4 ways to get the most from Budget tax savings
Many workers will gain hundreds this year from the latest cuts to national insurance – what’s the best way to use the money?
The chancellor’s latest 2p cut on national insurance (NI), combined with January’s 2p cut, will see Brits who earn an average salary of £35,400 save around £900 a year in NI contributions starting from 6 April.
Despite income tax bands remaining frozen, about half of employees – the 14 million earning between about £26,000 and £60,000 a year – will still be better off from the latest changes in the coming year, according to the Institute for Fiscal Studies think tank. Other employees earning enough to pay NI or income tax will be worse off, however, because the cuts to NI “are more than offset by other tax rises”.
If you’re among the fortunate group, there are several ways you could put this money to work – from paying off debt to turning it into £1,136 in time for your summer holiday in 2025.
4 ways to use the savings
1. Cut your debt. Before you consider saving or investing money, the priority is to pay off debt on credit cards and loans, to get your finances into better shape so you’re not paying interest. To give yourself some breathing space on credit card debt, it’s worth considering a balance transfer credit card – our full guide compares these deals and you can check which cards you’re eligible for with our free checker that doesn’t affect your credit score. The key is to pay off your balance before the 0% period finishes.
2. Switch your bank account and ring-fence the savings. If you took advantage of the current switching deal from NatWest, you’d get a £200 switching bonus plus access to a savings account paying 6.17% AER, which is a pretty decent rate. If you drip feed the bonus plus the extra £75 a month from NI savings into this high-earning savings account, you’d be saving £92 a month and have £1,136 in a year.
3. Consider investing it with a stocks and shares ISA. From 6 April, the tax-free allowance on capital gains will halve to £3,000 a year. So it’s more important than ever to take advantage of tax-free ISAs if you plan to invest (although it’s also worth noting that all investing comes with risk). Historically, stock markets have tended to give a better return than cash savings over long periods of time, so you could consider an exchange-traded fund that tracks global stock markets. Our guide on how to buy shares explains more about what to consider.
4. Top up your pension. If you don’t need the cash you’re saving straight away, consider topping up your pension as this could be worth much more when you eventually retire. The wealth manager Evelyn Partners says a 25-year-old earning £35,000 could be nearly £80,000 better off by age 67 if they paid the (roughly) £37 a month saved with the latest NI cut straight into their pension monthly.
How much will you save on NI?
This table shows the savings that those on various salaries will make from the cuts to their NI contributions, starting from 6 April, 2024.
| Salary (£) | 12% NI (£) | Saving with 8% NI, from 6 April, 2024 (£) |
|---|---|---|
| 30,000 | 2,091.60 | 697.20 |
| 34,963 | 2,687.16 | 895.72 |
| 40,000 | 3,291.60 | 1,097.20 |
| 50,000 | 4,491.60 | 1,497.20 |
Table source: Quilter
About the author
Liz Edwards is editor-in-chief at finder.com. She’s been a consumer writer and editor for more than 20 years, led award-winning teams at the campaigning publisher Which?, and has covered a range of consumer rights and personal finance topics including pensions, credit, banking and insurance. Liz has appeared frequently in national media such as The Sun, Metro, HuffPost and The Independent. She loves to cut through waffle to give consumers the real lowdown.
This article originally appeared on finder.com/uk and was syndicated by MediaFeed.org.
