From national insurance (NI) cuts to individual savings account (ISA) changes, chancellor Jeremy Hunt laid out plans to help ease the pain of the rising tax burden and boost UK investment in his Spring Budget on Wednesday.

Below, we’ve listed the key changes and what they might mean for you.

National insurance cut

In a welcome move for employees, the chancellor announced that the main rate of employee NI will fall from 10% to 8% from 6 April. This will be the second time in three months that the rate has fallen – it was already cut by two percentage points in January.

For an employee on the national average salary of £35,400, today’s announcement will bring an additional tax cut of over £450 a year¹. When you factor in the previous NI reduction, it makes for a total tax saving of £799 in 2024-25 versus the current tax year. For higher-rate taxpayers, this increases to £1,320².

It might not seem like a lot, but if you don’t need the extra cash, saving it into a pension would see those amounts boosted to £998.75 and £1,650, respectively. This is because personal pension contributions benefit from tax relief, so for every £80 you save into a pension, the government adds £20. Over time, adding your extra take-home pay to your pension could make a big difference to the size of your pot at retirement.

For the self-employed, the Class 4 NI rate will fall from 9% to 6% from 6 April. This is a bigger reduction than previously announced in the autumn statement. There will be no liability to pay Class 2 NI on profits above £12,570.

New ‘UK ISA’

In a bid to encourage investment in the UK, a new ‘UK ISA’ will be introduced. The government is going to consult on the details, but it will give investors an additional £5,000 ISA allowance when investing in UK-focused investments. This will be on top of the current ISA allowance, which remains at £20,000 for the 2024-25 tax year.

The UK ISA aims to support UK capital markets and encourage investment among the UK population. In our view, however, it’s important to remember that investing in the UK is just one part of the picture. Holding a globally diversified portfolio – one that spreads your money across different regions and assets – is a key part of successful investing.

Pension ‘pot for life’

The chancellor said the government will continue to explore the launch of a pension ‘pot for life’, which he first mentioned last autumn. Under the proposals, employees would be able to choose the pension that their employer pays into and then take that pension with them when they change jobs.

This would mark a major shift from the current position, where you’re automatically enrolled into a pension scheme chosen by your employer. When you change jobs, you then start a new pension chosen by your new employer.

Having one pension pot would make it easier to keep track of your pension savings and give a clearer picture of how much you’re on course to retire with. Currently, around one in 11 people change jobs every year³ and they can accumulate several pensions along the way. Trying to keep track of multiple pensions isn’t easy – nearly 3 million pensions in the UK are lost or forgotten about⁴. For more on tracking down forgotten pensions, read our guide on how to track down a lost pension pot.

When you’re choosing a pension, it’s worth remembering that fees can vary from one provider to another. Costs can really eat into your returns over time, so make sure you understand all the charges involved before signing on the dotted line.

Child benefit reforms

The chancellor also announced upcoming changes to the child benefit high income charge.

Currently, families must start paying back child benefit when the highest-earning partner earns over £50,000 in a given tax year. Once income reaches £60,000, they pay the whole lot back. The way it is tested means that a household with two parents each earning £49,000 a year retain child benefit in full. However, a household earning less overall but with one parent earning over £50,000 will have to pay some or all of it back.

The government will look at changing the rules so that it’s tested according to household rather than individual income. These changes would come into effect in April 2026.

In the meantime, from 6 April the threshold for the charge will rise from £50,000 to £60,000 and the point at which child benefit is repaid in full will increase from £60,000 to £80,000.

If you’re going to retain child benefit as a result of the changes but don’t need the extra cash, you could consider investing it in a junior ISA. If, for example, a parent invested £100 a month⁵ in a junior ISA for their three-year old, their child could have a pot worth £37,421 by the time they turn 18, assuming an annual investment return of 5% after fees. This could go a long way towards helping your child pay for their university education or put down a deposit on their first home.

Capital gains tax on property

The chancellor announced a reduction in the rate of capital gains tax (CGT) on residential property.

When you sell a residential property that isn’t your main home, you pay CGT on any profits that exceed your annual CGT allowance. Currently, higher-rate taxpayers pay CGT at 28% on gains from residential property, but this will be reduced to 24% from 6 April. The rate for basic-rate taxpayers will remain at 18%.

When you sell other assets such as shares, the CGT rates are 20% and 10%, respectively⁶.

The overall tax burden is rising

Looking beyond the headlines, it’s worth noting that the overall tax burden is rising. Income tax thresholds remain frozen, which can pull more people into paying taxes at a higher rate. By the 2027-28 tax year, 14% of UK adults are expected to pay higher-rate income tax, up from 11% in 2022-23 and just 3.5% in 1991-92⁷.

Taking advantage of tax-efficient pensions and ISAs, where appropriate, is one way of managing frozen tax thresholds. The current tax year ends in a few weeks’ time on 5 April, which is the deadline to invest this year’s ISA and pension allowances to shelter your investments from tax on income and profits.

Measures already announced for 2024-25

With the new tax year just around the corner, it’s worth recapping some of the previously announced measures that will come into effect on 6 April:

• Removal of the pension lifetime allowance: The lifetime allowance (currently £1,073,100) is a limit on how much you can build up in pensions without triggering a tax charge when you come to access your pension benefits. The tax charges for going over the lifetime allowance were abolished a year ago, and the lifetime allowance itself will be removed from 6 April. The 25% tax-free lump sum will be capped at £268,275 across all your pensions.
  
  
• Multiple ISAs: From 6 April, it will be possible to open and pay into multiple ISAs of the same type in the same tax year, so long as you stay within the current ISA allowance of £20,000.
  
  
• Cuts to tax allowances: For those investing outside an ISA, the amount of tax-free profits you can make will be halved to £3,000 for the 2024-25 tax year and the amount of tax-free dividends you can earn will be halved to £500.
  
  
• State pension: The state pension will increase by 8.5% to £221.20 per week. This works out at approximately £11,500 a year.
   

Notes: All data in this article are sourced from Spring Budget, HM Treasury, March 2024 and reflect information available at the time of publication.

¹ Spring Budget, HM Treasury, March 2024 – section 3.6.

² Source: Vanguard calculations.

³ The Analysis of job changers and stayers report concluded that on average, around 9% of people changed jobs each year between 2000 and 2018, ranging from a post-recession low of around 5.7% in 2010 to a high of around 10.9% in both 2017 and 2018.

⁴ Pensions Policy Institute briefing note 134, published 27 October 2022.

⁵ The proposed child benefit rate for an only child in 2024-25 is £25.60 per week, which is just over £100 per month.

⁶ HMRC capital gains tax rates.

⁷ Institute for Fiscal Studies report, published 16 May 2023.