The March 2024 Budget
The Spring Budget on March 6th 2024 had a less jubilant tone than its predecessor. Previously, the Chancellor was revelling in upgraded growth estimations for the UK, and making use of the greater fiscal headroom this seemed to provide. However, with the UK having entered into technical recession, this left little room for new spending measures or for tax cuts, which the government claim is a priority.
The budget did not feature many surprises, as has been common of late, with the government choosing to ‘soft launch’ many of its measures in the preceding weeks.
Despite this, the government’s concerns about its prospects in the next election helped with the decision to press ahead with some giveaways. Both employees and the self-employed will benefit from further ‘headline grabbing’ cuts to National Insurance. Some property owners may also be glad to hear the higher band CGT rate is being reduced from 28% to 24%, which could lead to significant saving for those who were planning to sell their home or other properties.
Another change which may prove popular, at least with the electorate, is the abolishing of the non-dom regime. This allowed residents of the UK, who weren’t domiciled, to avoid paying tax on any of their overseas income or gains. Now, those who are resident for over 4 years will have to pay taxes on their foreign income and gains, although some transitional arrangements are to be put in place. The government is also consulting on ways to bring IHT in line with this.
Many business promoting measures such as ‘full expensing’ for businesses investment are continuing. Small businesses may also benefit from increased VAT reporting thresholds. This is a small increase however, only by £5,000 to £90,000.
The main takeaways from the Spring 2024 budget are listed below.
- National Insurance Cuts: The Chancellor opted to reduce National Insurance (NI) rates by 2%, benefiting workers. This cut applies to the main Class 1 rate, resulting in potential savings of up to £754 annually for employees earning between the primary earnings threshold and the upper earnings limit.
- Self-Employed NI Changes: Self-employed individuals will see changes to NI contributions. These include abolition of Class 2 NI for those with profits exceeding £6,725 annually. Additionally, Class 4 NI contributions will decrease by 2%, with potential savings of up to £1,131.
- Tax on investors: The dividend allowance will be halved to £500 for the 2024/25 tax year. The CGT exempt amount will also be halved to £3,000. For more detail on this, our article here explains further.
- Pensions: No significant changes were announced regarding pensions, with the abolition of the lifetime allowance (LTA) already confirmed for April 2024. New allowances essentially keep the amount of a pension that can be taken tax free, including upon inheritance, the same as it was under the old LTA.
- ISA Updates: While existing ISA subscription limits remain unchanged, a new ‘UK ISA’ was proposed to encourage investment in UK assets. The subscription limit for the UK ISA will be £5,000 per year. This will be separate from the existing £20,000 limit, which is spread over all other categories of ISA. Consultation on the design and implementation of this ISA will be open until June 6, 2024.
- Income Tax: Income tax rates and allowances remain unchanged.
- Child Benefit Reform: Child benefit withdrawal thresholds will increase, from £50,000 to £60,000. The rate of tapering will also be halved, so those responsible for a child will have to earn £80,000 before no benefit is derived. This will benefit households with higher earners, but the 60% marginal tax trap will still exist for people earning between £60,000 & £80,000. Plans to administer child benefit on a household basis are underway for fairness.
- Capital Gains and Residential Property: The Higher CGT rate on residential property will decrease to 24%, while other CGT rates remain unchanged.
- Inheritance Tax: The nil rate band for inheritance tax remains frozen, but consultations on a new regime for non-domiciled individuals have been launched.
- Furnished holiday lettings Owners of furnished holiday lettings will be affected as the preferential tax treatment of these properties is to be scrapped in 2025.
As with all budgets, the Spring Budget 2024 has created winners and losers.
Oil and gas firms will be grimacing at the extension of the windfall tax on profits. Those who let their properties to holidaymakers are also facing tough decisions.
Although not announced in this budget, the decision to reduce the dividend allowance and CGT exempt amount will affect many investors. For more information on this click here.
The regular changes made by successive governments through budgets like this one highlight the importance of continued, regular financial planning, allowing investors to adapt and optimise their strategy to the current and future conditions as they continue to change.
If you would like to discuss the implications of any of these changes, please contact your adviser.
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