Spring Budget 2024 Q and A

Last Updated: 7 Mar 24 7 min read

Introduction

The M&G Wealth Technical team delivered an online technical event covering the Spring BUdget 2024. Belwo are the questions and answers form the event.

Tax and NI matters

Q. When are the NI cuts taking effect?

A. The government announced these further NICs cuts, with an additional 2p reduction to the main rates of employee and self-employed NICs from 6 April 2024.

Q. What happens when state pension is more than £12,570? ie they give to take back.

A. If the state pension exceeds the personal allowance it will be taxed in the same way as any other pension income would be.

Q. I read that those on income of £15,000 will lose out on the chancellors NI 2% cut but I can't see how this will be case and from my calculation, they won't. So can shed more light on this please

A. The only reason we can think of that someone with income of £15,000 p.a. wouldn’t benefit from the NICs reduction is because they weren’t in receipt of employment income. Otherwise they should see a reduction of 2% in the rate of NICs pad between £12,570 and £15,000.   

Q. Originally when Sunak froze the personal allowance during the pandemic he said it would remain unchanged for 5 years, I thought I heard comments on this yesterday extending for another few years at least, did I mis hear this?

A. When the personal allowance was frozen initially in the Spring Budget 2021 the government said this would be until at least April 2026. In the Autumn Statement in 2022 Jeremy Hunt confirmed the personal allowance freeze would be extended until at least April 2028.

Q. The 2p NI cut is to employee NI, would this actually affect salary sacrifice pension contributions though as any additional contribution made is usually from the employer contribution saved?

A. Had a think about this after the event and yes we don’t think it will matter. But on running the numbers on the overall impact of the change it appears people will get an increase in their take home pay due to the change with the same pension contribution paid through the sacrifice.

Q. I seem to be the only person that thinks the P.A. now being below a number of state pension payments is a political and administrative problem. Are you surprised that the 0% threshold is still <£12,570

A. It would seem counterintuitive that HMRC would be happy with a tax free allowance below the level of the state pension.

Q. Is there any chance they might for the Basic Rate Band move 2 p NI to the WPS instead?

A. Anything could happen, but we wouldn’t want to speculate.

Q. But if they stop NI, does that mean they will look to take away the state pension benefit?

A.  Anything could happen, but we wouldn’t want to speculate.

HICBC

Q. Child benefit saving for £80k earner reducing to £60k but if they earn £85k then does this mean a £25k gross is required?

A. If someone had adjusted net income of £85,000 in the 2024/25 tax year then yes, a pension contribution of £25,000 gross would reduce their adjusted net income to £60,000 and get them out of the child benefit trap.

Q. Is the child benefit figure based on earned income (PAYE) or all income (dividend etc)?

A. It’s “adjusted net income” that’s used to determine whether a child benefit tax charge will apply and how much it is. Broadly speaking adjusted net income is income from all sources subject to income tax less the gross amount of any relief at source and gift aid contributions. This is why making pension contributions is a good way of getting out the child benefit “tax trap” because they reduce adjusted net income.

Q. Do you think they will look at combined family income for child benefit

A. Yes. It was specifically highlighted that it’s not fair that a household with two parents each earning £49,000 a year are not impacted by the tax charge while a household with lower overall earnings but one parent earning over £50,000 will be impacted. They are consulting on moving to a household income basis from April 2026

Property matters

Q. Just a reminder please, date of reduction for higher rate capital gains tax on second homes?

A. The higher rate of CGT for residential property gains will be reduced to 24% with effect from 6 April 2024. 

Q. Will you be doing a sheet on the difference for the taxation of rentals between personal and business for rentals post April 2025?

A. I’m afraid not as we’re not SMEs in the property arena and we also have limited resource available to investigate further. If you have clients impacted by these changes we would recommend engaging with their accountant.

Q. The Furnished letting relief being taken away from personal people and not businesses. Are they trying to push all lettings to be limited companies and not held personally?

A. The FHL regime is available to both individuals and companies, but is less favourable for companies. Our understanding is it is being removed from both. However, the government have said the objective of these changes is to level the playing field between short- term and long-term lets and support people to live in their local area.

Q. Does FHL change apply to lettings in EEA?

A. Yes, to qualify as a FHL one of the conditions is the property must be in the UK or in the European Economic Area (EEA): the EEA includes Iceland, Liechtenstein and Norway.

Domicile matters

Q. How will property carve out trusts work for Non-Doms onshoring?

A. We can’t comment, property carve out trusts need to be considered on a case by case basis.

Q. If a client has offshore funds with retails banks. Am I right to assume when the client brings the gains to the UK now they will be a one off 12% tax hit rather 45%?

A. This is what the Budget non dom policy summary stated - Non-doms will be able to remit foreign income and gains that arose before 6 April 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27.” We’re not subject matter experts on this area of tax law. Expert advice may be necessary on the non dom reforms.

Q. Labour were promising to raise tax from elsewhere re Non Dom expenditure "already spent" so will be taxing from elsewhere but where?

A. We need to wait for Labour’s election manifesto.

Q. Why has the chancellor decided to change and attack non doms (who can just leave the UK) effectively the Conservatives have always argued against Labour on this, now it seems they are agreeing with Labour. Is the Chancellor a Lib Democrat? And do you see this as a bad move for the UK in long term?

A. We’re not in a position to stray into party political matters!

Q. If somebody is domiciled in the UK and has been for years, does this mean an Excluded Property Trust has no real effect?

A. Correct. The Excluded Property Trust is for UK resident non-UK domiciled individuals who expect to become UK domiciled individuals in the future. It’s not designed for UK domiciled clients as they would still be subject to the relevant property regime and not IHT effective as it would be a gift with reservation.

Q. I would have thought the '10y year tail' would be difficult to 'police' if individual has left the UK.

A. HMRC will be assisted by the statutory residence test to determine tax residence for any one tax year. And there is already a tail in existence today.

General matters

BISA

Q. Have you any idea as to when the Brit ISA will come into existence and what will be within scope of its intended investments?

A. There is no launch date yet. We would imagine as there is a 3 months consultation, then whoever decided to offer one would need to build their systems and procedures that  it may not be quick.

Q. When does the £5k british ISA start?

A. See above reply

Q. Do you think any platforms will actually open a UK ISA?

A. It’s too early to say.

Q. Would the British ISA £5,000 be part of the £20,000 ISA allowance, or on top of? Thank you.

A. It’s in addition to the existing ISA allowance.

Q. How far do you see the America style towards protectionism of investments in the UK going?

A. We’re not in a position to speculate.

Q. Would it make sense to invest £5k into an AIM ISA for additional diversification and IHT free if held for >2 years?

A. These considerations need to be explored on a case by case basis.

Q. If you are forced to invest 20% of your £25k ISA allowance in the UK, wouldn't there be the distinct danger that everyone just reduces their UK investment holdings in the other 80%, so the ISA portfolio as a whole remains balanced? This would then make the whole concept fairly pointless...

A. The ISA consultation invites views on how to design and implement the UK ISA and will run from 6 March 2024 to 6 June 2024.

Pensions

Q. Is there any news on the pensions dashboard, which has been "coming soon" for some time now?

A. Not that we’ve heard. The last update was October 2023 which you can read about on the pension dashboard website.

Q. Following the IFS paper in Feb 2023 calling for Labour to abolish or greatly reduce PCLS , if they do to decide to do this how quickly could they implement this? Have you heard any noise on this subject?

A. It could be done quickly. This speculation has been around since 2006. It would be unprecedented to remove any accrued entitlement.   But, ultimately, we’re not in a position to speculate.

Q. Is there any news on transitional certificates? I've got some clients who have used about 95% of old LTA through DB schemes but have contacted the pension providers who have said 'they haven't got them yet'.

A. Schemes should start to be in a position to deal with requests from 6thApril – they don’t really exist until then.

Miscellaneous

Q. Not particularly related to the budget but can you reinstate the ability to claim marriage allowance by making sufficient pension contributions? Please look at the married allowance issue. I have been told some time ago you are not allowed to reduce income using pension to transfer married allowance

A. Pension contributions can be used to extend the basic rate band or reduce taxable income. As this can mean there is not income subject to higher rate tax then we believe this would make marriage allowance available.  

Q. Do you think this budget was 'light' as there is a plan to have a final Autumn Statement giveaway when the economic conditions are hopefully better?

A. Factors impacting on mainstream financial planning were relatively modest. We need to wait and see what happens next.

Q. Do you think the changes made yesterday will positively impact UK equity prices?

A. Haven’t a clue – that’s not really a technical matter, we do tax not investments.

Q. Is there a trust into which a person can put all his assets including residential property and still benefit out of the trust

A. There is nothing to stop an individual placing all their assets including their residential property into a trust but this would have consequences. If the settlor was also a beneficiary of the trust it wouldn’t be effective for IHT as it would be a “gift with reservation”. Entry, periodic and exit charges could potentially apply to the trust property. Also if the purpose of the trust were to retain entitlement to means tested benefits or care costs the arrangement could be deemed to be deprivation of capital. It would be prudent to seek professional legal advice before proceeding with an arrangement on this basis.

Q. Labour are pretty much guaranteed to get in this year. Do we know yet what their thoughts are on these changes?

A. We may get further detail when their election manifesto is published.

Q. Why did they not take out "VAT" reporting on Investment Trusts and change the PRIP and MiFID 11 rules around them in order to help UK investments in "product" which most other nations do not have?

A. We’re not in a position to speculate.

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