It was speculated in the lead up that the Spring Budget 2024 would be focussed on tax cuts given there is a general election looming!
On the surface the Chancellor, Jeremy Hunt, has been able to claim that since 2020 the government has reduced taxes by a total of £29bn. However, there may be an element of smoke and mirrors to such a proclamation given that it only reflects some of the overall picture.
A closer analysis of the total tax burden reveals that in the same timeframe there have been tax rises, mostly through frozen tax bands and cuts to allowances, totalling £62bn. Rescuing the banking sector in 2008 cost £137bn, and then there was government expenditure of circa £370bn to support the economy during the pandemic.
This has combined to place a huge debt pile on the state and meant taxes had to rise to reassure markets that the UK could afford the borrowing it needed to meet its spending pledges. Rising inflation and corresponding interest rate increases simply put this position in sharper focus resulting in the tax burden rising to a near record 37% of GDP.
The consequence is that implementing tax cuts, such as Hunt's aim to eventually abolish National Insurance, without significant reductions to public spending, will be very difficult moving forward. Given how little fiscal room for manoeuvre the Chancellor has, the future performance of the UK economy could render this tax cutting agenda an impossibility.
The key announcements from the budget were as follows:
In a bid to help small businesses the Jeremy Hunt announced that the VAT registration threshold will rise from £85,000 to £90,000 from 1 April 2024. The deregistration threshold will also increase from £83,000 to £88,000. The expectation is this will remove the need for 28,000 small businesses to pay VAT but is also likely to reduce the number of businesses being able to deregister.
Hunt is allocating £200m to extend the Recovery Loan Scheme which is to be rebranded as the Growth Guarantee Scheme. This is designed to help 11,000 small businesses in gaining access to much needed finance.
National Insurance Contributions (NICs) is set to be cut again from 6 April 2024, with Class 1 Primary NICs for employees reducing from 10% to 8%. For the self-employed, Class 4 NICs will decrease from 8% to 6%. These announcements mean the average employee could be £450 better off every year, while it may save the average self-employed person £350 per annum.
The Chancellor is set to reform the High Income Child Benefit Charge (HICBC). Prior to the budget it had been labelled as confusing and unfair. Currently, if you earn £50,000 or more then a charge is applied that reduces the amount of child benefit you receive. The payment is removed entirely if you earn more than £60,000.
Where this can be seen as unfair is if a couple earning £50,000 each, or £100,000 of combined income, they can still obtain the full amount of child benefit. However, an individual, such as a single parent, earning £60,000 doesn't receive it.
A new system is being consulted on what will base any charge on a household's income, not the higher-earning parent's income. This means likely, significant reform to the tax system so it won't be introduced until April 2026.
Prior to then, from 6 April 2024, the threshold at which you start paying the HICBC will increase by £10,000 to £60,000. So, if as a parent you earn less than £60,000 you can keep all of your child benefit payments. Also the amount at which child benefit is withdrawn will rise by £20,000 meaning once you earn £80,000 or more you won't be able to keep any child benefit.
Higher rate Capital Gains Tax (CGT) on the disposal of residential property will be reduced from 28% to 24% as of 6 April 2024. The hope is this will boost tax revenues to the government by encouraging more property transactions to take place.
CGT on property is paid on residential property disposals where no private residence relief is available such as second homes, buy-to-lets, and holiday lets. The rates are based on your income tax bracket, and the basic rate will remain at 18%. It should be noted however, that the CGT annual allowance (the gains you can make before CGT applies) is still set to reduce from £6,000 to £3,000 as of 6 April 2024.
Also of note, stamp duty relief is being scrapped on multiple dwelling purchases.
The furnished holiday lets (FHL) regime is to be abolished on 6 April 2025. FHL has offered tax advantages to those letting out property as a holiday home. Landlords of FHL have been able to deduct the full cost of their mortgage interest payments from their rental income. They have also been able to reduce potentially their CGT charge when they sell.
There are about 127,000 properties in the UK registered through FHL. The government's reasons for doing are because holiday lets are seen as reducing the availability of stock in the market for long-term rentals to residents. Removal of the relief and a lower potential CGT rate if these landlords sell, may see more of these properties come onto the market.
The British ISA system is set to be reformed with the aim of encouraging investment in UK assets. A new British ISA is going to be created, and this will provide an extra £5,000 per year allocation to invest in UK equities, on top of the current annual £20,000 allowance.
Additionally, Hunt revealed that NS&I, the government-backed savings institution responsible for Premium Bonds, is planning to introduce a three-year British savings bond.
The non-domicile tax regime will be scrapped from 6 April 2025. Non-domiciled individuals tend to be wealthy and reside in the UK but their home, or domicile, is outside of the UK for tax purposes. This has meant non-doms only paid tax on the money they either earned in the UK, or brought into the country from overseas. Tax wasn't applicable to any income or earnings made elsewhere in the world, so long as it stayed outside of this country.
This presented a tax opportunity for wealthy individuals whereby they could select a low tax jurisdiction as their domicile to achieve potential tax savings. They could benefit from this arrangement for up to 15 years but that's now being reduced to 4 years.
There will be transitional arrangements for those using the non-dom tax system which includes a 2 year period in which to bring wealth earned overseas into the UK and pay a reduced rate of tax of 12%. Abolishing the scheme as it currently stands is expected to raise £2.7bn a year in tax revenue and will attract onshore an estimated £15bn in foreign income.
A consultation will also be launched to look at applying a residence based approach to Inheritance Tax which is currently based on domicile status. No changes are expected in this regard before 6 April 2025.
The main rates of fuel duty will be frozen again until March 2025 meaning a further extension of the 5p cut that was introduced in 2022.
There will be a further 6 month freeze to alcohol duty. The freeze was originally supposed to end in August resulting in the average pint in a pub increasing by 2 pence. Maintaining the freeze now pushes this back to February 2025.
There will be a one-off rise to rate of Air Passenger Duty (APD) for non-economy flights from 1 April 2025. APD is levied by airlines on their paying customers where their journey commences at a UK airport. As a tax duty it's unique to the UK and the decision to raise it may break a previous commitment to the airline industry when new taxes on flying were ruled out in September.
The government will introduce a levy on imports of vaping products and e-cigarettes from October 2026. This is to discourage non-smokers taking up vaping. There will also be a one-off increase in tobacco duty which is said to be to ensure there's a financial incentive to choose vaping over smoking.
The content of this post was created on 06/03/2024 and updated on 07/03/2024.
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