The 2024 Spring Budget
The main themes in the Spring Budget delivered by Chancellor, Jeremy Hunt, on 6 March were growth, public services and lower taxes. On growth, there was relatively little to excite – the Office for Budget Responsibility upgraded its forecast for the current year by 0.5% and now predicts the UK economy to grow by 0.8% in the current year, and 1.9% next year. Whilst this may be higher than the economies of Italy, Germany and France, the figures are hardly eye-catching. For public services, additional funding of £3.4bn was announced for a new Productivity Plan for the NHS, aimed at upgrading the NHS IT system and reducing the paperwork burden on medical staff.
Tax was always going to be central to this pre-election Budget, and, as widely expected, the Chancellor was keen to set out his commitment to lowering taxes. Given that the current tax burden is the highest for some 70 years, there was some expectation that the basic rate of income tax could reduce, or tax thresholds (frozen since 2021) tweaked to reflect higher rates of inflation. Instead, the Chancellor chose to continue with his path of reducing taxes on workers through National Insurance Contributions (NICs). From 1 January 2024, the rate of NICs on employees was reduced from 12% to 10%, and from 6 April 2024, the rate will reduce further to 8%. Rates of Class 4 NIC payable by the self-employed will be reduced to 6% from April 2024, and (as previously announced) Class 2 contributions abolished.
Addressing one of the well-publicised discrepancies in the UK tax system, the Chancellor announced that the High Income Benefit Charge (HIBC) will be moved to a household basis from 2026, following a period of consultation. In the meantime, the threshold at which the HIBC kicks in will be raised from £50,000 to £60,000, and the taper threshold increased to £80,000.
There were multiple announcements relating to property taxation: on the positive side, the 28% capital gains tax rate applying to residential property sales by higher rate taxpayers is to reduce to 24% from 6 April 2024, although, somewhat surprisingly, there is no change to the 18% capital gains tax rate paid by basic rate taxpayers on disposals of residential property.
The beneficial tax regime applicable to furnished holiday lettings (FHLs) is to be abolished from 6 April 2025, meaning that an FHL business will be treated in the same way as any other property letting activity. Whilst the Chancellor may be able to claim this measure as a “simplification” as it removes the need to report FHL profits and losses separately from other rental income, the removal of valuable reliefs such as “sideways” loss relief and capital gains tax holdover relief on disposals will be a disappointment to the sector.
In a measure clearly designed to take the wind out of Labour’s tax plans, the Chancellor announced the abolition of the “non-dom” regime from 6 April 2025. Those coming to the UK from abroad will instead be subject to a residence based regime, which allows foreign income and gains to escape UK tax for a period of four years. After the four year period, UK tax will be payable on a worldwide basis. There will be transitional measures for those who are currently claiming the remittance basis, including the ability to remit funds to the UK tax free for a one year period and to “re-base” foreign capital assets to their values at 6 April 2019. Further detail is awaited, but the announcement in the Spring Budget represents a fundamental shift in policy towards non-UK domiciled individuals, and whilst the Chancellor estimates that the new regime will raise £2.7bn, it remains to be seen whether international investors will seek more tax-friendly shores for their wealth in future.
The Highlights
Personal Taxes:
> The Furnished Holiday Lettings (FHL) regime is to be abolished from 6 April 2025. This will mean that short term lets currently under the FHL regime will be taxed the same as long term lettings and will be reported together on the Self Assessment tax returns. The Chancellor is due to announce draft legislation outlining how this regime is to be abolished and what this will mean for taxpayers with FHL properties.
> Multiple dwellings relief for Stamp Duty Land Tax is to be abolished from 1 June 2024. Multiple Dwellings Relief provides a reduction in the Stamp Duty Land Tax liability when more than one residential property is purchased in the same transaction but from 1 June 2024 will no longer be available.
> Reduction of the higher rate of Capital Gains Tax on residential properties from 28% to 24%. In an unexpected change, the Chancellor announced that from 6 April 2024 there will be a reduction in the higher rate of Capital Gains Tax for residential properties. Capital Gains Tax is currently charged at 18% or 28% on residential property depending on the individual’s income tax position. The change will reduce the higher rate to 24% however the lower rate of 18% is to remain.
> From 6 April 2024 the threshold for the High Income Child Benefit charge (HICBC) is changing to £60,000 with the full tapering threshold being increased to £80,000. The HICBC has widely been seen as an unfair charge as it only looks at the highest earner within a household. The HICBC is currently levied on individuals where someone within their household is claiming Child Benefit and their total income exceeds £50,000 (increasing to £60,000). The charge is currently 1% of the Child Benefit claimed for every £100 that the individual’s income exceeds the £50,000 threshold, however with the increase in the higher taper threshold to £80,000, the charge will be applied as 1% for every £200 the income exceeds £60,000.
> The Chancellor also announced that from April 2026 the HICBC will change to a household system which we hope will create a fairer system as all incomes of the household is taken into account and not just the income of the highest earner. Under the current regime you could have two earners with total income of £50,000 each with no HIBC being paid but in another household have one earner with income of £60,000 and another with no income paying back the full Child Benefit claim for the year.
> As expected, the Chancellor has announced an abolishment of the non-UK domiciled status from 6 April 2025 and replace this with a residence-based regime. Based on the information released by HMRC following the 2024 Spring Budget the new regime will be an opt-in system and will allow newly resident individuals to not pay UK income tax or Capital Gains Tax on foreign income or gains for the first four years of residence. Following a period of residence of four years, individuals will then be subject to UK tax on their worldwide income and capital gains. Those currently under the remittance basis regime will have a two-year transitional period to organise their affairs.
> In a move to increase the take-home pay of the workforce, the Chancellor announced cuts of 2% to the rates of National Insurance Contributions for both employees and the self-employed. From 6 April 2024, the rate of employee National Insurance is to be cut from 10% to 8% and for the self-employed the rates will be cut from 8% to 6%. Although no further changes were announced to the National Insurance system, the Chancellor made significant reference to the need to “make work pay”.
> A new £5,000 UK ISA is to be introduced on top of the current ISA allowances from 6 April 2024. This new ISA will have the same tax benefits as the current ISAs and will be for investments into UK equity and open up UK retail investment opportunities for individuals.
> Along with the UK ISA, British Saving Bonds will launched in April 2024 being offered by National Savings and Investments (NS&I). We understand these bonds will be similar to other products offered by NS&I and would include fixed rate interest for a three year period.
Business:
> Although not offering a timescale, the Chancellor has announced that full expensing on leased assets is to be brought in “when affordable”. Draft legislation is to be published shortly into this scheme but little information was provided into how this would be introduced.
> There was little in the way of updates for companies and businesses however one positive is the increase in the VAT registration threshold from £85k to £90k from 1 April 2024 which may help to support Small and Medium Enterprises. Although not announced during the Chancellor’s speech, further information provided by the government also confirms that the VAT deregistration threshold limit is also increasing by £5,000 from £83,000 to £88,000 from 1 April 2024.
Other:
> Alcohol Duty frozen until 1 February 2025
> From 23 March 2024 the Fuel Duty 5p cut is to be maintained and the duty will be frozen for a further 12 months.
> An excise duty on vaping products to be introduced from 1 October 2026 with registration opening from 1 April 2026.
> The temporary Household Support Fund to continue at current levels for further 6 months following an additional £500 million provision.
> The government is to set permanent higher rates of reliefs for the performing arts sector as well as museums and galleries. The rates will be set at 45%/40% from 1 April 2025.
> The Rates paid to childcare providers are guaranteed for further 2 years
> In the Chancellor’s opening segment he commented on the globally high inflation however the OBR has forecast that that inflation is expected to reduce to below 2% in the next 2 months which is a year earlier than expected.
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