Spring Budget 2024

Across the political spectrum there is a commitment to reduce the level of debt and get the economy growing. But the current forecasts show low growth and high debt costs - exactly where you do not want to be when trying to reduce the debt to GDP ratio. With public finances more constrained and trade-offs becoming more acute the thought of tax cuts would seem to run contrary to such a backdrop.

That said, given where we are in the electoral cycle it is hardly surprising that tax cuts were part of this ‘election’ budget – such events are as much about winning votes than consistent economic policy. The announcement that there will be a 2% reduction in National insurance contributions (NICs) rather than to income tax is not unexpected given that income tax cuts are heavily inflationary relative to NICs changes. NICs changes are also more focused on workers whereas income tax cuts impact those not working too. It was not that long ago that NICs were going to be increased to pay for social care funding, but that now seems a distant memory.

Regardless the total tax take will continue to be at a post war high. With this backdrop clients will want their investments to go further - it is exactly the environment where advisers can show their value.

Income Tax

Although rumoured, there was no reduction in Income Tax rates instead a more targeted relief for the working population was announced (see below for National Insurance cuts). All tax bands remain frozen.

It was confirmed savers utilising the starting rate for savings band will continue to receive the current £5,000 limit until 5 April 2025.

Capital Gains Tax

There was some light relief for property owners, in a move to encourage sales. The 8% capital gains tax surcharge for residential property has been cut to 4% for those paying CGT (Capital Gains Tax) at the higher rate. The surcharge for basic rate taxpayers remains at 8% - this means the CGT rates for residential property sales from April 2024 will be 18% (basic rate) and 24% (higher rate).

Inheritance Tax

The government announced the intention to move to a residence-based regime for Inheritance Tax (IHT). Under the plan, assessment for IHT would no longer be based on where a person is ‘domicile’. A consultation is expected, in due course.

No changes to IHT will take effect before 6 April 2025.

Excluded Property Trusts

To provide certainty to affected taxpayers, the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime.

National Insurance (NI)

As widely rumoured, the government is cutting the main rate of employee NI by 2p from 10% to 8% from 6 April 2024. This represents a maximum saving of £754 per year (£37,700 * 2%).

The government is also cutting a further 2p from the main rate of self-employed National Insurance. From 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%.

Individual Savings Account (ISA)

The government will create an additional ISA with a £5,000 allowance in the future, referred to as the UK ISA.

This £5,000 allowance would be in addition to the £20,000 but the government will consult on the details between now and June.

Pensions

The Chancellor confirmed reforms to Defined Contribution workplace pensions that aim to boost investment into UK business. This had previously been announced at the beginning of March.

Broadly these changes will require:

1. Pension Trustees/providers of defined contribution workplace schemes to publicly disclose, for their default fund, how much they invest in UK businesses compared to overseas. Similar requirements will also be placed on Local Government Pension Scheme funds.
2. Using the Value for Money (VFM) framework, require such pension schemes to compare their performance data against competitor schemes.
3. Give new powers to The Pensions Regulator and the FCA (Financial Conduct Authority) to prevent poorly performing workplace schemes from accepting new business from employers. Consolidation of the workplace pensions market is the name of the game.

The Government plan to implement the VFM framework across the workplace pension market and provide the Regulators with new powers at the earliest opportunity. The requirement to disclose investment in UK businesses is due by 2027 and is one of several announcements to encourage UK investment. This is not unsurprising given the UK’s stock market is in relative decline – in the past two decades the number of liquid stocks is shrinking and trading volumes have stagnated, without pension fund investment the outlook is not encouraging.

Unsurprisingly, there were no announcements impacting the taxation of pensions in today’s budget.

That will be met with a sigh of relief given the implementation of the abolition of the lifetime allowance that will come into effect from the 6 April 2024, replacing the lifetime allowance with two new allowances that cap the amount of tax-free lump sums that can be paid in lifetime and death. Please refer to our Lifetime Allowance abolition hub for useful information and support for the changes.

Other points of interest

High Income Child Benefit Charge (HICBC)

As expected, changes were announced to the HICBC although the changes will be staggered.

From 6^th April 2024 the income threshold at which HICBC starts will be changed from £50,000 to £60,000. In addition, the rate at which the HICBC is charged will be halved from 1% of the Child Benefit per £100 above the threshold, to 1% for every £200. This means Child Benefit will not be withdrawn in full until individuals earn £80,000 or higher.

The government plans to administer the HICBC on a household rather than individual basis by April 2026. The government will consult on this change.

Abolition of Furnished Holiday Lettings tax regime

The Furnished Holiday Lettings tax regime will be abolished from 6th April 2025. This will impact the following ‘benefits’:

• the exemption from finance cost restriction rules
• the beneficial capital allowance rules
• the ability to access a 10% rate of CGT on gains and;
• the inclusion of relevant UK earnings when calculating maximum pension relief

This will level the playing field for landlords who let short-term furnished holiday properties with those who let residential properties to longer-term tenants.

Multiple Dwellings Relief

The government also announced that it will abolish Multiple Dwellings Relief – which allows the purchaser to calculate the tax based on the average value of the dwellings purchased as opposed to their aggregate value. This change will come into effect for transactions with an effective date on or after 1 June 2024.

British Savings Bonds

In a similar theme to the UK ISA, the government also announced that NS&I (National Savings & Investments) will launch a product which will offer a guaranteed interest rate, fixed for three years. This will be brought on sale in early April 2024.

Tax Table