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Chancellor Jeremy Hunt announced a brand new UK ISA on Wednesday – one designed to encourage more people to invest in the UK.

The new ISA will allow people to invest an extra £5,000 a year in UK investments and enjoy all the usual tax benefits – with no UK income or capital gains tax paid on any money it makes. This is on top of the £20,000 people can already currently put into their ISAs each tax year.

Irene Wolstenholme, Wealth Planning Specialist at Coutts bank, said, “This is a positive for investors. It’s effectively a brand new tax allowance, and means more of the money you invest could be eligible for the tax advantages of an ISA.”

Lower National Insurance for employees and self-employed

Other changes announced in the Budget include further National Insurance cuts – the government first reduced the tax in last November’s Autumn Statement. From 6 April:

  • the main National Insurance rate for employees will be cut by a further two percentage points, to 8%
  • self-employed, ’Class 4’ National Insurance, paid on profits between £12,570 and £50,270, will also be cut by another two percentage points, to 6%.

As previously announced, ‘Class 2’ National Insurance, which is also paid by the self-employed earning over a certain amount, will be abolished. That change, again, will come next month.

The Chancellor also signalled that the government wants to make further reductions when it can.

Child benefit changes

Mr Hunt announced a consultation on changes to child benefits that would see it apply to total household incomes rather than those for individuals.

He also made two changes that will apply from April:

  • households will receive full child benefits if the highest-earning parent makes up to £60,000 a year, up from £50,000 currently
  • child benefit won’t be withdrawn completely until the highest earner makes £80,000 a year – up from £60,000 currently.

New property rules – good for sellers, bad for holiday homeowners

There was also good news for people selling residential property, although some might say it was offset slightly by a couple of specific tax reliefs being scrapped.

The Chancellor said the government would reduce the higher rate of property capital gains tax – the amount you’re taxed on the profit you make from selling a residential property that isn’t your main home – from 28% to 24%.

But he also removed a couple of tax breaks that benefit those who rent out holiday homes - the Furnished Holiday Lettings regime and Multiple Dwellings Relief, a stamp duty relief for those who buy more than one place at once.

New rules for non-doms

The Chancellor is changing current tax rules for people who live in the UK but consider their permanent home to be abroad – known as ‘non doms’.

Broadly, people with non-dom status pay UK tax on the money they earn in this country, but not on money they earn overseas unless they bring it into the UK.

The new system means that, from 6 April, 2025, new UK residents won’t have to pay UK tax on the money they make abroad during their first four years here – even if they bring it into the country. This includes anything they make from foreign trusts. But after those four years, they will need to pay UK tax on their worldwide income.

What was the Budget’s impact on investment markets?

Markets were largely unmoved immediately after the Budget, although there was a small share price bump among smaller UK firms in light of the new ISA aimed at British business. Sterling also rose slightly against the dollar, but not by much.

More generally, compared to other developed markets, UK stocks have shown lacklustre performance since the start of 2023. The FTSE 100 tends to perform better in higher interest, higher inflation environments, and interest rates are expected to be cut this year as inflation settles down.

As for the economy, the UK slipped into recession in the last three months of 2023, but Lilian Chovin, Head of Asset Allocation at Coutts, the bank behind the Royal Bank Invest funds, said there were signs conditions could be improving.

“We expect the recession to be short-lived and shallow,” he said. “We’re seeing improving trends and signs of green shoots in the economic data coming through.”

When will UK interest rates come down?

Lilian said, “With inflation falling, markets now expect the Bank of England to cut interest rates some time between June and August. And we may see two more cuts by the end of the year.”

The Coutts team currently holds fewer UK stocks than their benchmark, preferring equities in the US where the economy and company earnings are more robust.

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