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  • Writer's pictureGareth Wright

Spring Budget 2024

Here you can find Quilter's reaction to the 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.


Non- Domicile Abolished


The government is abolishing the current outdated tax regime for non-UK domiciled individuals and replacing it with a modernised residence-based regime that is simpler, fairer, and more competitive. Under the new regime anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, as is the case for other UK residents. This measure is estimated to raise £2.7 billion in the year 2028-29.


Transitional arrangements for existing non-doms claiming the remittance basis will include an option to rebase the value of capital assets to 5 April 2019 and a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025-26). The government will also offer a two-year Temporary Repatriation Facility for individuals who have paid tax on the remittance basis prior to 6 April 2025 to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.


From 6 April 2025, the government will introduce a new residence-based regime specifically designed to make the UK more competitive. Individuals will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years.

Eligible employees will also be able to claim Overseas Workday Relief in their first three years of tax residence for income from employment duties carried out overseas.


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 6th 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

 

2023 - 2024 tax year

2024 - 2025 tax year

Frozen until(where known)

Individuals

 

Income tax bands

 

 

 

Basic

£1 - £37,700

£1 - £37,700

April 2028

Higher

£37,701 - £125,150

£37,701 - £125,140

Additional

Over £125,140

Over £125,140

 

 

 

 

Income tax rates (main rate)

 

 

 

Basic

20%

20%

April 2028

Higher

40%

40%

Additional

45%

45%

Starting rates for savings income

0%

0%

 

 

 

 

Income tax rates (dividends)

 

 

 

Basic

8.75%

8.75%

April 2028

Higher

33.75%

33.75%

Additional

39.35%

39.35%

 

 

 

 

Income tax allowances

 

 

 

Personal allowance

£12,570

£12,570

Income tax allowances frozen to April 2028 (note dividend change)

Starting rate for savings income

£5,000

£5,000

Dividend allowance

£1,000

£500

Personal savings allowance

£1,000 (BR) £500 (HR) £0 (AR)

£1,000 (BR) £500 (HR) £0 (AR)

 

 

 

 

Capital gains tax rates

 

 

 

Main rates for individuals

10% / 20%

10% / 20%

 

Residential property

18% / 28%

18% / 24%

 

Entrepreneur's relief rate

10%

10%

 

 

 

 

 

Capital gains tax allowances

 

 

 

Annual exempt amount

£6,000

£3,000

 

Entrepreneurs' Relief - Lifetime limit

£1,000,000

£1,000,000

 

 

 

 

 

Inheritance Tax

 

 

 

Nil rate band

£325,000

£325,000

April 2028

Residential nil rate band (RNRB)

£175,000

£175,000

Rate (estates)

40%

40%

Reduced rate (10% of estate to charity)

36%

36%

Lifetime Rate (CLTs)

20%

20%

 

 

 

 

Income tax bands

 

 

 

Standard rate band

£1,000

N/A£500 tax free if total trust income is below this level.

 

 Trusts

 

 

 

Income tax rates

 

 

 

Trust main rate

45%

45%

 

Trust dividend rate

39.35%

39.35%

 

 

 

 

 

Capital gains tax allowances

 

 

 

Annual exempt amount

£3,000

£1,500

 

 

 

 

 

Capital gains tax rates

 

 

 

Main rate

20%

20%

 

Residential property

28%

24%

 

 

 

 

 

Corporation Tax

 

Corporation tax

19% (profits under £50,000)

25% (profits over £250,000

Companies with profits between £50,000 and £250,000 will be tapered between 19% and 25%.

19% (profits under £50,000)

25% (profits over £250,000

Companies with profits between £50,000 and £250,000 will be tapered between 19% and 25%.

 

 

 

 

 

ISAs

 

Adult ISA Allowance

£20,000

£20,000

 

Junior ISA Allowance

£9,000

£9,000

 


The information provided in this article is not intended to offer advice.

It is based on Quilter's interpretation of the relevant law and is correct at the date shown. While we believe this interpretation to be correct, we cannot guarantee it. Quilter cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.


Spring Budget 2024

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