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Instant Budget reaction and analysis

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October 30, 2024

TLDR: Chancellor Rachel Reeves' budget detailed: changes to national insurance, inheritance tax, and minimum wage discussed; exploration of potential future changes on child benefit and stamp duty.

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In this special episode of the Martin Lewis Podcast, host Martin Lewis delivers immediate analysis of Chancellor Rachel Reeves’ recent budget announcement. This episode breaks down key changes across various sectors including national insurance, inheritance tax, and minimum wage, while also addressing hidden implications for child benefits and stamp duty assumptions.

Key Changes and Their Impacts

National Insurance

  • Increase for Employers: The national insurance contribution for employers will rise from 13.8% to 15%, with a also a significant drop in the threshold from £9,100 to £5,000. This translates to an additional cost of approximately £615 per employee for businesses, which could lead to increased consumer prices or reduced salaries.
  • Effects on Employees: While this shift does not directly increase taxes for employees, it could indirectly affect their earnings and job security, primarily in industries heavily reliant on minimum wage workers.

Minimum Wage

  • Upcoming Increases: From April, the minimum wage for over 21s will rise from £11.44 to £12.21 and from £8.60 to £10 for ages 18-20. These increases aim to align closer with the Real Living Wage.
  • Employment Considerations: It's crucial for employees to ensure that their employers adjust wages accordingly, especially considering the implications of increased employment costs for businesses.

Child Benefit Reform

  • No Changes to Thresholds: Despite previous discussions about reforms based on household income instead of individual income, the policy remains unchanged with individuals starting to lose benefits at £60,000 earnings and losing them completely at £80,000.
  • Consequences for Families: The absence of household income assessment retains an inequity in the system, impacting families with varying earnings structures.

Stamp Duty Implications

  • Increase for Second Homes: From tomorrow, the additional stamp duty for buying second homes will increase from 3% to 5%.
  • Expiring Thresholds: Also noteworthy is the impending rollback of the temporary increase in the stamp duty threshold from £250,000 back down to £125,000, scheduled for next April.

Inheritance Tax Details

  • Status Quo on Thresholds: The current inheritance tax thresholds remain unchanged and frozen until 2030, leaving many estates unaffected.
  • Changes in 2027: Important is the introduction of pensions into the inheritance tax regime in 2027, which could significantly impact estate valuations with potential tax burdens for beneficiaries.

Other Notable Announcements

  • Care Allowance Changes: Eligibility for carer's allowance will see an increase in the earnings threshold from £151 to £196, reducing the risk of losing benefits due to minimal income overages.
  • Fiscal Drag: The budget highlights a continued fiscal drag until 2028, meaning more taxpayers will unknowingly contribute more as income thresholds remain static against rising earnings.

Additional Considerations

  • State Pension Adjustments: Confirmation that the state pension will rise by 4.1%, with specific increases noted for both new and old state pension values.
  • Unaddressed Issues: Several anticipated issues were not mentioned, including the need for adjustments to lifetime ISAs for young buyers, student maintenance loans, and support for those affected by the Waspi situation.

Conclusion and Takeaways

This special podcast episode with Martin Lewis provides a detailed yet digestible overview of the recent budget implications. Key points to remember include:

  • Anticipate increased costs due to national insurance and stamp duty changes, particularly for families and employers.
  • Keep an eye on remaining inequities, particularly in child benefit and care allowances.
  • Stay informed on state pension updates and the looming changes to inheritance tax regarding pensions.

For anyone looking to manage their personal finances, these insights can serve as crucial markers in understanding how the latest budget can affect your pocket in the immediate future.

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