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Key Announcements from the Spring 2024 Budget

Gresham Wealth

After a subdued Autumn Statement, along with the buzz surrounding a UK election year, the stage was set for a potentially exciting Spring Budget. Despite some early speculation that the Chancellor may cut income tax, he instead chose to cut the rate of National Insurance further for employees and the self-employed.

Other notable announcements were the child benefit tax charge changes, the scrapping of the non-domicile remittance basis rules, the introduction of a new UK ISA and UK Bond to encourage investment in the UK, and a reduction in the higher rate of capital gains tax on residential property.

So, let’s look at the main announcements in relation to financial planning…

Pensions: There were no new changes announced affecting pension. This welcomed news as the industry is still getting to grips with the abolition of the Lifetime Allowance (LTA). The LTA is to be replaced by two new allowances from April 2024. The Lump Sum Allowance (LSA) will cap the amount of tax-free cash which can be taken and is set at £268,275 for those without protection. The Lump Sum and Death Benefit Allowance (LSDBA) places a cap on tax free lump sums paid during the member’s lifetime and on death before age 75. It has been set at £1,073,100 for those without protection and is reduced by any LSA used.

Income tax: Despite speculation of a cut to income tax in the lead up to the budget there were no changes announced to UK (ex-Scotland) rates or allowances. The personal allowance and basic rate bands for income tax will remain at £12,570 and £37,700 respectively. The threshold for additional rate tax will remain at £125,140. For Scottish residents, please see our previous blog here.

With regards to dividends, the dividend allowance will be halved from £1,000 to £500 for 2024/25. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35%.

National Insurance: For employees and the self-employed, the headline news was a second cut to National Insurance contributions (NICs).  Employees – From 6 April 2024, the Class 1 employee rate of NICs will be reduced from 10% to 8%, a further two-percentage-point cut for 27 million workers after the previous cut from 12% in the Autumn Statement 2023. Self-employed –  From 6 April 2024, the Class 4 NICs will be reduced by from 9% to 6%. This replaces the cut to 8% announced at Autumn Statement 2023. The government will launch a consultation later this year to deliver its commitment to fully abolish Class 2 NICs so that from April 2024 no self-employed person will be required to pay Class 2 NICs. Together, the government say this is a tax cut for 29 million working people worth £9 billion per year.

High Income Child Benefit Charge: Receipt of child benefit is currently based on the highest earner in a household and is withdrawn at the rate of £1 for every £100 earnings they have over £50,000. This is achieved via a tax charge and means that families will not enjoy any child benefit if the high earner has income over £60,000. From 6 April 2024, there will be an increase to the threshold at which the highest earner starts to suffer the tax  charge, up from £50,000 to £60,000 and the rate of withdrawal will be £1 for every £200 of income. Child benefit will therefore be extinguished once the highest earner’s income exceeds £80,000. From 2026 there are plans to assess the high income child benefit charge based on household income rather than individual income.

Clients should be reminded that individual pension contributions can reduce income for the purposes of this test, enabling them to keep all or more of their child benefits.

Previously announced ISA changes:  The ‘one ISA of each type per tax year’ restriction will be removed from April 2024. This simplification will mean investors will be able to subscribe to multiple cash or stocks and shares ISAs in a year without fear of invalidating their subscriptions leading to a loss of tax-free status on their savings.

From April 2024 it will also be possible to do partial transfers of ISA funds. Currently there are separate rules for the transfer of current and previous years subscriptions, and this will be relaxed from April allowing partial transfers to apply to all ISA subscriptions whenever they were made.

The age at which an adult ISA can be opened will fixed at 18 across all ISA types from April. This will mean it will no longer be possible to open an adult Cash ISA at age 16, removing the ability for 16- and 17-year-olds to pay £29,000 into ISAs by combining contributions into both a Cash ISA and Junior ISA.

ISA allowances from 6 April 2024 will remain at £20,000 (per adult) and £9,000 (per Junior).

New UK ISA and British Savings Bonds: The government has announced the launch of a new UK ISA and British Savings Bonds.  The UK ISA will be a £5,000 allowance in addition to the existing ISA allowance and will be a new tax-free product for people to invest in UK-focused assets. Consultation on the design and implementation of the ISA will be open until 6 June 2024.

The British Savings Bonds will be delivered through National Savings and Investments (NS&I) and will be launched in April 2024. This product will offer a guaranteed interest rate, fixed for three years, increasing the savings opportunities available to consumers.

Capital Gains Tax (CGT) Reduction for Property: The Chancellor announced a cut to the rate of CGT payable on the disposal of residential property benefiting multiple homeowners and those with buy-to-let properties. The higher residential property CGT rate is to be cut from 28% to 24% from 6 April 2024. Gains falling within basic rate will continue to be taxed at 18%. An individual’s main residence will still be exempt from CGT as Principle Private Residence Relief will continue to apply.

The personal CGT rates for all other disposals of non-residential property remain at 10% and 20% and as previously announced the annual CGT annual exempt amount will fall from £6,000 to £3,000 per person.

VAT: For SMEs it was announced that the VAT registration threshold will be increased from its current level of £85,000 to £90,000. Whilst this is a positive step a bigger increase, perhaps to £100,000, would have made a greater difference in terms of business growth.

Non-UK Domicile Taxation Changes: It was announced that from the 6 April 2025 the remittance basis of taxation for non-UK domiciled individuals will be abolished. This is to be replaced with a new Foreign Income and Gains (FIG) regime which is determined by UK residency rather than domicile.

Individuals who become UK resident, having been non-resident for more than 10 years, will not pay UK tax on their overseas income and gains for the first four tax years of UK residence and will be free to bring these funds to the UK free of any additional tax. They will continue to pay tax on their UK income and gains in the normal way.

There is also to be a consultation on changes to inheritance tax for non-UK doms. Currently, someone who is non-UK domicile is only subject to UK IHT on assets situated in the UK. However, they become subject IHT on their worldwide assets if they become UK domicile or deemed domicile.

Other specific sectors will stand to benefit from announcements in the Budget, including the theatre and film, advanced manufacturing, and automotive industries, along with medical research, for which an additional £45m investment was pledged.

The question, as always, is whether the measures announced will go far enough, and in this key election year, there are further questions to be faced by the Chancellor and the Government on whether any measures in the Spring Budget will entice voters – only time will tell.

There are rumours of the UK election taking place in mid-November this year and we will be keenly watching as developments unfold.

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