2024 Budget
Written by Ray Coman
Last attempt of the Tories to recover popularity before the election, the Budget included a generous national insurance rate cut for basic rate taxpayers while targeting wealthier individuals through abolition of furnished holiday lettings regime and non-dom tax concessions.
Further cut to main rate of employee’s national insurance contributions
National insurance reduction for the self-employed
Reduction in High Income Benefit Charge
Scrapping of non-domiciled tax concession
Capital gains tax on residential property to reduce
Furnished holiday letting regime to be abolished
Further cut to main rate of employee’s national insurance contributions
The employee national insurance rate is to be cur by 2 pence in the pound starting 6 April 2024. This cut follows a similar cut in the Autum statement of the rate from 12% to 10%. When combined with the NI cut in November a taxpayer on £50,270 or higher will save £1,508 a year, as a result. The cut affects the rate between the primary threshold (of £12,570) and the Upper earnings limit (of £50,270 per year.) There are no further savings for employees or directors with an income over the upper threshold.
National insurance reduction for the self-employed
The rate of sole trader national insurance rate between the Lower and upper Profits Threshold also reduced from 8% to 6%. This mirrors the cut given to employees and will save sole traders and partners in a partnership about £650. The cut increases the tax benefit of working an unincorporated business (or LLP) as compared with operating as a company.
Income tax rates and thresholds remain the same
Despite inflation falling from 10% last year, the rate is still about 4%. This means that the real terms value of fixed thresholds such as the personal allowance and higher rate tax band are being eroded over time. The process by which inflation reduces the value of fixed allowances is referred to as fiscal drag and it is estimated to cause the current tax burden on the UK taxpayer to be the highest in history.
Reduction in High Income Benefit Charge
The High Income Benefit Charge is the threshold at which child benefit needs to be pad back through a self-assessment Tax return. Currently set at £50,000, the threshold is due to increase £10,000 to £60,000 from April. Child benefit is available to parents with children under 16 or under 20 if in full time higher education.
The rate of tapering is also halved. Currently, the amount of Child Benefit to repaid increases at a rate of 1% for every £100 that income exceeds the threshold. Therefore, the amount to pay back is equal to the benefit received when income reaches £60,000.
From April 2024, the charge is equal to 1% of benefit received for every £200 that income exceeds the threshold. Consequently, HIBC is equal to child benefit received when income reaches £80,000. The benefit clawback is assessed on whichever partner has the higher income. As of next month, child benefit will be £25.60 per week for the first child and £16.95 per week for subsequent children.
Scrapping of non-domiciled tax concession
Currently a person who is ‘domiciled’ outside the UK can claim the remittance basis on overseas income and wealth. The measure is designed so that wealthy foreign nationals (who have the potential to contribute towards the UK economy and support the sterling currency) are not deterred from migrating to the UK.
The length of time during which the remittance basis can be claimed is currently 15 years, although a remittance basis charge makes it ineffective for the majority of non-doms after just 7 years. Mr Hunt announced that a new simpler system will apply based on residency will allow the concession to apply to overseas income and gains for the first four years of residency only.
Capital gains tax on residential property to reduce
The rate of tax applied to gains on disposal of residential property will reduce from 28% to 24% with effect from April 2024. Currently, a person’s home is exempt from tax. Residential real estate which is not being occupied by the owner is however subject to capital gains tax.
British ISA
In addition to the ISA- currently set at £20,000 per annum-, savers will be able to contribute up to £5,000 starting 2024/25 into a fund invested exclusively in British companies.
VAT threshold to rise
Long overdue the VAT threshold will be rising from 1 April 224 from £85,000 to £90,000. The Vat threshold has been fixed at 85,000 since April 2017, and has not kept pace with inflation since. However, the most recent increase will be welcomed by small businesses and the self-employed who can reduce red tape and stay more competitive by remaining unregistered for VAT.
Furnished holiday letting regime to be abolished
The current regime allows investment property that is let to short term to benefit from preferential rates. In particular, a full deduction from mortgage interest against profits is allowed. The sale of a furnished holiday let can benefit from business asset disposal relief, which is 10% and considerably lower that the rate of capital gains tax applied to other types of residential property. Staring April 2024, landlords will no longer be able to treat their property as FHL and most properties will be treated the same as other types of buy-to-let. The aim is to make more long-term rental accommodation available in holiday spots. The Budget also included an abolition of Multiple Dwellings Relief (from stamp duty land tax) available to landlords of multiple properties.
Summary
As the final Budget before the election, and the Tories lagging in the polls, a raft of tax cuts were inevitable. The tax concessions were enabled by continuing drops in inflation which is expected to reach 2% in the coming months. Fiscal drag continues to be the hidden method of funding the fiscal changes, with changes to non-dom legislation making a smaller contribution.
