A short note on politics and my FIRE campaign.

Political broadcast!

I do not care about your political leanings. I’m not even sure at this point in my life if I still have any core political beliefs of my own. This isn’t an endorsement or condemnation of any government policies, I don’t really care if “Party X would have been better/worse”. This is just my look at what the situation is.

Rachel Reeves’ big hits

There was a lot of faff in this week’s budget announcement, which is now par for the course in UK if not global politics.

The things that I thought were worth noticing have been summarised below.

No.1 – Inflation is still going to outpace growth

The UK’s Office for Budget Responsibility allegedly reckons growth will be 1.1% in 2024, 2% in 2025 and 1.8% in 2026. The Chancellor reported that inflation will be 2.5% this year, 2.6% in 2025 and 2.3% in 2026.

So for the next three years – taking into effect compounding – we’re expecting our economy to have grown by 4.98% by the end of 2026, but everything ought to be on average 7.58% more expensive.

Why this matters

You will want a pay rise of at least inflation to maintain your ability to save. The difficulty settings are likely to be increased by 7.58% by 1 January 2027. However, your employer isn’t expecting that their market would have that much room to grow in it.

I’d expect that the manpower bill will be scrutinised heavily this year and “efficiency savings” are likely to be a big feature of most companies. Which takes us to our next point…

No.2 – You’re going to cost your employer more now

National Insurance is now increasing by 1.2% on the employer’s side. This means you will be 1.2% more expensive before you even ask for that pay rise you’re going to want.

Why this matters

You’re going to go into negotiations with a view to getting that 2.5% minimum pay rise this year, but your boss is already reading this in as 3.7% (plus the extra bit of NI on your pay rise, but that’s splitting hairs at this point). The industry you’re in and the profit margins it customarily maintains will determine whether or not this is going to be something your employer is willing to tolerate.

It’s not actually a big deal in principle, provided that your employer either makes earning increases, improves its profit margins or grows its market share; but in practice, you’re asking your boss to willingly take on increased performance targets.

Suffice to say that pay negotiations will be harder this year while companies adapt to the new normal.

No.3 Stamp Duty Land Tax increase by 3%

SDLT is what you pay on properties when you buy them. There’s a base line threshold which covers a lot of first time buyers, but then again a lot of first-time buyers move into a small flat at first then look to buy a larger family home later when children become a factor. The tax is banded, so you pay a smaller percentage for the first £250k (which will now drop to the first £125,000 from April 2025) of your purchase than you do for the next bracket, and this increases once you start hitting million pound properties.

I used the Gov.uk Stamp Duty Land Tax calculator to help me with this section. I’m not certain it has been updated, but it’s the easiest way of doing to sums.

To be fair: for this kind of purchase, the increase isn’t that significant, albeit it’s a cost to acquisition. A £360,000 home outside of any first time buyer’s relief has an SDLT of £5,500, which isn’t nothing but isn’t that big a deal if you’re now buying the forever home.

However: landlords in the UK pay an extra 5% on top of the stated bands. Oh yeah, there’s an overseas investor surcharge on that too.

This means that a £360,000 buy-to-let has an SDLT charge of £23,500 attached, and similarly a £200,000 buy-to-let has an SDLT charge of £10,000. If I buy that same £200k property as a Channel Islands resident, I’d pay £14,000 SDLT.

What this means

I reckon that this will disincentivise smaller landlords, since a couple in their 50s who are looking to add a single buy-to-let property to their retirement portfolio will instantly lose out at the point of acquisition. Given that they might need to sell the property at some point – possibly to fund later in life care costs – this is a bit of a put off.

For financial independence campaigners: BTL is probably not a great shout in the current climate.

We were contemplating buying a home to rent out while we travelled on our boat plan, so that we had somewhere to return to afterwards, but I’ve pretty much written the UK off as a destination for that now. £14,000 in SDLT plus acquisition costs of, say, £3,000 are just pointless for a £200k flat that would bring in maybe £7,000-9,000 per year before tax and mortgage interest.

Screw it, we may never return to mainland UK in any permanent capacity.

It’s also a problem if you’re renting (or planning to rent). I’d expect any incoming landlords to pass the costs of business off onto their tenants by increasing the rent demands. Plus, if there are fewer landlords, then the few remaining have the benefit of demand for their product being lower than supply, so all rents are likely to increase anyway.

This is on top of inflation, since the UK Government figures for inflation are “Consumer Price Index” figures that exclude housing costs. Your experience may differ.

No.4 – Capital Gains Tax boost

I’m presuming that most of my readers are savvy financial independence campaigners who use intelligent tools like ISAs and pensions to effectively minimise their tax burdens.

This means that most of you probably won’t pay any capital gains tax anyway. Well, not on your main FIRE pot. Anyone who dabbles with crypto might, and any big payers who are investing way above the £60k per year ISA-and-pension tax-advantaged combo (good for you!) may get caught out.

Capital gains tax is controversial because you’re taxing money that has already been taxed when it was earned as income. It’s often seen as a punishment for putting money to work rather than spending it all on, say, beer and easy women.

Capital gains tax is in two flavours: “low threshold” and “high threshold”. I’m not going to mess around explaining these here, but rates have gone up from 10% and 20% respectively to 18% and 24%.

What this means

If you can avoid paying capital gains tax, you should.

Still, for most of you: stick to the basics of ISAs and pensions. When you get outside that, other tax advantaged options exist like Venture Capital Trusts (that invest in startups and get Enterprise Investment Scheme reliefs) and Royal Mint gold coins (which are tax exempt). There are other assets like “wasting assets” (usually wine and whisky) that are also tax advantaged in some way, but we’re now hitting the weird and wonderful if not downright speculative.

If you don’t have an ISA and you’re an UK resident, I have to ask you: why do you especially love paying tax? Do you hate money? What is your alternative option?

Final thoughts

To be honest the problem with elections is that it’s generally the government who get in. You change colour 1 out for colour 2. Occasionally a third or fourth colour gets involved, but it’s more for media variety than actual effect.

This budget is kind of the same. You’re heavily incentivised to not pay any of the increased taxes, but for financial independence campaigners who exploit the ISA and pension offerings this is kind of a marginal thing anyway.

I’m personally a little put out by the SDLT increases, but all this means for me is that I’ll have to (a) chin off any ideas of a buy-to-let asset for now, and (b) consider the reality that I may not return to the UK after I’ve hit CoastFI and set off sailing, because the trend of using tax to disincentivise small landlords is probably going to continue for the foreseeable future.

Not the end of the world, but I guess I’d always secretly hoped that I’d return to mainland UK eventually. Right now that doesn’t seem sensible. Then again, who knows what the future will bring?