieve pressure on both investors and entrepreneurs,” adds Streeter.

“These thresholds were already cut significantly in April 2023, and are set to be halved again in April 2024, meaning higher tax bills for investors and people who run their own business and pay themselves in dividends. 

“Given the government’s growth agenda, and drive to encourage investment into UK companies, halting the planned threshold cuts could help promote this agenda and help the London Stock Exchange retain its lustre.’’

Introduction of a Great British ISA

Rishi Sunak and Jeremy Hunt are reportedly split over proposals to introduce an additional ISA allowance specifically for investment in British companies.

The idea of a Great British ISA was mooted last year before the Autumn Statement, but in the end, nothing was announced. 

The proposal involves savers being handed an extra £5,000 ISA allowance if they put money into UK-listed companies via a ringfenced tax wrapper, in a bid to boost the economy.

It’s understood that if the tax-efficient product was introduced, the changes would not come into force until the 2025-26 tax year.

Streeter is critical of the proposal: "Mooted plans for a British ISA to help direct investors’ money into UK-listed companies adds unnecessary complexity, could fail to achieve its aims, and could have a negative impact on UK investors."

She would prefer to see an increase in the overall £20,000 ISA allowance, which "would boost UK companies anyway and continue to enable sensible diversification."

Lifetime ISA reforms

Campaigners including personal finance expert Martin Lewis plus multiple savings and investment firms have been lobbying the government to reform the lifetime ISA.

The £450,000 limit on the value of property bought with a lifetime ISA has not been reviewed since the product was launched in 2017.

If the Lifetime ISA limit had increased in line with average UK house prices, it would be around £560,000 today.

There are also calls to reduce the penalty for people who access their money early.  

The 25% penalty for accessing money for purposes other than buying a first home or for retirement removes the government bonus, and also a chunk of people’s savings. 

Reducing the early-access penalty to 20% means people will not lose any of their own savings.

Jim Islam, chief executive at LISA provider OneFamily, comments: “We urge the government to support first-time buyers by reducing the unfair lifetime ISA penalty and updating the outdated house price cap in this year’s Spring Budget."

These views have been echoed by UK Finance. The trade body has also called for the first-time buyer stamp duty threshold of £425,000 to remain permanent rather than being returned to £300,000 as is currently scheduled in April 2025.

Fuel duty freeze extension

According to The Times, Hunt is poised to extend the fuel duty freeze in the Spring Budget, at a cost of £1 billion a year.

The Spring Statement in March 2022 extended the temporary cut in the rates of fuel duty for a further 12 months, meaning the assumed inflation increase in 2023-24 did not take place. The 5p a litre reduction will expire on 23 March 2024 - but not if the government chooses to extend it again.

The RAC says the lower fuel duty reduces the cost of filling up a typical family car by about £3.30.

99% mortgages initiative

Treasury officials are said to have drawn up plans to allow first-time buyers to take out 99% mortgages to help them get on the property ladder.

The scheme would require buyers to put down a 1% deposit on their first home, with the government guaranteeing the additional risk to lenders of mortgage default.

It's understood Hunt has asked officials to cost the scheme before this week's Budget but that an announcement might not be made until the autumn - however, some media reports suggest the policy has actually been scrapped.

At present the government’s mortgage guarantee scheme helps buyers who have a minimum 5% deposit. 

If implemented, it will be the first time loans for buyers with just a 1% deposit will have been widely available since 2007 — before the financial crisis.

Critics have cautioned against such a scheme, saying it won't solve the problem of low supply, high demand and soaring prices, and will make the housing crisis worse.

Andrew Wishart, a senior property economist at the consultancy Capital Economics, notes: "Bringing back 99% mortgages not only fails to address the major problem of too little supply, but at the margin makes it worse by raising demand and pushing up prices further. Even those that benefit will be at risk of ending up underwater if house prices fall."

Pension details unveiled

The chancellor may use his opportunity at the despatch box to announce a triple lock election pledge. 

The state pension will rise by 8.5% in April 2024, thanks to the triple lock. 

Labour is rumoured to be planning to retain the triple lock in its manifesto, and Hunt could hint about what the Tories plan to do on 6 March. Or, it could be announced later in the year closer to the election.

Meanwhile, we could see a further announcement about plans to create a "lifetime pension" or "pot for life".

The idea is the employee rather than their boss chooses the pension scheme that contributions go into - and they keep that same "pot" if they change jobs.

A consultation was launched in last year's Autumn Statement, and finished this month.

The Spring Budget might also include more detail about the auto-enrolment extension. 

The Auto-enrolment Extension Bill received Royal Assent in September. It introduces powers to reduce the age for being automatically enrolled to 18, and enable pension saving from the first pound earned.

But it's not clear when any changes will happen. The bill includes a statutory requirement to consult on the implementation approach and timing - could a consultation be announced in Hunt's Budget speech, or perhaps a separate document may just quietly emerge on 6 March?

Child benefit threshold increased

The chancellor is said to be mulling a possible rise to the £50,000 High Income Child Benefit Charge threshold, introduced by the Conservatives in 2013. 

Parents have to pay back 1% of their family's child benefit for every extra £100 they earn over the £50,000 limit, via the High Income Child Benefit Charge. 

It means if a parent earns £60,000 or more, the charge wipes out the full amount of child benefit claimed.

Critics say the threshold is unfair, as it means one person earning £60,000 doesn't receive any child benefit, but a household with two people earning £50,000 each can keep the full amount. 

The Association of Taxation Technicians (ATT) has called for the government to up-rate the £50,000 threshold to reflect inflation. 

It said applying inflation to the current threshold would increase it to £67,100. And the point at which full clawback of child benefit receipts occurs (currently £60,000) would rise to £80,500, when adjusted for inflation since 2013.

Raising the limit would extend child benefit to hundreds of thousands more middle-income families.

Scrapping non-dom tax rules

Several newspapers have reported that the chancellor is lining up the abolition of non-domiciled tax status in a bid to generate extra revenue for the UK's coffers.

The loophole allows people whose permanent home is outside of the UK to not pay UK tax on income they make outside of the country. Scrapping it would generate an estimated £3.6bn a year in tax receipts.

Non-dom status has been highly controversial in recent years. One of the most notable controversies came in 2022, when it was reported that Rishi Sunak's wife Akshata Murty was claiming the status despite living in Downing Street at the time. Ms Murty subsequently said she would pay full UK tax on all of her income.

A change in how business rates are calculated

Hunt has also come under pressure to review business rates. Five major trade bodies representing the retail and hospitality sectors have written to the chancellor to argue that the current system, whereby rateable values go up by September’s consumer price index (CPI) every following April, threatens the “viability of tens of thousands” of businesses.

The joint letter, which has been signed by the Association of Convenience Stores, British Beer and Pub Association, British Independent Retailers Association, British Retail Consortium, and UK Hospitality, says Hunt should use the Bank of England’s forecasts for inflation in Q2 of 2024. It would mean rates would rise 2% instead of 6.7%.

The groups said: “April’s rates rise should be based on April 2024 CPI, rather than the level from seven months prior, when global cost pressures were still keeping inflation high. 

"This would keep our business rates contributions in line with current changing prices, rather than introducing an inflationary rise. It would support our industries as they seek to drive greater investment in villages, towns and cities all over the country.”

If business rates remain unchanged, the groups warned that there may be "significant upwards pressure on prices", which would have a negative impact on headline inflation. The latest BRC shop prices index shows overall retail inflation is sitting below headline UK inflation.