Chancellor Jeremy Hunt has presented this year's Budget in the House of Commons, marking the final scheduled Budget before the upcoming general election, expected later this year. As the nation prepares for this pivotal political event alongside the ongoing economic recovery, the Spring Budget presents a crucial opportunity to set the fiscal direction for the future, reflecting the government's commitment to fostering economic growth, supporting businesses, and ensuring a fair and sustainable tax system for individuals. Here’s our summary of the key tax points.
Spring Budget summary for businesses (employers):
Full expensing for capital allowances: Capital allowances will be extended to leased assets, allowing businesses to fully expense these assets. This move aims to incentivise investment and boost business productivity.
VAT registration threshold increase: The VAT registration threshold will increase to £90,000 from £85,000. The deregistration threshold has also increased to £88,000 (from £83,000). This adjustment aims to reduce the compliance burden on small businesses and provide them with more flexibility in managing their finances. If you find yourself temporarily exceeding the threshold, such as due to winning a significant one-off project, you can apply for a registration exception. If you can provide evidence demonstrating that your turnover will fall below the deregistration threshold within the next 12 months, HM Revenue and Customs may grant an exception after careful consideration.
Reduction in national insurance contributions (NICs): In last year's autumn statement, there was a reduction in employee's national insurance, dropping from 12% to 10%, effective as of 6th January 2024. Building on this, the recent Spring Budget introduced a further decrease of 2% lowering the rate to 8% starting from 6th April 2024.
For those considering staff bonuses in their March payroll, it might be worth exploring the option of deferring these payments to April. This strategic move allows employees to take advantage of the reduced national insurance rate, ultimately allowing them to retain more of their bonus.
It's important to note, however, that this reduction exclusively impacts the national insurance rate paid by employees. The employer's national insurance rate remains unaffected at 13.8% for wages exceeding £9,100 annually (£175 per week). Unfortunately for employers, there isn't an immediate financial benefit from the reduction in the employee rate.
On a separate note, eligible employers can continue to claim the employment allowance in the fiscal year 2024/25, providing a reduction of up to £5,000 per year on their overall National Insurance liability. If you're unsure about how to claim this allowance, please don't hesitate to reach out to us for assistance.
Spring Budget summary for individuals
Reduction in national insurance contributions (NICs) for the self-employed: The Spring Budget has extended the national insurance cuts initially introduced in last year's Autumn Statement. Effective from 6th April 2024, the rate of class 4 national insurance, which is factored into your tax bill at year-end, has been further reduced from 9% to 6% for profits ranging between £12,570 and £50,270, while the rate for profits exceeding £50,270 will remain at 2%.
For instance, if your trade profits for the 2024/25 tax year amount to £50,000, this rate reduction could lead to a saving of £1,302 compared to the previous tax year. However, the impact of this saving won't be felt until you settle your 2024/25 self-assessment balancing payment by 31st January 2026.
Additionally, as previously announced in last year's Autumn Statement and reaffirmed in the Spring Budget, class 2 national insurance will effectively be abolished, resulting in a yearly saving of £179.40. For the self-employed, class 2 national insurance payments have traditionally ensured entitlement to various state benefits, including the state pension. If your profits exceed £6,725 in 2024/25, you will continue to accrue entitlement to state benefits without paying class 2 national insurance. However, if your profits fall below £6,725 or you experience a loss, you have the option to voluntarily make class 2 contributions at £3.45 per week to maintain your state benefit entitlement. The government has announced plans to consult on the final abolition of class 2 national insurance contributions later this year. This process is likely to introduce new methods or criteria for accruing state benefit entitlements.
The reductions will automatically reflect in your tax calculation when you submit your tax return.
Reduction in higher rate capital gains tax (CGT): The higher rate of CGT will reduce to 24% from 28%. This adjustment aims to incentivise investment while ensuring a fair taxation system. Moreover, the move is anticipated to increase tax revenues overall by encouraging more property sales. According to Budget papers, the net extra tax take from the change is expected to be £690 million.
Increase in high-income child benefit charge threshold: The high-income Child Benefit charge threshold will increase to £60,000 from £50,000. Furthermore, the High Income Child Benefit Charge (HICBC) will now be calculated at a rate of 1% of the child benefit received for every £200 of income above the threshold. This represents a slower rate of clawback compared to the previous tax year of 2023/24, resulting in child benefit being fully clawed back only when income exceeds £80,000, as opposed to the previous threshold of £60,000. As a consequence of this change, a significantly larger number of couples will be able to retain their child benefit.
Additionally, Chancellor Jeremy Hunt announced intentions to alter the HICBC so that it is based on household income rather than individual income. This adjustment is anticipated to be implemented by April 2026.
Abolition of non-domiciled individuals regime: The non-domiciled individuals' regime will be abolished and replaced with a simpler phased-in system for new arrivals for the first four years. Those who continue to reside in the UK beyond this period will be taxed on their worldwide income. This change aims to simplify the tax system and ensure fairness in taxation for all residents.
Spring Budget summary for property owners and landlords
Abolition of furnished holiday lettings tax regime: The tax regime favourable to furnished holiday lettings is set to be abolished from 6th April 2025, meaning your profits from holiday lets will be subject to the same tax regulations as other rental properties, potentially resulting in an increased tax liability if your holiday let income remains the same. This change will likely impact businesses operating in the short-term rental sector.
If you decide to sell your holiday let after 6th April 2025, you won't benefit from Business Asset Disposal Relief, which offers a favourable 10% capital gains tax rate. Although the abolition isn't immediate, measures will be implemented from 6th March 2024 (the day of the Budget announcement) to prevent tax planning strategies aimed at manipulating the sale date of a holiday let to appear before 6th April 2025.
Abolition of stamp duty relief for multiple dwellings: Stamp duty relief for multiple dwellings will be abolished. This change may impact individuals involved in property transactions, particularly those purchasing multiple properties.
Reduction in capital gains tax (CGT) higher rate:
The Spring Budget introduced a couple of changes to capital gains tax (CGT) allowances and tax rates, which are particularly noteworthy for individuals who own residential property in addition to their primary residence.
Annual Exemption: The CGT annual exemption, representing the amount of capital gain that can be realized without incurring tax, is being reduced for the 2024/25 tax year to £3,000, down from the current £6,000. Consequently, individuals selling capital assets like property or shares will face increased tax liabilities.
Since there's still some time before the start of the new tax year, if you're contemplating the sale of any capital assets (and have the flexibility to do so before 6th April), it may be prudent to consider the timing.
Rates: The main CGT rates remain at 10% if your gains fall within your unused basic rate band or if you're disposing of a qualifying business eligible for Business Asset Disposal Relief. In most other cases, the rate is 20%, except for residential property sales.
While potentially no CGT is applicable when selling your primary residence, selling a residential property that isn't your main home will attract increased CGT rates. Starting from 6th April 2024, the CGT rate for residential property remains at 18% for gains within your unused basic rate band, but it will decrease to 24% (from the previous 28%) for gains exceeding an individual’s basic rate tax band.
The government aims for this reduction to stimulate activity in the property market, benefiting those seeking to relocate or enter the property market.
LWA are here to help you
If you need bespoke advice as a result of the Chancellor’s Spring Budget 2024, please contact a member of our Corporate and Personal Tax team – we’re here to help. Call 0161 905 1801 in our South Manchester office or 01925 830 830 in Warrington, or you can email us via mail@lwaltd.com.