Today, Chancellor Jeremy Hunt unveiled his second Spring Budget. It offers insights into the state of the UK economy and outlines the government’s fiscal strategies for the upcoming year. As the general election looms, many are curious to learn about any incentives or perks the government has introduced for both the electorate and businesses.
The impact of tax changes announced are summarised below.
Impact on personal finances
Further fall in employee National Insurance contributions (NIC)
As anticipated, the Chancellor has identified headroom to implement a further reduction of 2 percentage points. This reduces it from 10% to 8%, effective from April 2024.
Together with the previous 2% drop following the Autumn Statement, this represents a reduction in this tax charge by one-third. It means that a person earning £35,400 will be more than £900 a year better off.
High Income Child Benefit Charge (HICBC)
From April 2024, Child Benefits will be subject to the HICBC. This will be at a rate of 1% of benefits received for every £200 the highest paid parent exceeds £200. Meaning that when the highest paid earner’s income exceeds £80,000, all Child Benefits will be recovered.
For new Child Benefit claims made after 6 April 2024, any backdated payment will be treated for HICBC purposes as though entitlement fell in the 2024-25 tax year. This is if backdating would otherwise create a HICBC liability in the 2023-24 tax year.
Capital Gains Tax (CGT) on UK residential property sales
Also from April 6, 2024, the government is lowering the higher rate of CGT for residential property gains. They are reducing it from 28% to 24%. The lower rate of 18% will still apply to gains falling within an individual’s basic rate band.
The 18% and 28% rates of CGT applying to gains regarding carried interest remain unchanged from 6 April 2024. These rates previously mirrored those for CGT on disposals of residential property.
Restriction in scope of Agricultural Property Relief and Woodlands Relief
The government will limit the scope of Agricultural Property Relief and Woodlands Relief to property within the UK. Properties situated in the European Economic Area (EEA), the Channel Islands, and the Isle of Man will be treated similarly to other properties located outside the UK. These changes will come into effect from 6 April 2024.
Stamp Duty Land Tax – Multiple Dwellings Relief (MDR)
The MDR is being abolished. This change will come into effect for transactions with an effective date on or after 1 June 2024. Transitional rules mean that MDR can still be claimed for contracts which are exchanged on or before 6 March 2024. That is regardless of when completion takes place. This is subject to various exclusions, for example that there is no variation of the contract after that date.
Changes to Non-UK Domiciled tax rules
From 6 April 2025, the government plans to replace the remittance basis of taxation for non-UK domiciled individuals. They plan to replace it with a simpler residence-based regime. Individuals opting into this regime will not have to pay UK tax on foreign income and gains for their first four years of tax residence.
Overseas Workday Relief (OWR) will be reformed with eligibility for the relief based on the new regime. OWR will continue to provide Income Tax relief for earnings from duties conducted overseas for the first three years of tax residence with restrictions on remitting these earnings removed.
The government has additionally declared an intention to transition to a residence-based regime for Inheritance Tax. There are plans to release a policy consultation on these changes, followed by draft legislation for technical details later in the year.
A new ISA
The government plans to introduce a new British ISA for investments in UK equity, which will have its own annual allowance of £5,000. They will release more details about this new scheme later in the year.
Flat lining Income Tax rates and allowances
The Budget announcements did not ease one area of personal tax, the fiscal drag. The freezing of the Income Tax personal Allowance and High Income Threshold created the fiscal drag.
The Income Tax Personal Allowance, currently at £12,570, and the higher rate threshold, currently at £50,270, have remained relatively unchanged for over four years. If your income exceeds these thresholds, you will pay Income Tax at a rate of 40%, not 20%.
In the same period, the Consumer Prices Index (CPI) has increased from 108 to 132. To keep pace with inflation, based on the CPI increase, a £45,000 salary in April 2020 would now need to be £55,000 to maintain the same purchasing power. And as the higher rate threshold has remained unchanged, at £50,270, the top £4,730 will be taxed at 40% not 20%.
Based on the CPI change, the present Personal Allowance should be circa £15,400. The Higher Rate threshold should be £61,400 to maintain their monetary value.
The Income Tax Personal Allowance and Higher Rate Threshold will remain unchanged. It will not be reviewed again until April 2028.
Vaping Products Duty
The government has published a consultation on the detailed design and implementation of the duty, which will close on 29 May 2024. Registration for the duty will open on 1 April 2026. The duty will take effect from 1 October 2026 alongside a proportionate increase in tobacco duties.
The duty will apply to liquids for use in vaping devices and e-cigarettes at the following rates:
- £1 per 10ml for nicotine free liquids
- £2 per 10ml for liquid containing nicotine at concentrations between 0.1 to 10.9mg per ml
- £3 per 10ml for liquids containing nicotine at concentrations 11mg per ml, or above
Alcohol Duties
Fuel Duty main rates
The rates of Fuel Duty introduced at Spring Statement in March 2022, and extended at Spring Budget in March 2023, will undergo a further 12-month extension.
The changes will take effect from 23 March 2024.
Impact on UK businesses
VAT registration threshold increase
The government will increase the taxable turnover threshold that determines mandatory VAT registration from £85,000 to £90,000. Additionally, the taxable turnover threshold, which dictates eligibility for deregistration, will see an increase from £83,000 to £88,000.
Smaller traders approaching the current registration threshold of £85,000 will benefit from this, as they genuinely prefer not to register, given their inability to pass on the 20% VAT to their customers.
NIC cuts for the self-employed
No change in Corporation Tax (CT) rates
Abolition of the Furnished Holiday Lets (FHL) tax regime
In a surprising announcement, the government plans to eliminate the current favorable tax benefits of letting properties as short-term holiday lets from April 2025.
The government will publish draft legislation at a future date, incorporating an anti-forestalling rule. This rule aims to prevent individuals from obtaining a tax advantage through the use of unconditional contracts to secure capital gains relief under the current FHL rules. The rule is set to apply from 6 March 2024.
Full expensing to be extended to leased assets
The current full-expensing scheme and the 50% first-year allowance for special rate assets do not allow claiming full expensing for leased plant or machinery.
However, the government is planning to introduce draft legislation that will include leased assets in these tax reliefs.
Support for independent film makers
Permanent extension for higher rates of Theatre, Orchestra and Museums and Galleries Tax Reliefs
This change impacts the permanent extension of the headline rates of relief for Theatre Tax Relief, Orchestra Relief, and Museums and Galleries Exhibition Tax Relief, set at 40%/45% for non-touring/touring and orchestral productions, respectively. These rates will become effective from 1 April 2025.
Energy Profits Levy — One Year Extension
Our Summary
The Chancellor, in terms of taxation, has created new regulations while abolishing as much as he has established, resulting in no radical changes in this Budget.
The Chancellor actively scored points against the opposition parties in his Budget speech to Parliament. We will have to wait and see if the Budget’s contents prompt the Prime Minister to opt for a May general election by delivering a substantial increase in polling.
As always, please feel free to get in touch with our expert team for more information on any of the announcements described in this short update – we’re always happy to discuss what’s changing for you and your company,
