Spring Budget 2024

Today the Chancellor of the Exchequer, Jeremy Hunt, delivered his pre-election ‘Budget for Long Term Growth’.

The measures announced focus largely on increasing the size of the economy, whilst delivering lower taxes, improving public services and encouraging investment. The key ways in which the Chancellor aims to achieve this include a further reduction in National Insurance rates for employees and the self-employed, cuts to the higher Capital Gains Tax (CGT) rate for residential property, and an increase in the VAT threshold. Further investment will also continue into certain sectors, including the life science and creative industries, with additional funding to be made in public services with a particular focus on improving efficiency.

The changes will be funded by various measures, such as a rise in taxes on tobacco and vaping, but most notably the abolition of the current regime for non-UK domiciled individuals.

The key tax headlines were as follows:

1. National Insurance Contributions (NIC) – The main rate of Class 1 employee NICs will be cut from 10% to 8% from 6 April 2024 and also a further 2p cut to self-employed NIC will be introduced (this is on top of the 1p cut announced at the Autumn Statement, taking the top rate of NIC for self-employed individuals from 9% to 6%). The Government will launch a consultation later this year to deliver its commitment to fully abolish Class 2 NIC.
2. Non doms – The current regime for non-UK domiciled individuals will be abolished:
   • A new residence-based regime will be introduced from 6 April 2025, under which the concepts of domicile and remittances will be abolished.
   • Individuals will not pay UK tax on any foreign income and gains arising in their first four years of UK tax residence, provided they have been non-UK tax resident for the last ten years. Overseas Workday Relief will remain available to eligible employees for the first three years of UK tax residence.
   • Some relief will be available to existing non-doms, including a two-year period of transitional relief where they can bring unremitted income and gains realised prior to 6 April 2025 to the UK, at a 12% reduced rate of tax.
   • The income tax and CGT protected trust regime will be abolished from 6 April 2025. Although income and gains arising prior to this date would not be subject to UK tax unless UK resident beneficiaries (who have been UK tax resident for more than four years) receive a benefit from the trust.
   • The Government is also announcing the intention to move to a residence-based regime for Inheritance Tax (IHT) although no changes will take effect before 6 April 2025.
3. CGT – The higher rate of CGT for residential properties will be reduced from 28% to 24%.
4. Furnished Holiday Lets (FHL) – The FHL regime will be abolished from 6 April 2025, meaning that long-term and short-term lets will be treated the same for tax purposes.
5. Stamp Duty Land Tax (SDLT) – From 1 June 2024, the Government is abolishing Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.
6. VAT – The VAT threshold will increase from £85,000 to £90,000 from 1 April 2024.
7. Duties – Alcohol duty will be frozen, however a Duty will be introduced for vaping and tobacco duties will rise.
8. ISA – The Chancellor announced the introduction of a British ISA and British Savings Bonds, to encourage investment in UK assets. The British ISA will have a £5,000 allowance on top of the existing ISA allowances.
9. High Income Child Benefit charge – The threshold for this charge will increase from £50,000 to £60,000 from 6 April 2024, and the rate at which it is charged will also be halved, meaning Child Benefit is not withdrawn in full until individuals earn £80,000 or more. From April 2026 the plans are to move to a household-based system.
10. Investment in public services – The Public Sector Productivity Plan was launched, a key priority being to invest in Technology and Digital transformation in the NHS.
11. Creative industries and life sciences sectors – Further investment was announced in these sectors.

Sean Bannister, Head of Tax, had the following thoughts:

“A Budget with more than a little pre-election campaigning built in. The Chancellor, with very little fiscal headroom, has found space for some significant tax cuts as well as targeted spending commitments. The support for both the technology sector and the film and television industries will surely be welcomed, as well as a general reduction in the rate of national insurance.

Reform of the regime applicable to non-domiciled individuals was necessary, but there was a real need for consultation and it is deeply disappointing that this did not happen (in particular, as the current government changed the regime significantly in 2017 after a prolonged consultation period).”

David Goepel, Head of International Private Client, commented as follows:

“The Chancellor has stolen a march on Labour’s long-trailed announcement that they would scrap the non-dom regime with his own “modern, simpler and fairer residency based system”. While speculation had mounted in the last few days that changes to the regime might be introduced, these announcements are much more wide-ranging than had been expected.

In a particularly unexpected move, the changes appear to extend the removal of domicile for Inheritance Tax purposes as well as for the remittance basis regime (which covers income and capital gains tax). Further consultation is promised on the detail to “move IHT to a residence based regime”, but it appears that this could have a fundamental impact on estate planning for many clients, especially those with international connections.

At least the changes do not come into play until April 2025, so there will be some chance for clients to take time to review their arrangements and put in place planning to take account of the new rules. Particular attention will need to be paid to existing trusts, as it appears that existing trusts may lose their protections on foreign income and gains after April 2025. The detail is still awaited but it is clear that it will be critical to review all affected trust structures over the course of the next year.” 

Fiona Walton, Tax Manager, commented as follows:

“After years of tax raids, landlords will welcome a 4% cut in the CGT rate for residential property. As with last year’s Autumn Statement, the Chancellor is introducing measures which seek to encourage work. Whilst the National Insurance cuts are welcome, for those on the lowest income, pensioners and those with investment income there is no good news. By continuing to freeze the personal allowances and tax bands the impact of fiscal drag will counter the National Insurance savings.”

If you have any questions regarding the changes in the Spring Budget and how they might affect you, please contact any member of the Private Client and Tax teams.

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