CHW Spring Budget report

8th March 2024 Tax CHW Accounting

Chancellor Jeremy Hunt presented his 2024 budget this week.

A 2p cut to National Insurance, a new tax on vaping and an increase to the salary threshold for claiming child benefit were some of the measures introduced.

The 2p cut to National Insurance Contributions was no surprise given the amount of leakage from the Treasury. The scrapping of the ‘non-dom’ tax regime had also been widely predicted.

One surprise was the tax cut to CGT on residential property, although what the Chancellor gave on this front, he took away with the abolition of Furnished Holiday Lets Relief and Multiple Dwelling Relief.

For businesses, there wasn’t much other than more ‘expensing’ relief on leased assets, although this will only be introduced when it is ‘affordable’.

There was the usual freeze on fuel and alcohol duties, offset by more duty on vapes and tobacco and business class fares.

In this update we bring you the key points to come out of his statement.

National Insurance Contributions cut by 2p

National Insurance Contributions (NIC) for employees will be cut from 6 April 2024 down to 8% from 10% along with the rate for those individuals that are self employed dropping to 6% from 8% for Class 4 NIC element. Class 2 NIC will remain, although the government will consult on how it will deliver the abolishment of this later this year.

Treasury numbers suggest that the average worker on £35,400 will save more than £900 a year as a result of the cuts in January and April.

Anyone earning enough to pay higher-rate tax will take home £754 a year more than expected.

An average self-employed person on £28,000 will save about £650 a year from both cuts, the Treasury says.

Property CGT rate reduced to 24%

The surprise of the day was the reduction from 6 April 2024 of the higher rate of Capital Gains Tax (CGT) for residential property gains. The rate will fall from 28% to 24%.

The Chancellor suggested that the reduction was to stimulate higher volumes of property sales, which would in turn generate higher tax revenues. It remains to be seen if this is the case.  This doesn’t impact on any of the reliefs available such as Principal Private Residence Relief, meaning the vast majority of residential property disposals will pay no CGT.

The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.

Furnished holiday lettings tax regime to cease

The current tax reliefs available through the Furnished Holiday Lettings (“FHL”) tax regime will cease from April 2025. The main advantages were as follows:

• Full interest relief available on mortgage borrowings, unlike traditional residential tenancies where higher rate income tax payers are only eligible for a 20% tax credit.
• Rental profits treated as ‘earnings’ for pension purposes enabling profits to be sheltered from higher rates of income tax if contributed to a pension in the same tax year.
• Profits generated on the sale of the property eligible for 10% capital gains tax rate.
• Capital allowances available on fixtures & fittings in the property.

This change will obviously disappoint individual owners of furnished holiday lets who have invested in this asset class, particularly if financed through mortgage debt.

Any investors making a decision to exit the sector before the 2025 changes should note that the legislation includes provisions to deny the 10% capital gains tax rate on any sales not unconditionally exchanged by Budget Day, being 6 March 2024, so any future sale of a currently qualifying FHL property, even if made before April 2025, will not be able to access the 10% capital gains tax rate on any gain made on the sale.

If unconditional exchange occurs between 6 March and 5 April 2024 then the capital gains tax rate will be 28% and from 6 April 2024 the newly announced reduced rate of 24% for residential property will apply.

This abolition of the FHL regime may prompt individual investors to look at moving properties into limited company structures where full interest relief is available and for pension contributions to still reduce profits but any incorporation structure will need to be carefully considered as this will involve Stamp Duty Land Tax and capital gains tax issues that should be reviewed ahead of any decision to incorporate.

VAT registration threshold increased by £5,000

Another surprise, but one that will have minimal impact, was the VAT registration and deregistration threshold increasing by £5,000 from 1^st April 2024.

This means that the taxable turnover threshold which determines whether a trader must be registered for VAT will rise from £85,000 to £90,000. Equally, the taxable turnover threshold which determines whether a trader can de-register for VAT will rise from £83,000 to £88,000.

Although this increase is not significant, it may be of benefit to smaller traders, especially given the increasing complexities with complying with Making Tax Digital.

Current non-dom tax regime abolished

The Chancellor announced that from April 2025, he plans to abolish the current non-dom tax regime and replace it with a ‘modern residency system’.

The remittance basis of taxation will be abolished for UK resident non-domiciled individuals and will be replaced by a new four-year regime for individuals who become UK tax resident after a period of ten years of non-UK residence.

Qualifying individuals will not pay tax on their foreign income and gains in the first four tax years after becoming UK tax resident and will be able to bring these funds into the UK free of any additional tax charges.

Tax will not be paid on non-resident trust distributions during this period either. UK income and gains will be taxed, as is the case for UK resident non-doms now.  Further announcements included:

• From 6 April 2025, the protection from taxation on future income and gains as it arises within trust structures (whenever established) will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the new four-year FIG regime.
• Individuals who move from the remittance basis to the arising basis on 6 April 2025 and are not eligible for the new four-year FIG regime will, for 2025-2026 only, pay tax on 50% of their foreign income only (this does not include foreign gains).
• From 6 April 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 foreign income and gains under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025-26 and 2026-27.

Overseas workday relief, which ring fences overseas earnings from employment for UK resident non-doms, will be simplified in line with the four-year regime.

The government also intends to move IHT to a residency-based system from April 2025, but this is subject to consultation. It is envisaged that the new rules will broadly involve charging IHT on worldwide assets owned outright when a person has been resident in the UK for 10 years, with a provision to keep a person in scope for 10 years after leaving the UK.

Additional powers given to HMRC for DIY Housebuilders Scheme

This will affect any person who is building their own home, or converting a non-residential building to their own home, and who wishes to reclaim the Value Added Tax (VAT) incurred.

HMRC have been given additional powers to request further evidential documentation in respect of DIY housebuilders claims to assist them in validating claims. This applies to claims made on or after 22 February 2024.

Given that the application process can already be problematic, this will not be welcomed by those seeking to benefit from it.

Tax relief on creative industries

It is a great time to be in the creative industry, as the Chancellor announced measures to support the British Independent Film sector, by introducing a new UK independent film tax credit at a rate of 53%.

Potentially for every £100 spent on a qualifying film, £153 of tax relief would be given against profits. This will be for films with budgets under £15 million that meet the conditions of a new British Film Institute test.

In addition, the tax relief for UK visual effects costs in film and high-end TV under the Audio-Visual Expenditure (AVEC) will increase from 34% to 39% from April 2025. They will also reduce the 80% cap for qualifying expenditure for visual effect costs.

Full expensing capital allowances regime extended

The Chancellor announced that the full expensing capital allowances regime for plant and machinery will be extended to leased assets, but only “when fiscal conditions allow”. Currently leased plant and machinery is excluded from the full expensing relief.

Essentially a budget announcement without any timeframe and without any detail.

It is anticipated that draft legislation will soon be published and technical consultation on the subject will be opened. Once this has taken place, there should be more detail on how this announcement will be applied in practice however by this time we may be under a ‘new regime’.

Stamp Duty Land Tax: Multiple Dwellings Relief (MDR) abolition

The Stamp Duty Land Tax relief available when purchasing multiple dwellings in a single transaction is set to be abolished.

The change will come into effect for transactions with a completion date on or after 1 June 2024. Transitional rules will be in place, meaning that Multiple Dwellings Relief can still be claimed on certain property transactions when contracts are exchanged on or before 6 March 2024.

Multiple Dwellings Relief will also remain available on any contracts which ‘substantially perform’ before 1 June 2024. This will occur when the purchaser has taken substantial possession of the properties before 1 June 2024, or an amount equal to or greater than 90% of the consideration is paid under the contract.

Other key points at a glance

Cigarettes, vapes and alcohol

• Alcohol duty will remain frozen until February 2025.
• New tax on vaping and e-cigarettes will be introduced in October 2026, following a consultation.
• Existing tax on tobacco will increase, to maintain the “financial incentive to choose vaping over smoking”.

Transport and energy

• The “temporary” 5p cut to fuel duty (introduced by Rishi Sunak in 2022), will remain in place until March 2025.
• £160m deal to purchase site of planned Wylfa nuclear site in North Wales.
• “Windfall” tax on the profits of energy firms, scheduled to end in March 2028, extended until 2029.
• Air passenger duty to increase for business class tickets.

Extension of Recovery Loan Scheme

• £200m has been pledged to extend a Covid-era government loan scheme for SME businesses until March 2026.

British ISA

• A new British ISA will allow people to invest up to £5,000 tax-free each year in UK assets. This allowance will be in addition to the existing £20,000 allowance.

Household Support Fund extended for six months

• This gives councils funding to support vulnerable households with paying for essentials. Due to end on 31 March 2024, this has now been extended for another six months with £500 million.

Universal Credit ‘Budgeting Advance’ loan

• These interest-free loans are available for those claiming Universal Credit. The repayment term has been extended from 12 to 24 months.

Debt Relief Order (DRO) fee scrapped

• Granted by the Insolvency Service for people on low incomes with debts of less than £30,000, a DRO freezes debt repayments and interest for 12 months. The £90 arrangement fee for the order has been scrapped.

£1m memorial

• £1m has been pledged for a memorial to honour Muslims who fought for Britain during World Wars One and Two.

Get in touch

As the finer details emerge over the coming days and weeks, we will of course keep you updated on our website and our social media channels.

If you do have any questions from the announcement, please do not hesitate to get in touch with your usual relationship manager, or get in touch with us here.

DID YOU FIND THIS USEFUL?

Share it with your network: