Spring Budget 2024

National Insurance

What was announced?

In the Autumn Statement the Chancellor announced that Class 2 NICs are to be “abolished” for the self-employed who have profits in excess of £12,570. He also announced that the main rate for Class 4 NICs will be reduced from 9% to 8% and that the main rate for Class 1 NICs will come down from 12% to 10%.

Further to this in the Spring Budget 2024 the chancellor announced a further cut in class 1 NIC’s down to 8% and a further cut in Class 4 NIC’s will to 6%.  

What does it mean for the planner?

In simple terms a reduction in National Insurance and a freeze on the thresholds means more money in the pocket for workers.

Employees

Currently, employees pay Class 1 NICs at the main rate of 12% for earnings between £12,570 and £50,270. In comparison to the 12% rate that previously applied this can mean a maximum saving of £1,508 in National Insurance deductions (based on earnings between £12,570 and £50,270 saving 4%). We have detailed this effect for certain levels of income below.

The lower rate will result in a lower saving for basic rate taxpayers making use of salary sacrifice, but shoudl improve their overall position.   This year, an employed individual earning £50,000 a year who sacrificed £10,000 of their salary into a pension would have saved £1,150 in National Insurance. With the reduced rate, this National Insurance saving drops to £800. But, when looked at in the round their take home pay will increase by £960, giving scope to have a higher contribution, more disposable income or ability to save elsewhere without impacting their current spending power.

Self employed

Similar to the changes detailed for employees above this simply means that the self-employed will be paying less in NIC’s. Below is a comparison to the cut in Class 4 NIC’s from 9% down to 6% which takes effect from 6 April 2024 for profits between £12,570 and £50,270 will drop from 9% to 8%. With the maximum saving being £1,131 (based on self-employed earnings between £12,570 and £50,270 saving 4%).

Capital Gains Tax

What was announced?

In the Spring Budget 2024 the chancellor announced that the higher rate of CGT for residential property gains will be reduced to 24% with effect from 6 April 2024.  

What does it mean for the planner?

Simply put higher rate taxpayers, or those that have gains that push them into the higher rate of tax will have less tax to pay.

It’s important to note that this only applies to the higher rate of CGT and the basic rate of CGT for residential property gains will remain at 18%. It’s also important to remember that this will only apply to residential property gains in the higher rate, carried interest gains in the higher rate of tax will still have a rate of 28% applied.

But still a handy saving of £400 per £10,000 of residential property gain in the higher rate of tax.

For those that are considering realising a property gain or are presently in the process of this, it may be worthwhile investigating if this can be delayed until the beginning or the 2024/25 tax year. 

High Income Child Benefit Tax Charge

What was announced?

In the Spring Budget 2024 the chancellor announced an increase in the starting level where the High Income Child Benefit (HICBC) Tax charge applies. Presently this begins at £50,000 but from 6 April 2024 this will increase to £60,000 with a reduced taper of loss of allowance. They also announced a consultation on future changes.

What does it mean for the planner?

Presently the high income child benefit tax charge applies where there is one partner with adjusted net income of over £50,000 in a household where child benefit is claimed and the partner with the highest adjusted net income has to pay the child benefit charge.

If this tax charge applies you have to pay back 1% of the child benefit received for every complete £100 of adjusted net income you have over £50,000, therefore once you reach £60,000 you have to repay 100% of any child benefit received.

From 6 April 2024 the starting limit of this charge will be increased to £60,000 of adjusted net income and it will be changed to paying back 1% of the child benefit received for every £200 of adjusted net income you have over £60,000. Therefore, the point where all of the child benefit has to be repaid will increase to £80,000.

A welcome increase to this limit for many as for a few years the HICBC could apply to earnings in the basic rate. There is still the potential for planning by making pension contributions for individuals subject to the HICBC.

As an example someone not living in Scotland with adjusted net income of £80,000 and three children could make a pension contribution (or a third party could make the contribution on their behalf)  of £16,000 net / £20,000 gross. This would then retain their child benefit of £3,094 along with a reduction in their tax bill of £4,000 and £4,000 relief at source applied to their pension. A total tax saving of £11,094 for making a £20,000 gross contribution. Or to put it another way, they get 55.47% tax relief.

An individual subject to Scottish rates of tax would see a better outcome as Scottish higher rate tax is taxed at 42% and the new advanced rate of 45% from £75,000 meaning for the same £80,000 income and a £20,000 gross pension contribution. They would get a tax saving of £4,550, relief at source of £4,000 and retain the £3,094 child benefit, a total tax saving of £11,644 or 58.22% tax relief.

Some people may have stopped receiving child benefit due to the tax charges who may now wish to restart as they will have a lower charge or be free of the charge altogether.

What will happen in the future?

The government recognises issues that have been raised around the unfairness in how the HICBC is currently charged on an individual basis. For instance, dual income families on £50,000 each (with a household income of £100,000) may not be liable to the HICBC, but a single parent earning over £50,000 could.

In response, the government plans to administer the HICBC on a household rather than individual basis by April 2026, and government will consult in due course.

Allowances

What was announced?

The starting rate for savings will remain at £5,000 for the 2024/25 tax year, maintaining its current level.

The Personal Savings Allowance will be £1,000 for those with adjusted net income of £50,270 and below, £500 for those with adjusted net income between £50,270 and £125,140 and will be £0 for those with adjusted net income above £125,140, maintaining the current levels.

The CGT annual exempt amount will reduce to £3,000 from £6,000 as of 6 April 2024.

The Dividend nil rate of taxation will reduce to £500 from £1,000 as of 6 April 2024.

What does it mean for the planner?

Make use of these allowanced where possible, and if savings or investments will take clients above these allowances consider appropriate wrappers to place these in.

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Abolishing the remittance basis

What was announced?

In the big red Budget book, under the heading of Replacing Non-UK domicile tax rules with a residence based regime, there is the statement set out below. Before reading that, please note that in broad terms, non-doms are individuals whose permanent home, or domicile, is considered to be outside the UK. 

“This measure abolishes the remittance basis of taxation for non-UK domiciled individuals and replaces it with a simpler residence-based regime. Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first four years of tax residence, provided they have been non-tax resident for the last 10 years. This new regime will commence on 6 April 2025 and applies UK-wide. The government will introduce the following transitional arrangements for existing non-doms claiming the remittance basis:

• an option to rebase the value of capital assets to 5 April 2019
• a temporary 50% exemption for the taxation of foreign income for the first year of the new regime (2025-26)
• a two-year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.

What does it mean for the planner?

UK resident but non-domiciled individuals currently have access to a tax regime called the 'remittance basis'. They are:

• Liable to UK tax on all their income and capital gains which arise in the UK, but
• Only liable to UK tax on non-UK income and capital gains if remitted to the UK.

All other residents are liable to UK tax on all their worldwide income and capital gains.

An annual charge is in place for those non-domiciles who make a claim to be taxed on the remittance basis in a tax year and have been UK resident for a period of time prior to the year of claim. There are increasing charges depending on how long the individual has been living in the UK. For example, there’s a charge of £60,000 for non-domiciles who have been resident in the UK for 12 of the past 14 years.

For many individuals the cost of claiming the remittance basis is prohibitive when compared to the potential tax saving. Individuals who don’t wish to claim can instead choose to be liable to tax on all their worldwide income and capital gains whenever they arise.

In summary the government is ending the current rules for non-UK domiciled individuals from April 2025 when a new residence-based regime will take effect as outlined above in the “what was announced?” Section above.  Briefly, new arrivals to the UK will benefit from 100%  UK tax relief on foreign income and gains for the first four years that they are tax resident here, and there will be transitional arrangement in place for current non-doms. Under the new system anyone who has been tax resident in the UK for more than four years will pay UK tax on any foreign income and gains, as is the case for other UK residents. For the avoidance of doubt, this reform will abolish the remittance basis of taxation for non-doms. Non-doms currently taxed on the remittance basis are eligible for Overseas Workday Relief (OWR) during their first 3 years of UK tax residence. OWR will be retained and simplified under the new system.

Decisions have not yet been taken on the detailed operation of the new system, and so the government intend to consult on this in due course. There will be further updates and draft legislation published later in the year for technical comments. Some points of detail concerning IHT will be settled after consultation with representative bodies and other interested parties.

The taxation of non doms is a complex area of tax law requiring specialist advice.

Inheritance Tax Consultation

What was announced?

The government announced the intention to move to a residence-based regime for Inheritance Tax (IHT) and will consult in due course on the best way to achieve this, including consulting on a 10-year exemption period for new arrivals and a 10-year ‘tail-provision’ for those who leave the UK and become non-resident. No changes to IHT will take effect before 6 April 2025.”

What does it mean for the planner?

Liability to IHT depends on domicile status and location of assets. Under the current regime, no IHT is due on non-UK assets  of non-doms until they have been UK resident for 15 out of the past 20 tax years. These rules give rise to Excluded Property Trusts for those individuals who are resident in the UK but not yet domiciled within the UK. It’s often used by individuals who wish to purchase an offshore bond and have an Excluded Property Trust wrapped around it. If the individual subsequently becomes domiciled within the UK, the assets inside the Excluded Property Trust can remain outside the scope of IHT.

The treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime. New trusts and additions to existing trusts made by a non-UK domiciled settlor on or after 6 April 2025 will be subject to new residence-based rules.

The taxation of non doms is a complex area of tax law requiring specialist advice.

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UK ISA

What was announced?

The government is going to create an additional Individual Savings Account with a £5,000 allowance. This would be in addition to the current ISA subscription limits and will provide an opportunity for people to invest in the UK and to support UK companies.

What does this mean for the planner?

There are currently four types of ISA open to adult investors, Cash ISA, Stocks and Shares ISA, Innovative Finance ISA and the Lifetime ISA. The government proposal will bring that up to five with the intention being to increase investment into UK companies and boost economic growth.

The UK ISA is not available yet and the government have issued a consultation on how it should be defined and implemented. The consultation is open for responses until the 6^th June 2024 and considers the type of investments that should be held such as UK company shares, corporate bonds and gilts.

The government have also proposed that the UK ISA should allow investment into collective investment schemes. Consideration is being given to replicate the approach previously used for PEPs (Personal Equity Plans) which allowed investment into authorised unit trusts or investment trusts if at least 75% of the value of the fund were invested in eligible UK companies. PEPs were the forerunner to ISAs introduced in 1987 as a way to encourage stock market investment. 

There are proposals in the consultation to ensure a new ISA allowance is not open to abuse. These involve restricting or disincentivising holding cash and barring transfers from the UK ISA to another type of ISA.

There is no set timescale for the launch of the UK ISA and one of the questions asked in the consultation is how long it would take providers to deliver an appropriate product. Another perhaps more important question posed in the consultation is if providers would want to offer it at all.

It will be interesting to see how this develops. For those who can afford to make use of the additional allowance there is a clear tax benefit but remember the tax tail shouldn’t wag to investment dog. Tax efficiency is attractive but geographical diversification and asset allocation may have a bigger impact on the investment return. It’s also worth remembering that in 2020/21 over 11 million ISAs were subscribed to but only 21% of people actually subscribed over £15,000. The UK ISA will be of no benefit to 79% of ISA investors. 

NS&I British Savings Bonds

What was announced?

The government announced that National Savings & Investments (NS&I) will launch a product which will offer consumers a guaranteed interest rate, fixed for three years. The product will be available from early April 2024.

What does this mean?

British Savings Bonds are 3 year fixed rate issues of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds. They offer a guaranteed interest rate (as yet unknown) for investments between £500 and £1 million.

With the Guaranteed Growth Bond the interest is added each year. With the Guaranteed Income Bond the interest is paid out to the saver’s bank account each month. Interest on these products is taxable.

Obviously, the big question is what interest rate will apply but one of the good things about NS&I is that because you’re effectively lending to the government, the money is secure and 100% backed by HM Treasury. 

Agricultural and Woodlands Relief

What was announced?

Restricting the scope of agricultural and woodlands relief was a measure announced in the Spring Budget of 2023 but the government has now issued a policy paper in the accompanying Spring 2024 budget documents. The policy paper outlines the decision to restrict the scope of agricultural relief and woodlands relief to property located in the UK.

What does this mean?

Agricultural property relief is a relief from IHT available on the agricultural value of land and other property that is owned and occupied for the purposes of agriculture. This will usually be land or pasture that is used to grow crops or to rear animals. The relief is 100% or 50% depending on the assets that qualify for the relief.

Woodlands relief is a relief from IHT available on the transfer of woodlands on death as long as certain criteria are met.

Restricting these reliefs to property situated in the UK is really just a reversal of previous action taken expanding the relief to property located in the Channel Islands and the Isle of Man (in the 1970s) and the EEA (in 2009). The expansion of the relief to cover the Channel Islands and Isle of Man related to IHT and domicile rules that were subsequently removed so this restriction is really just ensuring property is treated consistently with property located in the rest of the world. Similarly, as the UK has left the EU the rules are being reversed to ensure property located in the EEA no longer receives special treatment.  

The measure will have effect from the 6 April 2024 in relation to any transfers of value. Any lifetime transfers made before the 6 April 2024 will continue to benefit from the rules in place at the time the transfer is made.

The impact of these restrictions is expected to impact only a very small number of individuals and estates who own qualifying land or woodlands in the EEA, Isle of Man or Channel Islands. Some businesses will be affected but most businesses should qualify for business relief so again the impact is  limited. 

Tax simplification – Payment of IHT

What was announced?

The government have announced an administrative change to ease the payment of inheritance tax before probate or confirmation has been obtained. They have confirmed that from 1 April 2024, personal representatives of estates will no longer need to have sought commercial loans to pay inheritance tax before applying to obtain a “grant on credit” from HMRC.

What does this mean for the planner?

It sounds like estate administration has just got much simpler but I wouldn’t bank on it.  

Personal representatives must pay the inheritance tax due on the deceased’s estate before they can obtain grant of probate to allow them to distribute the estate assets (grant of letters of administration in the case of intestacy). It may be possible for the personal representatives to pay the IHT due using money held in the deceased’s bank account under the Direct Payment Scheme, liquidizing some investments or paying the IHT personally.  If it’s not possible to raise the money from the deceased’s estate another common method for paying the IHT is to take out a short term loan which is repaid once the estate has been administered.

Under the law currently, if the personal representatives find it impossible to raise the funds needed to pay the IHT and can demonstrate to HMRC they have made very practical effort to raise the money, HMRC may allow a “grant on credit”. This means they will issue the grant before IHT is paid. Obtaining the grant should then make it easier for the personal representatives to administer the estate and access funds to pay the IHT. While this is a possibility, HMRC’s guidance in the IHT manual is clear that they will only issue a grant on credit in “exceptional circumstances” so it is not standard practice.

Although on the face of it the announcement in the budget appears to be relaxation of the rules relating to obtaining a grant on credit, it has only removed the requirement to have sought a loan to pay the tax. It’s important to remember that the personal representatives are personally liable for the IHT on the deceased’s estate and need to make every effort to raise the funds to pay the IHT bill. It’s therefore not clear how much of an impact the new rules will have and we will need to wait and see.

ISA subscription limits

What was announced?

The ISA subscription limits for 2024/25 are unchanged. The ISA limit is £20,000, the Junior ISA is £9.000, Lifetime ISA is £4,000 (excluding government bonus) and the Child Trust Fund is £9,000.

There are however some reforms to the ISA rules announced in the Autumn Statement last year which come into effect from 6 April 2024.

• The age for opening a Cash ISA is to be increased from 16 to 18 to bring it into line with the age requirements for opening Stocks and Shares, Innovative Finance and Lifetime ISAs
• Subscriptions will be allowed to multiple ISA of the same type within the same tax year (with the exception of the Lifetime ISA)
• The requirement to make a fresh ISA application where an existing ISA account has received no subscription in the previous year
• Long-Term Asset Funds will be permitted investments within the Innovative Finance ISA
• Open-ended property funds with extended notice periods will be permitted investments within the Innovative Finance ISA
• Partial transfers of current year ISA subscriptions between ISA managers will now be allowed

The government also announced in the Autumn Statement their intention to permit fractional shares contracts as eligible ISA investments. The government have confirmed they are working as quickly as possible to bring forward legislation by the end of the Summer.

What does this mean for the planner?

It had already been confirmed in the Autumn Statement that the ISA limits were going to remain at the current levels for 2024/25 so there were no surprises there.

The Autumn Statement changes coming into force from April were also known but will be welcomed by many. A lot of the rules relating to ISAs are confusing and commonly misunderstood by advisers and investors alike. While the wider investment options are unlikely to impact the majority of investors some of new measures will simplify the rules on contributions and remove some of the pitfalls for clients.  

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Pension Scheme Investment Disclosure

What was announced

The Chancellor, Jeremey Hunt, announced additional changes relating to DC scheme investment disclosure.

What does it mean?

There are three key points:

1. By 2027 DC Pension funds will be required to publicly disclose how much they invest in UK businesses compared to investment in businesses overseas. The government will introduce equivalent requirements for Local Government Pension Scheme funds in England & Wales as early as April2024.
2. As part of Value for Money (VFM) proposals costs and net investment returns will also need to be disclosed and funds will be required to publicly compare their performance data against competitor schemes, including at least two schemes managing at least £10 billion in assets.
   
3. Schemes which are performing poorly for savers will not be allowed to take on new business from employers.
   

The objectives are to build on the Edinburgh and Mansion House reforms and to ensure better value from Defined Contribution Schemes (DCSs) by judging performance on overall returns, not the cost. New powers will be given to The Pensions Regulator and Financial Conduct Authority to help achieve the above objectives.

Mr Hunt also said he remains concerned that other markets such as Australia generate better returns for pension savers with more effective investment strategies and more investment in high quality domestic growth stocks. This is clearly aimed at increasing UK investment by Defined Contribution and English and Welsh Local Government Schemes but it’s unclear if this will be successful. Although he did add that he will consider what further action should be taken if we are not on a positive trajectory towards international best practice.

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Furnished Holiday Lettings regime

What was announced?

The Chancellor, Jeremey Hunt, announced that the Furnished Holiday Lettings regime will be abolished from 6 April 2025.

What does it mean?

The government will abolish the Furnished Holiday Lettings (FHL) tax regime, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants. This will take effect from 6 April 2025.

Draft legislation will be published in due course and include an anti-forestalling rule. This will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. This rule will apply from 6 March 2024.

The abolition of the FHL regime has a number of touch points from a tax perspective. For example, there will be income tax implications because qualifying properties were not impacted by Section 24 of the Finance (no. 2) Act 2015 and could deduct 100% of the mortgage interest from taxable profits. However, this will no longer be the case, Qualifying properties also had special rules in relation to capital allowances and Capital Gains Tax (CGT) such as roll over relief.

From a CGT perspective there was one positive in that the CGT rate for gains taxable at the higher rate will be reduced from 28% to 24% with effective from 6 April 2024 but unfortunately that also coincides with the Annual Exempt Amount reducing to £3,000.

It will be important for financial planners who have clients with FHL properties to engage with the client and their accountant to understand the income tax and CGT impact. In particular, the impact on the rental income will need to be understood if using the income as relevant earnings for making pension contributions. 

Multiple Dwellings Relief

What was announced?

The Chancellor, Jeremey Hunt, announced that the Multiple Dwellings Relief will be abolished 1 June 2024.

What does it mean?

From 1 June 2024, the government is abolishing Multiple Dwellings Relief, a bulk purchase relief in the Stamp Duty Land Tax regime. This follows an external evaluation which showed no strong evidence the relief is meeting its original objectives of supporting investment in the private rented sector.

Transitional rules mean that property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. The government said it will engage with the agricultural industry to determine if there are any particular impacts for the sector that should be considered further.

It should be noted that stamp duty land tax (SDLT) applies to properties acquired in England and Northern Ireland only. These changes don’t impact property transactions in Scotland or Wales.

The abolishment of this relief will obviously increase the tax payable for clients who own multiple dwellings. Therefore it will be important for financial planners with impacted clients to determine whether or not the additional tax will have an impact on their other financial planning matters.

Raising Standards in the Tax Advice Market

What was announced?

A consultation was announced exploring options to raise standards in the tax advice market through a strengthened regulatory framework. HMRC consider this will be of interest to tax practitioners (providers of tax advice and services), their clients or potential clients and tax and accountancy professional and regulatory bodies.

The consultation seeks views on possible approaches, impacts and design features of those options.

What does it mean for the planner?

We believe some financial planning activities such as advising on trusts and IHT would constitute tax advice so planners should be aware of the consultation.

Potential contributors should note the consultation closes at 11.59pm on 29 May 2024.

Three possible approaches are set out  

1. Mandatory membership of a recognised professional body
   
   With professional bodies monitoring and enforcing standards of their members and raising those standards where necessary. Tax practitioners would be required to hold membership of a recognised professional body to provide paid-for tax advice and services.
   
   
2. Joint HMRC – industry enforcement (a hybrid model)
   
   HMRC and industry would monitor and raise standards of the market. Unaffiliated tax practitioners would have to be supervised by HMRC and professional body members would be subject to the supervisory requirements of their professional body
   
   
3. Regulation by a separate statutory government body
   
   The government body would set, monitor, enforce and raise standards in the market. A new independent regulator or an existing regulator with an expanded remit would supervise tax practitioners.

The government has focused on the first approach which benefits from the presence of existing professional bodies who already oversee the standards and conduct of around two thirds of tax practitioners. This means it is simpler to deliver and it will have a more limited impact on those who are affiliated with a recognised professional body and meet expected standards.

What is the problem as it currently exists?

Most tax practitioners are competent and adhere to professional standards. Many belong to established professional bodies and are subject to their oversight. However, some tax practitioners do not meet professional standards, providing substandard advice and services, and there are only limited levers to address such failings. There is no statutory regulation of the market.

Almost anyone can start providing tax advice and services to clients and can do so with limited or no oversight if they are not a member of a professional body. This means activities causing problems in the market can go unnoticed. Where substandard or unscrupulous activity is identified, there are variations in and limits to the action taken against tax practitioners and consequently they may continue to operate in the market. The lack of consistent market oversight results in persistent substandard tax advice and services leading to higher levels of tax non-compliance. In turn, these failures undermine people’s trust in the tax system and result in increased costs for clients and HMRC.

Clients looking for tax advice often believe the market is regulated like professions such as financial services, so may place undue trust in their tax practitioner. Clients may find it difficult to assess the competence of a practitioner or make informed choices and can consequently be surprised at the limited safeguards in place when things go wrong.

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