The Spring Budget 2024

With thanks to Kathy Potter and Tristan Smale for their assistance in putting this note together.?

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The corporate tax team thought that the Budget Speech raised a single important question.? Was this the most childish ever Budget debate??

Noise levels in the Commons were sky high.? The Deputy Speaker asked the assorted MPs if they could shout more quietly, or go further away and shout from there.? One MP was told that he had shouted 5 times, and that, if he shouted a further time, the Speaker would seriously consider telling him again to stop it.?

The Chancellor fat-shamed the Leader of the Opposition and asked if he would like to join him in jogging.? This was a reference to Lord Mandelson’s criticism earlier this week of Keir Starmer for being too broad and of Rishi Sunak for being too small.? Playground insults flowed freely – some unprintable even entirely in asterisks - and, in that spirit, we should point out that the Chancellor started it.? He said Angela Rayner would be interested in the SDLT changes to multiple dwellings relief (though in fact she had only owned one house and we suspect it may have been under the SDLT threshold).? Welcome to election year.

The trick with pre-election budgets is to seem to give as many tax cuts as possible, seem to spend as much as possible on public welfare, do neither, and adopt any good ideas the opposition has suggested.? Tick, tick, tick and tick.

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Non-Doms

The Chancellor sought to take the wind out of Labour’s sails, by moving in on one of Labour’s flagship election policies: non-dom status. ?This move by the Chancellor takes away a potential new source of cash for Labour to deliver on some of its key promises, if it comes into power.

The change is estimated to raise ￡3.2bn. ?Whether that number is accurate will depend on whether the 68,000 non-doms based in the UK continue to be UK tax resident. ?It is reported that they currently contribute ￡8.5bn in taxes even without this change.

The current non-dom regime will be abolished.? Instead, a new regime will be introduced for new arrivers to the UK (those who have been non-resident for 10 consecutive years). ?For the first four years of tax residence, new arrivers will be able to generate and/or remit foreign income and gains without any tax charges. This is more generous than the existing regime, which taxes foreign income and gains if they are remitted to the UK. ?After the four-year period, individuals will be taxed on their worldwide income, whether or not remitted. This is in-line with the way that those who are resident and domiciled in the UK are already taxed, and is a significant shortening of the period that currently applies (15 years).?

Individuals who are currently claiming non-dom status and already UK resident will be able to opt into the new regime. They will not pay tax on foreign income or gains (whether remitted or unremitted) until the end of their fourth year of tax residence.

Transitional arrangements will apply for existing non-doms:?

??????????? a temporary 50% reduction in foreign income subject to tax during the 2025-26 tax year for individuals who will already have exceeded the four-year residence test when the rules come into force in April 2025;

??????????? an option to elect to rebase capital assets to their value on 5 April 2019, to reduce the amount of gain that UK capital gains tax is charged on;

??????????? individuals will be able to remit foreign income and gains which arose prior to April 2025 at a reduced rate of tax at 12%, provided that the remittance takes place during the tax years 2025-26 or 2026-27; and

??????????? protection for non-resident trusts established before 6 April 2025 such that no UK tax will arise on a distribution to a UK resident unless they have been resident for more than four years at the time of the distribution.

It appears that the favourable tax treatment afforded to settlor-interested trusts under the ‘protected settlements’ regime will cease, although trusts should still be able to shelter non-UK assets from an Inheritance Tax perspective if established before 6 April 2025.

Currently, non-doms are entitled to overseas workday relief for days that they spend working outside the UK. This relief will be retained for the first three years of UK tax residence, but with the individual being able to remit income from the overseas workday to the UK during the first four years of residence without any tax charge.

As part of these changes, the Government has also announced a desire to move towards a residence-based regime for Inheritance Tax. A consultation on this will follow.

No change for Mrs Sunak, of course, who has previously agreed to pay tax on her worldwide income, accepting that her tax status was not compatible with her husband’s role.

For assistance on these changes, please feel free to ask the private client team!

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NICs

National Insurance Contributions are on the way down again. In 2022 we saw a reduction in NICs after what was to become the Health and Social Care levy was scrapped. ?That represented a 1.25% saving for both employee and employer NICs. ?In 2023, changes were made to reduce the main rate of employee Class 1 NICs from 12% to 10% - for self-employed NICs, the main rate (Class 4) was reduced from 9% to 8% and Class 2 NICs were abolished altogether.

Today, the Chancellor announced further reductions in employee NICs from 10% to 8% for the main rate, and a further reduction in self-employed NICs from 8% to 6%. ?These rates apply for earnings between ￡12,570 and ￡50,270. Earnings above this threshold will continue to be charged at the 2% NICs rate (for both employees and those who are self-employed).

This is all very well but did the Chancellor not see last week’s “One Minute With” interview in The Tax Journal, where a leading expert suggested that the tax that most needs cutting is employer’s NIC, not employees’ NIC?? Apparently, he did not.

VAT?

The threshold at which VAT registration is compulsory will increase from ￡85,000 to ￡90,000 in April. ?This is the first increase in the threshold since 2017.? Prior to 2017 it had historically risen in line with inflation.? The effect of the increase is that businesses will only have to conceal turnover once it reaches ￡90,000, rather than ￡85,000.??

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Child Benefit

The Chancellor acknowledged the unfairness of how the High-Income Child Benefit Charge (HICBC) is calculated, recognising that a dual income family could earn ￡49,000 each without any charge, whereas a single earner at ￡50,000 would be within the charge. ?The Government will consult on moving to a household-based earnings system by April 2026.

In the meantime, the earnings level for the HICBC to apply will be increased to ￡60,000. ?In addition, the rate at which the charge is due will reduce so that the charge equates to 1% of the child benefit payment for each ￡200 above ￡60,000, rather than for each ￡100 of excess. ?This means that the child benefit payment will not be reduced to ￡0 until earnings of an individual is ￡80,000 or higher.

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SDLT

There were plenty of changes on the property tax side of things.? Of great interest to many clients is the abolition of SDLT multiple dwellings relief.? This relief allowed purchasers of more than one dwelling to average out the purchase price between the dwellings, and pay the lower rates of tax applicable to the average price.? This was particularly useful for purchases of blocks of flats, etc.? The Government consulted on the relief and has decided to abolish it for transactions with an effective date on or after 1 June 2024.? For contracts which exchanged on or before 6 March 2024, the relief will continue to apply unless the contract is varied, etc after 6 March 2024.? The relief will continue to apply to contracts which are substantially performed before 1 June 2024.? (Note that, where 6 or more dwellings are purchased in the same transaction, purchasers pay SDLT at the non-residential rates, and this will continue to apply.)

Minor changes are being made to the rules for SDLT public subsidy relief.

Surprisingly, the Government decided not to change the SDLT rules for mixed transactions involving the purchase of both residential and non-residential property.? They had consulted on changing the current law, which says that the non-residential rates apply to the entire purchase price if any of the property is non-residential.? The consultation suggested the price should be apportioned between the respective parts, but it has been decided no change is necessary.? Which is strange.? Did the Chancellor not see last week’s “One Minute With” interview in The Tax Journal, where a leading expert suggested that the proposal to use an apportionment was a good idea?? Apparently, he did not. ??????

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Other Property Tax Changes

In another surprising change, the rate of capital gains tax for second homeowners has been reduced.? Higher rate taxpayers are taxed at 28% on disposals of residential property that do not qualify for private residence relief, but this has been reduced in the Budget to 24% for gains accruing on or after 6 April 2024.? (The 18% rate for basic rate taxpayers is unchanged, as is the 28% rate in respect of carried interest.)? The logic in having the 28% rate, instead of the usual 20% CGT rate, ?was that it would dissuade people from owning second homes.? The logic for cutting the rate, according to the Government, is that it will incentivise second homeowners to dispose of their properties earlier.? And that is the dictionary definition of doublethink.

The tax advantages for furnished property lettings have been abolished from April 2025.? Landlords of such properties could deduct expenses on the properties as though they were business expenses – e.g. energy and gas bills, insurance and repairs, etc.? They could also benefit from capital allowances and capital gains tax reliefs.? With effect from April 2025, they cannot.

The rules regarding business rates empty property relief are changing.? No rates are payable for the first three months after a property becomes empty.? Should the empty property be occupied again for a period of six weeks or more, it becomes eligible for another period of empty property relief when it falls empty again.? This has apparently led to repeated six week periods of artificial occupation and the Government has decided that properties that have benefited from empty property relief will be required to be occupied for a minimum period of three months (thirteen weeks) before they can benefit from a further period of relief.? (We know.? Avoiders will simply have to create artificial occupation for longer.)

The Government also announced a consultation on the merits of introducing a “General Anti-Avoidance Rule” for business rates, along the lines of the rule which already exists for most other taxes.

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Spin-outs

The government has asked universities to report on their spin-out policies by the end of May and has also begun consulting on the design of the new ￡20 million proof-of-concept fund to support universities and future founders to de-risk technology, and on a pilot approach to supporting the establishment by universities of shared Technology Transfer Offices.

R&D Tax Reliefs?

HMRC is to establish an expert advisory panel to support the administration of the R&D tax reliefs. ?The panel will provide insights into the cutting-edge R&D occurring across key sectors such as tech and life sciences, and work with HMRC to review relevant guidance, ensuring it remains up to date and provides clarity to claimants.? This is part of an overall drive to try to limit the amount of these reliefs, which are meant to be available only for significant scientific innovation.

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Sins

We discovered again this year that not all sins are equal.? A new vaping duty is to be introduced (from 1 October 2026) and there is to be a one-off increase in tobacco duty at the same date.? But alcohol duty is yet again to be frozen, until 1 February 2025.? And the previous cuts to fuel duty are to be maintained until March 2025.? The message is clear.? There is no message.?

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Of course, there are other things.? There are always other things.? But the above are the ones we thought we would mention.? Do not, though, think this is the end of the tax changes.? (It is never the end of the tax changes.)? For the government will bring forward a further set of tax administration and maintenance announcements on 18 April 2024 - at a Tax Administration and Maintenance Day.? If anyone would like to hold gatherings on that date by way of celebration, or raise funds or whatever, let us know.