As expected, the Chancellor found flexibility in his fiscal rules in the Spring 2024 Budget, which has allowed him to please his fellow Conservatives by reducing the impact of taxation. Not an unusual tactic for a government in a general election year.
The impact of the tax changes announced in the Spring 2024 Budget is summarized below.
Impact on personal finances
Further decline in employee social security contributions (NIC)
As expected, the Chancellor has found scope in the 2024 Spring Budget to make a further reduction of 2 percentage points from 10% to 8% from April 2024.
Combined with the previous 2% fall following the autumn return, this represents a reduction in this tax burden by a third. This means a person earning £35,400 will be more than £900 a year better off.
High Income Child Support Charge (HICBC)
From 6 April 2024, the income limit at which HICBC can claim child benefit back from parents will increase from £50,000 to £60,000. The income range affecting the amount of a HICBC clawback will also be doubled, from £60,000 to £80,000.
From April 2024, child benefits will be subject to HICBC at the rate of 1% of the benefits they receive for every £200 in excess of £200 paid by the highest paid parent. This means that if the highest earner’s income exceeds £80,000, all child benefit will be refunded.
For new claims for child benefit made after April 6, 2024, any retroactive payment will be treated for HICBC purposes as if the claim had fallen in the 2024–25 tax year if backdating would otherwise create a HICBC liability in the tax year would emerge in 2023–24.
Capital Gains Tax (CGT) on the sale of residential property in the UK
The higher CGT rate on home ownership gains will be reduced from 28% to 24%. The change will come into effect on April 6, 2024. The lower rate remains at 18% for any winnings that fall within an individual’s base rate band.
The 18% and 28% capital gains tax rates applicable to gains from transferred interest will remain unchanged from April 6, 2024. These rates previously corresponded to those for capital gains tax on sales of residential properties.
Limiting the scope of relief for agricultural property and forests
The scope of relief for agricultural property and woodland will be limited to properties in the UK. Properties located in the European Economic Area (EEA), the Channel Islands and the Isle of Man are treated in the same way as other properties outside the UK. The changes will come into effect from April 6, 2024.
Stamp Duty Property Tax – Multiple Dwellings Relief (MDR)
The MDR will be abolished. This change will be effective for transactions with an effective date on or after June 1, 2024. Due to the transition rules, MDR can continue to be claimed for contracts exchanged on or before March 6, 2024, regardless of when the conclusion occurs. This is subject to various exclusions, for example that there will be no change to the contract after this date.
Changes to tax rules for non-UK residents
The government will abolish the remittance basis of taxation for non-UK residents and replace it with a simpler residence-based regime, which will come into force on April 6, 2025. Individuals who opt for the scheme pay no UK tax on foreign income and gains for the first four years of tax residency.
The Overseas Workday Relief (OWR) is being reformed so that people are entitled to relief based on the new regulation. OWR continues to provide income tax relief on income from taxes collected abroad during the first three years of tax residency, while removing restrictions on the remittance of this income.
The government has also announced its intention to move inheritance tax to a residence-based regime and plans to publish a policy consultation on these changes later in the year, followed by draft technical legislation.
A new ISA
A new UK ISA is to be introduced for investing in UK stocks with its own allowance of £5,000 per year. Further details of the new program will be released later this year.
Flat income tax rates and allowances
One area of personal taxes that was not relaxed in the Spring 2024 Budget announcements was the fiscal burden created by the freeze on the income tax allowance and the upper income threshold.
The personal income tax allowance (currently £12,570) and the higher rate threshold (currently £50,270) at which you pay 40% rather than 20% income tax have not seen a significant increase for over four years.
During the same period, the consumer price index (CPI) rose from 108 to 132. To keep up with inflation, based on the CPI increase, a salary of £45,000 in April 2020 would now need to be £55,000 to maintain the same purchasing performance. And as the higher threshold remains unchanged at £50,270, the top £4,730 will be taxed at 40% rather than 20%.
Based on the CPI change, the current personal allowance should be around £15,400 and the higher rate threshold should be £61,400 to maintain their monetary value.
The income tax allowance and the higher tax rate threshold remain unchanged and will not be reviewed again until April 2028.
Mandatory for e‑cigarette products
The government has published a consultation on the detailed design and implementation of the tax, which closes on May 29, 2024. Registration for the tax begins on April 1, 2026, with the tax taking effect on October 1, 2026, and tobacco taxes increasing accordingly.
The following tax rates apply to liquids for use in e‑cigarettes and e‑cigarettes:
- £1 per 10ml for nicotine free liquids
- £2 per 10ml for liquids containing nicotine in concentrations between 0.1 and 10.9mg per ml
- £3 per 10ml for liquids containing nicotine at a concentration of 11mg per ml or more
The government will also implement a one-off increase in tobacco tax of £2 per 100 cigarettes or 50 grams of tobacco from October 1, 2026.
Alcohol taxes
These tariffs will be frozen from August 1, 2024 to February 1, 2025. This extends the current freeze announced last year for six months.
Main tax rates for fuels
Fuel tax rates introduced in the March 2022 Spring Statement and extended in the March 2023 Spring Budget will be extended for a further 12 months.
This maintains the 5p per liter reduction in rates for heavy fuel oil (diesel and kerosene), unleaded petrol and light oil, as well as the corresponding percentage reduction (equivalent to 5p per liter against the main fuel tax rate of 57.95p per liter) in other lower rates rates and discounted fuel rates where practicable.
The changes will come into effect from March 23, 2024.
Impact on UK businesses
Increasing the VAT registration threshold
The taxable turnover threshold, which determines whether an individual must be registered for VAT, will increase from £85,000 to £90,000. The taxable turnover threshold, which determines whether an individual can apply for deregistration, will increase from £83,000 to £88,000.
These changes will come into effect from April 1, 2024.
This will benefit smaller traders who are heading towards the current registration threshold of £85,000 and do not actually want to register as they will not be able to pass on the 20% VAT to their customers.
NIC cuts for the self-employed
The Chancellor has made a further cut to the Class 4 NIC paid by the self-employed. The further reduction will be a reduction from 8% of taxable profit to 6%. Essentially, the overall reduction will be from 9% to 6% from April 6, 2024.
No change in corporate tax (CT) rates.
For the fiscal year beginning April 1, 2025, the CT rates will remain unchanged. The main rate remains at 25%, the reduced rate for small winnings at 19%.
Abolition of the Furnished Holiday Lets (FHL) tax system.
In a surprise announcement, the currently favorable tax benefits for renting out properties as short-term holiday rentals are to be abolished from April 2025.
The draft law will be published at a later date and will contain an anti-afforestation rule. This prevents obtaining a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. This regulation applies from March 6, 2024.
Full expense compensation should be extended to leased assets
Currently, the full offsetting of equipment or machinery to be leased is excluded from entitlement to full offsetting or the 50% first year subsidy for assets with a special interest rate.
The government will soon publish draft legislation to include leased assets in these reliefs.
Supporting independent filmmakers
This relief benefits independent filmmakers and is provided through the Audiovisual Expenditure Credit.
The Independent Film Tax Credit is aimed at films with budgets (or total core expenditure) of up to £15 million that receive new accreditation from the British Film Institute. The loan rate is 53% of eligible expenses. Eligible expenses are limited to a maximum of 80% of a film’s total core expenses. The highest taxable credit a film can receive is £6.36 million.
The changes will come into effect for films starting filming from April 1, 2024, on expenses incurred from April 1, 2024. Claims can be submitted starting April 1, 2025.
Permanent extension for higher tax relief for theaters, orchestras and museums and galleries
This change affects the permanent extension of 40% and 45% (for non-touring/touring and orchestral productions) of the general theater tax relief, orchestral tax relief and museum and gallery tax relief. These tariffs apply from April 1, 2025.
Energy gain levy – extension for one year
As announced in the Spring Budget 2024, the Government will extend the expiry date of the Energy Gains Levy to March 31, 2029. This is expected to raise a further £1.5 billion for the Treasury.
OUR SUMMARY
From a tax perspective, there are no radical changes in the 2024 spring budget, although the Chancellor appears to have abolished as much as he created new regulations.
The Chancellor’s budget speech to parliament was also peppered with many points against the opposition parties. We will have to wait and see whether the contents of the Spring 2024 Budget result in a sufficient rise in poll numbers to prompt the Prime Minister to campaign for a general election in May.
