Budget March 2024

Today’s post takes a look at the usual speculation in advance of the March 2024 Budget and at what actually happened.

Budget March 2024

This is possibly the last Tory budget for a while, though we might squeeze another one in before an Election right at the end of this year.

Given the way that most of the fiscal events of the past fourteen years have turned out, I’m not expecting today’s statement to be particularly Tory in flavour.

• The public finances are tight, and it’s not clear how much scope Chancellor Hunt has for tax cuts.
• And given the looking General Election, I don’t hold out much hope for spending cuts.

Inflation looks far from beaten to me (though this picture might change over the next few months) so Hunt may be wary of handouts which stoke it further.

Wish Lists

In addition to the usual mix of speculation and pre-budget leaks, this time I’ve also come across a couple of wish lists for the changes people would like to see.

Wealth Club

Wealth Club, the VCT and EIS broker, surveyed 400 high-net-worth investors on a couple of budget questions.

• The majority of respondents were in the £1M to £5M wealth bracket.

1. The tax they would most like to see cut or abolished is Inheritance Tax
   • Income Tax was the runner-up, with CGT, corporation tax, dividend tax, stamp duty (on houses) and NIC also mentioned
   • Personally, I would like to see  tax thresholds and allowances unfrozen, and a bigger annual ISA allowance, plus the ability of stamp duty on UK shares
2. Income Tax was chosen as the tax cut which would be the most effective at reigniting economic growth
   • Corporation Tax and business rates were the runners-up
   • I find this a storage choice, as the higher rates of income tax are unlikely tp be cut, and a drop in the basic rate is more likely to stoke inflation than growth
   • Corporation tax would be my choice, along with an increase in the CGT allowance (which has just been cut, so that won’t happen)

For WC, Nicholas Hyett said:

Inheritance tax remains the least popular tax with wealthy investors – and the one they would most like to see cut at the Budget. However, the government would do well to note that many wealthy voters would favor tweaking the rules around the UK’s most hated tax rather than abolishing it altogether.

Cutting the rate at which inheritance tax ischarged, or raising the value of the estates on which it is applied could deliver a popular tax cut without completely discarding a valuable source of tax revenue.

WC also asked investors what one policy they would introduce if they were Chancellor. The top five choices were:

1. Combine Income Tax and NICs
   • This is a non-starter for me, as it would mean paying NIC on pensions, including the State Pensions, which is funded by NICs.
2. Reduce NIC for those over retirement age or with disabilities, to boost their employment
   • I prefer this version, which runs contrary to the top suggestion
3. Abolish any tax which raises less that £1bn
   • Another good idea
4. Reintroduce VAT-free shopping for tourists
   • I like this one, too.
5. Unfreeze tax thresholds
   • This is my personal favourite

Nicholas Hyett said:

Wealth Club clients generally seem sympathetic to the balancing act that government’s have to handle when making tax decisions. Tax cuts need to deliver economic returns or support wider social goals to justify them.

There are some areas where fairness is at stake though, and reintroducing inflation linked tax thresholds is one area where high net worth investors feel there is room for particular improvement. High net worth investors have been particularly hard hit by those freezes.

Economist

The Economist wish list took the form of a memo to the Chancellor from a fictitious Treasury Advisor.

• It assumed between £15bn and £20bn of fiscal headroom
• It recommended a cut to NICs rather than income tax (which also applies to income from savings, pensions and property, rather than just work)
• It recommended a cut to the rate rather than an increase in thresholds, on grounds of increased visibility
• But on balance, tax should not be cut, as if any economic stimulus is required later in the year, the Bank of England can provide it by cutting interest rates
• It recommended abolishing SDLT to unlock the housing supply through downsizing, rather than abolishing IHT which only impacts 4% of estates
• It would prefer this to be combined with a reform of council tax (ie. increases on expensive homes) but this is not politically acceptable in an election year.
• Abolishing SDRT (on shares) is also a good idea – it would boost share prices by 2% or more, at a cost of £4 bn
• Marginal tax issues at £50 and £100K should also be removed
• VAT exemption should be removed and the registration threshold lowered

Speculation

Remember that a lot of speculation relevant to an investment blog is produced by investment firms and accountants in order to provoke action (overreaction?) from clients and investors in advance of draconian measures that rarely appear.

Notes in blue indicate what actually happened, which for most Budgets is a lot less than was predicted.

Income tax and NIC

A potential 2% cut in either income tax or NICs was discussed, though it was not clear if there was enough headroom to support it.

• So a 1% cut was also possible, most likely to NICs.

We got a 2% cut to NICs.

• The child benefit penalty was moved to £60K of income and will transfer to a household-based system from April 2026.

Capital gains and Inheritance tax, wealth taxes

The abolition of IHT – at a cost of £5.7bn – was suggested once again.

• Despite being paid by only 4% of estates, the tax is widely hated.

The abolition could hit AIM shares, which are IHT-exempt

• Removing it would also remove the incentive to pass down gifts across generations

One potential surprise could be the Tories stealing the Labour proposal to abolish non-dom status, potentially raising £3.6bn from around 70K non-doms.

IHT remains, but the non-dom regime will be replaced with a “more modern” (and presumably less generous) version.

VAT

The hospitality sector has called for VAT cuts to help them deal with challenging conditions post- Covid (including an increase in the minimum wage).

There were no VAT cuts, but the registration threshold was increased to £90K of annual turnover.

Corporate tax

Full expensing might be extended to leased assets.

• I don’t think this was mentioned.

Investments and pensions

The big talking point was the British ISA, which was first raised before last Autumn’s budget.

• Would we get an additional ISA allowance to invest in the UK?
• Or more problematically, might existing and/or future ISAs be forced to invest partially or completely in the UK?

The full-on switch of existing ISAs to the UK would be an enormous change.

• I have 19% of my wealth in ISAs, and only 10% of that in the UK – and I wouldn’t want to increase that allocation (it would be a bad idea from a diversification perspective).

In a related move, The Treasury has announced that DC pension schemes will be required to publicly disclose their allocation to UK stocks.

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There was also speculation that stamp duty on shares might also be abolished.

And some had called for LISAs to be extended to those aged up to 55, and that the penalty on emergency withdrawals should be removed.

• The £450K limit on properties the LISA can be used against might also be increased, potentially opening up more of London to first-time buyers.

The consultation on “lifetime pensions” has also been completed, so we might get an update on the “pot follows worker” plan.

There was nothing on LISAs or stamp duty or lifetime pensions, but we got the British ISA or at least a consultation on introducing one.

• It’s just £5K pa, but UK ETFs and ITs may be allowed (as well as bonds).

There will also be a new NS&I three-year bond, though who knows if the interest rate will be competitive, or whether it will come with tax breaks.

Property

There was speculation that a 99% mortgage underwritten by the government would be offered to first-time buyers.

• This is an extension of the existing Mortgage Guarantee Scheme, which supports 95% loans at present.

This would most likely push up house prices (and the share prices of housebuilders), though it might help the relative position of first-timers.

• It could also lead to negative equity down the line.

Stamp duty was also discussed, but since there is a stamp duty holiday at present, extending this would not have much impact on voters – and full abolition might be too expensive.

And there was a rumour that the special rules around holiday lets (particularly the deduction of mortgage interest from takings) would be abolished, putting them on a level playing field with regular BTL.

There was no 99% mortgage guarantee.

• But CGT on home sales was cut from 28% to 24%.

And the stamp duty relief on buying multiple dwellings at once was axed.

Sin taxes

Fuel duty might be cut or frozen, as it is a tax change that a lot of people register very quickly.

There was also talk of a new tax on vapes, or possibly the extension of tobacco duty to nicotine products.

• This might require an increase in the tax on cigarettes, to maintain a differential with vapes.

Fuel duty and alcohol taxes were frozen, and we got the new tax on vapes and the increased tobacco duty.

• And air passenger duty was increased for business- and first-class.

The “windfall tax” on oil and gas profits was extended to 2029.

Surprises

I didn’t spot any, other than the CGT cut.

Conclusions

It’s another nothing-burger for me – as a semi-retiree, the NIC cuts don’t help much.

• IHT remains, the stamp duty of both flavours remains, and the income tax allowances remain frozen.

And whilst it is great that the ISA allowance will eventually rise to £25K pa, the British ISA is a poor thing.

• It’s only £5K, and it has no extra incentives above an unrestricted ISA – indeed, given that stamp duty on shares wasn’t abolished, it has a disincentive (above and beyond having to invest in crappy UK shares).
• Given that only 15% of ISA investors max out each year, I expect take-up to be even lower than that (on a similar note, I think the government will struggle to sell NatWest shares – which are already freely available – without an incentive).

The abolition of the holiday lets regime is another blow, but at least it’s happened before I bought a seaside cottage.

• I’m not convinced this will have the intended effects, and I hope that the price of property with a view will fall.

But overall, this was a quiet fiscal statement for private investors.

• If only the same could be said for the looming Labour budget of 2025.

Until next time.