Streets Whittles team (quietly) comment on the Spring Budget

On 6 March 2024, Chancellor Jeremy Hunt presented his Spring Budget. Much has been written about this being a pre-election budget, designed to restore confidence and win votes. For those of you who watched or listened live, the noise from heckling which prompted the Deputy Speaker to make the impassioned plea of ‘could you please shout more quietly?’ was accompanied by a constant flow of inter party point scoring. The conclusion is that this may not be a Budget of radical change with more emphasis on abolition rather than creation but there are still a number of developments which impact on our clients and their businesses.

Some of the team at Streets Whittles – Rachel Skells, Michael Greene, Dan Insley, Dean Wright and Amy Stubbins – highlight some key areas of interest:

1. National insurance

The headline rate of national insurance (Class 1) for employees has been cut by a further two percentage points, from 10 per cent to 8 per cent. The measure will save the average worker £900 when combined with the two percentage point cut announced in November. The rate for the self-employed will be reduced from 8 per cent to 6 per cent.

Michael – This will help both employees and the self-employed which is to be welcomed. However, employers should note that there is no change to the rate of employer’s Class 1 NICs. There is also a change to Class 2 NICs for the self-employed from 6 April 2024 so that these will no longer be payable for profits above £6,725 but access to various benefits will be retained. This is a welcome simplification for the self-employed.

2. VAT Threshold

From April 1, the VAT registration threshold will be increased from £85,000 to £90,000 – cutting taxes for small businesses across the UK. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.

Michael – It is helpful that the threshold has been increased but the increase is lower than most small businesses would have hoped for given the rate of inflation over the last seven years when the threshold was last put up.

3. Higher rate of CGT for residential property disposals

The main rates of CGT remain at 10% for basic rate taxpayers (or those disposing of a business that qualifies for Business Asset Disposal Relief) and then 20% in most other cases.  However, in a bid to support the housing market, the higher rate of CGT for residential property disposals will be cut from 28% to 24%. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.

Rachel – This is welcome news for higher rate taxpayers who dispose of second homes or buy-to-let properties. This may encourage more activity in the residential property market particularly in conjunction with the announced scrapping of the furnished holiday letting regime (see below). It is important to remember than any disposals of residential property (apart from a principal private residence) that generate a capital gain must be reported to HMRC within 60 days of completion.

4. Furnished holiday lettings regime scrapped

The government will remove the current incentive for landlords to offer short-term holiday lets, rather than longer-term homes, by abolishing the Furnished Holiday Lettings (FHL) tax regime. This means that the tax breaks for second homeowners who make money from holiday lets have been scrapped. Going forward, profits from FHLs will be taxed in the same way as any other rental property profits. If you own FHLs this will be disappointing, especially the loss of your possible claim to ‘Business Asset Disposal Relief’ on any future sale. This move, however, will level the playing field between short-term and long-term lets and support people to live in their local area. This will take effect from April 2025 and draft legislation will be published in due course.

Rachel – This change will simplify the tax system for rental property income and current landlords now have just over a year to plan for the changes. Any affected landlords should discuss with us the relevant issues in the coming months.

5. Lifetime Pensions

It has been a quiet Budget for pensions. However, the Chancellor has reaffirmed the government commitment to the Lifetime Pension model. This reform has the potential to reinvigorate the pensions market by giving people the opportunity to choose to save with the pension provider of their choice and is aimed at boosting value for money in the pension market.

Dan – There is to be further consultation on how employees can have one “pension pot” for life which would indeed be a very welcome simplification for employees but it also needs to be workable for employers.

6. Non-dom regime

Significant tax changes have been announced for individuals resident in the UK but not permanently settled here (known as non-domiciled). Tax breaks for non-domiciled residents, have been abolished from 6 April 2025. They will be replaced with a simpler residence-based regime and new arrivals to the UK will not pay UK tax on their overseas income and gains for their first 4 years of UK residence. Under present rules, foreign nationals who are domiciled abroad but live in Britain do not have to pay tax on their foreign income for up to 15 years.

Amy: The new rules will be simpler and should benefit those who are only here for 4 years or less. There will also be transitional arrangements for those non-doms who are already resident here. It is a bold move and even if the motivation is partly election tactics, it is undeniably a major shift in the UK’s approach to taxation and residency.

7. Childcare

In an effort to reduce unfairness, the thresholds for the high-income child benefit charge (HICBC) will be increased from 2024/25. The Chancellor also announced plans to administer the HICBC on the basis of total household income, rather than the income of the highest earner in the household, by April 2026. The threshold for parents paying HICBC, the mechanism through which households where one parent earns more than £50,000 have to pay some of the benefit back, has been raised to £60,000. It also means that child benefit is only fully clawed back where income exceeds £80,000, rather than £60,000 in 2023/24.

Dan –  This is absolutely the right move in terms of the benefit being assessed on the basis of total household income, rather than the income of the highest earner in the household, by April 2026. However, the grievance remains that this benefit has not kept up with rising prices every year. This change may also affect whether you are required to complete a self assessment tax return for 2024/25 onwards.

8. Capital allowances and full expensing

The full expensing rules introduced for a 3 year temporary period with effect from 1 April 2023, which allow companies only, the ability to claim 100% tax relief on qualifying equipment purchases and 50% on integral features and long life assets will been made permanent. Conditions may apply in particular, some connected or group businesses need to share their £1million AIA limit between them and this is something that HMRC are currently focusing on so please do talk to us if you have any concerns. The government is to publish draft legislation for consultation to consider any potential extension to include plant and machinery for leasing.

Dean – This looks like a useful development and will be appreciated by businesses as they identify opportunities and make plans for future investment, safe in the knowledge that there is no longer a deadline for the benefit.

Further information:  If you would like further details about the Budget, members of our practice wide tax team hosted a webinar which can be downloaded here. There is also our Tax E News – here.

If any member of our team can help you with any of these issues raised, please get in touch.