Insights

Chancellor Jeremy Hunt’s 2024 Spring Budget took place today but as is usual these days a lot of the announcements were leaked in advance. Although some key policies may come as no surprise, there were a couple of extra changes thrown into the mix.

Here we outline the most significant changes and where possible, what this could mean for you.

• National Insurance for employees cut from 10% to 8%

We were expecting the 2% NI cut. It was positioned to cut taxes responsibly and put more money into the pockets of working people. Another option would have been to unfreeze the personal allowances and take action against the effects of fiscal drag, but this would have been less lucrative for the Treasury.

We have compared below the effects of today’s NIC reduction against an increase in the personal allowance, which highlights who the winners and losers are. Jeremy Hunt is right, cutting NI does benefit some working people – the middle earners – but many are still worse off. This change will take effect from April 2024.

Workers earning £15,000 will pay £388.80 more tax
Cutting NI to 8% produces an annual liability of £680.40 whereas if NI remained at 12% and the personal allowance increased in line with inflation, the corresponding tax liability would have been £291.60.

Compare this to a worker earning £25,000 who pays £33.72 more tax, highlighting the clear effect of fiscal drag in bringing more people into the income tax regime.

Workers earning £35,000 will save £366.28 in tax
Cutting NI to 8% produces an annual tax liability of £6,280.40 whereas if NI remained at 12% and the personal tax increased in line with inflation, the corresponding tax liability would increase to £6,646,68.

The same effect is seen among workers earning £50,000 who save £966.28 with the new lower NI rate.

Higher earners earning between £75,000 and £100,000 are £1,146.17 worse off on the lower rate.

Clearly this policy is particularly punitive for the lowest earners, although they will potentially be eligible for other tax credits to offset this.

As announced today, self employed workers will also have their rate of NI cut from 8% to 6%.

• Furnished Holiday Let property tax reforms

Another policy change that has been on the cards for some time is an overhaul of the FHL (furnished holiday lettings) tax regime. We reported previously on new policies being introduced to curb new holiday home rentals in hot spot areas.

This announcement was positioned as a reform to make long term rentals more widely available and to protect local residents from being priced out of their own communities. However, the abolition of the favourable FHL tax regime will clearly also generate significant revenues for the Treasury. Reports are circulating that £300m will be secured by stopping tax breaks for the 127,000 holiday let landlords in the UK.

Until now, unlike other residential landlords, FHL landlords were treated as running a trading business provided their rentals met minimum occupancy and availability criteria. This afforded many tax perks including being able to offset full finance costs, more flexibility when expensing running costs and also, a more favourable capital gains tax regime if the property was sold.

In terms of the immediate changes to expect after today’s Budget, the ability to offset mortgage interest against taxable profits is being removed. It is unclear currently whether the other tax advantages offered by FHL will remain. We will be monitoring for further announcements.

Other property tax reforms were also unveiled today. These include:

Reforms to stamp duty payable by property investors

Stamp duty SDLT tax relief on transactions involving multiple dwellings is being abolished. This means that the previous tax planning opportunity to limit the tax payable when multiple personally owned properties were acquired has been removed.

Reforms to capital gains tax on residential property gains

Higher rate taxpayers were previously liable to pay 28% on any gains arising on the sale of a personally owned residential property. In today’s Budget, the Chancellor announced this would be cut to 24%, in a presumed attempt to encourage some landlords and second home owners to sell their properties.

• Removal of non dom status

Another controversial historical tax policy, the tax advantaged treatment of non-domiciled individuals (known as the non-dom status), is being removed. From April 2025, new arrivals to the UK will face a different regime, although it will be another few years before they feel the effect. It was announced that from April 2025, for the first four years following their arrival in the UK, overseas individuals will face no UK tax on overseas income and gains, after which they will pay the same tax as other UK resident individuals. There will be transitional arrangements for non-UK domiciled individuals already being taxed under the current non-dom regime.

• Increase to VAT threshold

Effective from 1 April 2024, a business will now only need to become VAT registered once its turnover exceeds £90,000, a £5,000 increase on the previous level. This change will be welcomed by many consumer facing business owners, who have long argued that the original threshold was too low and left them at a competitive disadvantage in some industry sectors.

• Full expensing of capital allowances extended

The Autumn Statement 2023 confirmed that full expensing of capital allowances would be made permanent, to boost business investment. Previously this excluded leased assets, but as of today’s Budget, this shortfall has been addressed. It is potentially a very significant benefit given that so many business owners prefer to lease assets rather than pay for them upfront. However, we do not yet know when this will be effective because the Chancellor said it would be offered ‘once it was affordable to do so’. We will be watching for developments and updating accordingly.

In addition, the existing recovery loan scheme is being continued and will be renamed the growth guarantee scheme, giving easier access to business funding for 11,000 small or medium-sized enterprises (SMEs).

What else was in the 2024 Budget?

Other tax measures that were announced in the Spring Budget 2024 today include:

• Reforms to the high-income child benefit charge, adjusting the emphasis to focus on household income from April 2026 and increasing the threshold to £60,000 for the highest earner in the meantime.

• Introduction of a new British ISA to encourage investment in British enterprises, which allows for an additional £5,000 annual investment per person.

• Introduction of a new duty on vaping products from October 2026 to curb the growth of new vapers who were not previously smokers.

• Freeze to fuel duty for the 14th year in a row for another 12 months, maintaining the 5p cut.

• Passenger duty on non-economy flights is increasing.

• Extension to the alcohol duty freeze until February 2025 to support pub and bar owners.

• Allocation of a £1bn in additional tax relief for various creative industries over the next five years.

There were a number of significant announcements today that require further detail from the government. We will be writing additional articles to explore what this means for our clients in the coming months.

If you would like to discuss any of today’s news in more detail, please contact us via partners@rjp.co.uk.