Moore Kingston Smith Spring Budget 2024 Insights

The new changes to the budget for tax cuts in national insurance. inheritance tax, child benefit, UK ISA and...

West London Business member, Moore Kingstone Smith says that Jeremy Hunt’s second full budget was very clearly delivered in the shadow of a general election, with the speech peppered throughout with partisan comments, and policies designed to put the Conservative Party on the front foot with the electorate. The chancellor explained that, after the difficulties of the last few years, the economy is turning a corner, meaning the government can make tax cuts which will in turn lead to higher growth in the future.

Having announced reductions in National Insurance Contributions in the Autumn, the chancellor has now said that further reductions (for both employed and self-employed individuals) will take effect from 6 April 2024. The High Income Child Benefit Charge will also be reformed with a view to making this less punitive. Other changes that will lighten the burden on some taxpayers include an increase in the VAT registration threshold, a reduction in capital gains tax on residential property, and an increase in the generosity of some creative sector tax reliefs.

There will of course be losers as well as winners, and the impact of the abolition of the non-dom tax regime, the furnished holiday letting rules, and multiple dwellings relief for SDLT will need to be considered carefully by some. Tax bands and thresholds have also remained unchanged, meaning fiscal drag will continue to be a concern.

This budget looks almost certain to be the last fiscal event before the next general election; whatever the results of the election, it well may be quickly followed by another budget and further changes may not be too far off.

Class 1 National Insurance Contributions

The main rate of Class 1 National Insurance Contributions (NICs) paid by employees will be cut from 10% to 8% with effect from 6 April 2024. This is in addition to the 2% cut in Class 1 NIC that was announced in the 2023 Autumn Statement and that has applied since 6 January 2024.

This main rate applies to earnings between the primary threshold (£1,048 a month) and the upper earnings limit (£4,189 a month).

For an employee earning £35,000 a year, the reduction will be worth approximately £37 a month. For an employee earning £75,000 a year, the saving will be approximately £62 a month.

No changes are being made to the rates of NICs paid by employers.

It is good news for employees that the rate of NICs is being cut for the second time in the space of three months. However, for some, the benefit will be eroded by the fact that the primary threshold is expected to remain the same for the next few years. Employers will need to ensure their payroll systems are updated in time for this change from 6 April 2024.

High Income Child Benefit Charge reform

Families claiming child benefit, where at least one parent earns more than £50,000, currently have to repay some or all of the child benefit they receive by way of the High Income Child Benefit Charge (HICBC). As things stand, a family with at least one parent earning more than £60,000 will repay all child benefit claimed. It is the responsibility of the higher earner to pay the tax charge by filling in a tax return, regardless of which parent makes the claim for child benefit.

From April 2024, the HICBC threshold is being increased from £50,000 to £60,000. The rate at which the HICBC is calculated will be halved so that child benefit will not be fully withdrawn until the individual earns at least £80,000.

A consultation will take place in due course to consider how the HICBC could be more fully reformed so that it can be based on household income rather than individual income. This fuller reform of the rules is expected to be in place by April 2026.

The HICBC has been unpopular since it was first introduced in 2013. One of the main criticisms is that the rules are unfair in that a family with both parents earning £49,999 can retain their child benefit in full, whilst a family with one working parent earning £60,000 loses their child benefit entirely. Another criticism is that the assessment of the tax is overly complex, particularly for people who are employed and are taxed under PAYE.

It has been estimated that the changes being made from April 2024 will take 170,000 families out of the scope of the HICBC. Clearly these changes will be welcome for those families. However, others will be frustrated at having to wait at least two years before some of the more fundamental flaws which exist within the HICBC system might be addressed.

Non-UK domiciled individuals

UK tax-resident individuals who are not domiciled in the UK (non-doms) are taxable in the UK on their worldwide income and gains but can (unless they are “deemed domiciled” in the UK) elect to be taxed on their non-UK income or gains only as and when they are brought into the UK. This is known as the ‘remittance basis’ of taxation.

Domicile is also relevant to inheritance tax, and non-doms (again, unless they are “deemed domiciled” in the UK) are only liable to UK inheritance tax on their UK assets.

The chancellor has announced that the remittance basis of taxation will be abolished from 6 April 2025. It will be replaced by a regime based on tax residence. Individuals who opt into the regime will be exempt from UK tax on foreign income and gains for a maximum of four years after moving to the UK, providing they have been non-resident for at least the ten years before arrival. After those four years, the individuals will be taxable in the UK on their worldwide income or gains in the usual way.

A number of transitional arrangements will be introduced. These include a re-basing of the cost for foreign assets for existing non-doms to 5 April 2019; a temporary 50% exemption for the taxation of foreign income for the first year of the new regime; and a two-year “Temporary Repatriation Facility” under which previously earned foreign income and gains can be brought into the UK at a 12% tax rate.

Domicile will also cease to be relevant for inheritance tax. The government will consult on this in due course. Indications are that individuals coming to the UK will be exempt from inheritance tax on non-UK assets for ten years (with a ten-year tail provision for individuals who leave the UK and become non-resident).

It is not hard to see some of the key drivers behind these proposals. The remittance basis regime is controversial. It includes a big incentive for non-doms to keep their foreign funds outside the UK, which is not necessarily beneficial to the UK economy. In addition, a new regime based on residence will bring more certainty, as it will be based on the now well-established Statutory Residence Test. There will of course be concerns as to the extent to which wealthy non-doms choose to leave the UK as a result of these plans, although the transitional provisions will go some way to alleviating these concerns.

National Insurance Contributions for the self employed

Self-employed individuals (sole traders and partners) currently pay Class 2 and Class 4 National Insurance Contributions (NICs).

It was announced in the Autumn that Class 2 NICs will be abolished, and that the rate of Class 4 NICs on profits between £12,570 and £50,270 would be reduced from 9% to 8%, from 2024/25. It has now been announced that the rate of Class 4 NICs on those profits will in fact be reduced to 6%.

For a self-employed person with annual profits of £35,000, the total 3% reduction in Class 4 NICs will be worth approximately £673 per year.

The further reduction in Class 4 NICs was trailed in the press ahead of the announcement. Nevertheless, confirmation of the reduction will be welcomed by self-employed individuals. However, the Class 4 NIC thresholds are not set to increase until at least April 2028, meaning the effect of fiscal drag must be considered alongside the reduction in the rate of Class 4 NICs, and the benefit won’t be as high due to the impact of inflation.

Furnished Holiday Lets

Various tax reliefs and benefits currently apply where the letting out of residential property qualifies under the furnished holiday lets (FHL) rules.

These special FHL rules are being abolished from 6 April 2025, meaning from then on the letting of both FHLs and other properties will be subject to the same tax regime.

Moore Kingston Smith comment

There are strict rules that govern when a letting qualifies as a FHL. These can be difficult to meet but there are clear benefits when they are met. These include the fact that individual FHL owners can claim tax relief on mortgage interest at their marginal rates of up to 45%, rather than just 20% for other tenancies. In addition, FHL businesses qualify for capital allowances, profits count as relevant earnings for pension purposes, and disposals can also qualify for Business Asset Disposal Relief (i.e. a 10% capital gains tax rate).

The removal of these benefits will be significant for those that qualify. However, the announcement is not hugely surprising following concerns about locals in holiday hotspots not being able to buy or rent  properties to live in.

UK ISA

The government announced the introduction of a new UK Individual Savings Account (ISA), which will allow individuals to invest £5,000 per year in UK equities on a tax-free basis. This £5,000 allowance will be in addition to the existing £20,000 allowance.

The government’s objective for the UK ISA is to increase the capital available to UK businesses and support a culture of investment in the UK.  The government has announced a consultation on the detailed design of the scheme.

Any opportunity to save in a tax-free arrangement will be welcome by those with the funds available to do so. This measure will bring the total number of different ISAs available to adult savers to five, which might seem excessive to some.

Capital Gains Tax on Residential Property

The main rates of capital gains tax are 10% (to the extent that the gain falls within the individual’s basic rate band for income tax purposes) and 20%. These rates are currently increased to 18% and 28% for gains on the disposal of residential property and carried interest.

From 6 April 2024, the higher rate of capital gains tax on disposals of residential property will be reduced from 28% to 24%. All other rates will remain unchanged.

The vast majority of residential property gains do not suffer capital gains tax as a result of Private Residence Relief, and there are no plans for any changes to be made to this relief. This measure will therefore primarily affect landlords and second homeowners, with the government’s stated aim of this measure being to remove a disincentive for those property owners to sell their properties, thereby raising revenue and increasing the availability of housing to potential purchasers.

Transfer of assets abroad by individuals

The transfer of assets abroad rules are a series of anti-avoidance provisions which seek to remove any tax advantage that a UK-resident individual might have if they transfer assets such that income from those assets becomes payable to a person abroad (i.e. outside the scope of UK tax). The effect of the rules, where they apply, is to tax certain UK-resident individuals as if they had directly received income of the person abroad.

In the long-running case of Fisher v HMRC, the UK Supreme Court held that the anti-avoidance legislation could not apply because the transfer abroad was made by a company, even though that company was owned and controlled by UK individuals. The government has now announced that the legislation will be extended to encompass cases involving companies.

It is unsurprising that this change is being introduced following HMRC’s defeat in Fisher v HMRC. In the judgement, the Supreme Court commented that it was open for Parliament to close this particular lacuna if it wished to do so. This change brings clarity but may have significant implications for taxpayers falling within the scope of the revised rules.

Stamp Duty Land Tax (SDLT)

The government has provided its long-awaited response to the consultation on Stamp Duty Land Tax which was held over two years ago, with the main announcement being that Multiple Dwellings Relief will be abolished from 1 June 2024.

Multiple Dwellings Relief means that, in outline terms, when a number of dwellings are bought at the same time, SDLT is calculated on the average price per dwelling and multiplied by the total number of dwellings, meaning the buyer can take advantage of multiple lower SDLT bands. The relief was intended to support investment in the private rented sector but has given rise to a number of disputes particularly relating to whether or not an annex is a dwelling in its own right.

The government also announced the following:

  • First-time Buyers’ Relief will be amended to cover the acquisition of leases through nominee and bare trust arrangements from 6 March 2024.
  • Also from 6 March 2024, the 15% flat rate will not apply to public bodies, and updates will be made to the exemption for certain acquisitions by Registered Social Landlords (RSLs).

We have been waiting a long time for the government’s response to the SDLT consultation. Many were expecting that the response would announce changes to the approach taken to mixed-use properties, particularly given the amount of litigation being undertaken in the tribunals in this area. The fact that there were no announcements in this area was something of a surprise.

The complete abolition of MDR was also not entirely expected. This will undoubtedly simplify one area of complexity but it will increase SDLT liabilities for some transactions and the market will need to decide who will bear this cost.

Inheritance tax

The government has confirmed that it will refine the geographical scope of agricultural property relief and woodlands relief for inheritance tax (IHT) from 6 April 2024. From this date, property located in the European Economic Area, the Channel Islands and the Isle of Man will no longer be eligible for relief.

These changes were anticipated, as the government continues to refine the scope of various tax reliefs following the UK’s exit from the European Union.

Administrative measures

A number of administrative measures were announced, some of which form part of the government’s tax simplification agenda. The key headlines here include:

These various measures should all in some way contribute to closing the tax gap and simplifying the tax system. The plan to introduce metrics against which we can assess whether the tax system is becoming simpler is an interesting one; time will tell what this looks like and the effect it has in practice.

Full expensing

In the 2023 Autumn Statement, the government announced that full expensing for qualifying capital expenditure (which replaced the temporary super-deduction ending on 31 March 2023) would be made permanent. This measure allows companies (and, as subsequently clarified, corporate partners of partnerships and LLP) to claim full, uncapped tax relief on qualifying new plant and machinery expenditure from 1 April 2023. This measure goes along with a 50% first-year allowance for “special rate pool assets”, such as integral features in buildings.

Expenditure on assets acquired for leasing is specifically carved out of full expensing. However, the government has said it will seek to include such expenditure when fiscal conditions allow. It will also publish draft legislation for technical consultation shortly.

Moore Kingston Smith comment

An extension of full expensing to assets acquired for leasing would be very welcome to businesses spending significant sums on such assets. However, the fact that the extension is subject to a future decision based on affordability puts a slight dampener on the announcement. Many had hoped that full expensing might be extended to unincorporated businesses but this does not appear to be on the cards at this stage.

Creative Sector Tax Reliefs

The government made several announcements intended to bolster tax reliefs available to the creative sector.

Audio-Visual Expenditure Credit (AVEC)

The AVEC will be amended to increase the expenditure credit for visual effects costs from 34% to 39% from April 2025, bringing it in line with the rate of AVEC which applies to animation and children’s TV.  The 80% cap for qualifying expenditure will also be removed for the cost of visual effects.  A consultation on the types of expenditure to be covered by these changes will be published in due course

UK Independent Film Tax Credit

The Chancellor announced an extension to the AVEC scheme for films with budgets under £15 million which meet the requirements of a new British Film Institute test. Qualifying expenditure on these films will give rise to an enhanced 53% tax credit from 1 April 2024 onwards, where principal photography started from this date.

Theatres, orchestras, museums and galleries

The government has confirmed that the rates of tax relief which apply to Theatre Tax Relief, Orchestra Tax Relief, Museums and Galleries Exhibition Tax Relief will be permanently set at 40% for non-touring productions and 45% for touring and all orchestra productions from 1 April 2025. The sunset clause for Museums and Galleries Exhibition Tax Relief will be removed, such that it becomes a permanent tax relief with no expiration date.

These changes will all undoubtedly be welcomed by those in the various specific industries to which they relate.  The fact that the 80% cap on qualifying expenditure is now being removed in one specific area may give hope that it could lead to a relaxation of the rules more widely. The new independent film tax credit will provide much needed support to a sector which has struggled against rising production costs and competition from inward investment. The removal of the sunset clause for MGETR is an expression of Treasury support for the sector and will bring greater certainty for future exhibitions, where securing tax relief may well be the difference between whether an exhibition will go ahead or not.

VAT registration threshold

From 1 April 2024, the VAT registration threshold will increase from £85,000 to £90,000, with the VAT deregistration threshold increasing from £83,000 to £88,000. The current thresholds have been in place since spring 2017.

The increase in the registration threshold has been introduced to reduce the tax burden for small businesses. This will be welcomed by business whose turnover is – or could be – just over the current threshold. Tax policy experts are split as to whether this measure makes sense overall but, either way, the UK continues to have one of the highest VAT thresholds in the OECD.

Other VAT changes

A number of other VAT announcements were made, as follows:

  • Trades in Carbon Credits are to be brought within the scope of the Terminal Markets Order (TMO), meaning certain transactions can be zero-rated for VAT purposes.
  • Following digitisation of the DIY housebuilder’s scheme, the government will introduce legislation to give HMRC additional powers to request further documentary evidence in support of a DIY housebuilder’s claim.
  • The Office for Budget Responsibility has carried out a review of the cost of removing tax-free shopping for tourists and  submitted this information to the government. The government will now consider alongside industry representations.
  • The government will launch a consultation on the impacts of the July 2023 High Court ruling in Uber Britannia Ltd v Sefton MBC, which concerned the VAT treatment of private hire vehicles.

Moore Kingston Smith comment

VAT practitioners, and all those whose affairs might be affected by these announcements, will be looking to study the fine detail as and when this is available.

Energy Profits Levy

The Energy Profits Levy (EPL) is a temporary tax on UK or UK Continental Shelf oil and gas companies’ profits. It was introduced in response to the extraordinary profits being made in recent years as a result of high oil and gas prices.

The government has announced that it will extend the EPL until March 2029. However, at the same time, it said that it will legislate for the Energy Security Investment Mechanism (ESIM), providing certainty that the EPL will be discontinued if prices fall below certain thresholds.

The new EPL measures are pragmatic and reasonable and will ensure that the regime continues to serve the aims for which it was always intended.

Economic Crime Levy

The government introduced the Economic Crime Levy (ECL) from 1 April 2022. The aim was to raise approximately £100 million a year to fund various anti-money laundering and economic crime initiatives. Firms are subject to the levy where they are subject to the Money Laundering Regulations.

The government has announced that levy receipts fell short of the £100 million target for the ECL’s first period of operation (April 2022 to March 2023). As a result, the charge for “very large businesses” (being those with UK revenue exceeding £1 billion) will increase from £250,000 to £500,000 from April 2024.

Moore Kingston Smith comments

This increase to the ECL will only impact the largest firms – with the government estimating that between 100 and 110 businesses will be affected. Even for those businesses, the amount is significant and will need to be factored into future forecasts.

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