Spring Budget 2024 – Essential points

The Chancellor presented his Spring 2024 budget on 6 March 2024. Media speculation had initially focused on a pre election giveaway set of measures but what we actually got was a mixed bag of cuts and increases.

National Insurance – where’s this going?

The 2% cut to Class 1 national insurance is in addition to last Autumn’s 2% cut to take the rate applied to employees to 8%, on top of income tax. The average tax saving is stated by HM Gov as being £450, but the actual saving will depend on how much you earn as an employee, over and above £12,570.

Disappointingly there is no reduction in employer National Insurance as that still sits at 13.8%.

Rumours abound of a September pre election budget that may then align the taxation of employees and the self employed.

The rhetoric was very much that national insurance is an unfair charge to workers, but will it be abolished? Watch this space!

Furnished Holiday Lettings (FHL)

Widely trailed in the media in the run up to the budget, the removal of the FHL tax advantages will not apply until April 2025 but there are measures that come into immediate effect.

One of the advantages of your rental property being classified as FHL was then when you come to sell it - the capital gains tax rate was 10% instead of 18% or 28%.

If you were thinking of selling you would need to exchange contracts by 5 April 2025 to get the 10% capital gains tax rate.

HMRC have anticipated that this could be abused so have legislated against the use of an unconditional contract to delay the actual completion date to many years later.

For example, you sell your FHL property to your children, exchanging before April 2025 but not completing for 10 years. As exchange is the tax point, you would expect to pay only 10% capital gains tax rather than 18% or 28%. However, this is outlawed.

If you are about to invest considerable sums in an FHL, either buying or refurbishing and existing one, then please talk to us now.

Child Benefit – high income charge

A rise in the thresholds is good news for those who earn between £50,000 and £60,000. Not only will you keep your child benefit, you also won’t need to file a tax return purely to report the high income child benefit charge.

The increase in thresholds puts the charge into a holding pattern pending the consultation on how to charge the household rather than the individual. With a change of government likely, this may not see the light of day. Also, it is difficult to see how they can charge the household as that would require the sharing of information between taxpayers – not sure this would be allowed under current GDPR rules!

Capital Gains Tax

The reduction of the higher rate for residential property gains is an odd one. There is no corresponding cut to the lower rate of 18%, so it stands in isolation. It may prompt some landlords to further dispose of their portfolios (both residential or furnished holiday letting).

It applies to exchanges from 6 April 2024.

UK Individual Savings Account (ISA)

This is a new UK ISA that allows a further £5,000 to be invested into UK equities and still benefit from the existing ISA tax free provisions (income and capital gains taxes).

Concern has already been expressed as to how it will funnel retail investors (i.e. Joe Public) into a narrow area of the stock market. Our experience of financial advisors over the past 30 years has been to always recommend that you diversify an investment portfolio to minimise risk. If you’re tempted to use this new ISA in isolation, you should take financial advice first.

Other changes in brief:

• The VAT registration threshold has risen by £5,000. This is not a big increase - it last increased in 2017 and should be £107,000 by now if one takes inflation into account.
• The existing non domicile rules are being abolished and replaced by a new system.
• Multiple dwellings relief for Stamp duty land tax has been abolished – affects you if you were buying a block of flats.
• Disappointingly, Corporation tax rates, Income tax rates and all earnings thresholds are unchanged.
• No changes to the pension thresholds have been announced. If you have Lifetime Allowance (LTA) protection in place, consider carefully any further pension contributions in light of the political risk of a change of LTA tax policy by a change of government.

Sum up:

This really is a mixed bag of changes that has tinkered at the edges of the tax system.

There is really no help here at all for businesses and it’s disappointing that the fundamental inequalities and earnings “cliff edges” of the income tax system have not been addressed.

The Chancellor has clearly been restricted in what he can do due to a smaller level of fiscal headroom identified by the Office of Budget Responsibility.

Therefore, watch out for an autumn budget prior to a November election.

As always, please discuss with us any plans that you are considering so we can advise on the tax implications of the current government’s policies.

The Team at Cleverdons