Detailed analysis | Spring Budget 2024

Detailed analysis
Spring Budget 2024

07 March 2024

The stated intention of the 2024 Spring Budget was to stimulate long-term growth and make work pay. However, this is also an election year so there was no surprise that the headline-grabbing measure was another cut to National Insurance. Property taxation saw numerous changes designed to stimulate the owner-occupied residential market, whilst the creative sectors were the main beneficiaries of the few corporate measures.

How do the chancellor’s Spring Budget announcements affect you and your business?

  • The economist's view
  • Business tax
  • Employment tax
  • VAT and indirect tax
  • Personal tax
  • Property tax

The economist's view

The chancellor had two aims yesterday; to give his party a boost in the polls and to not spook the Bank of England and financial markets whilst doing so. While we won’t find out if he succeeded in his first aim for a few days, he looks to have achieved the second as financial markets appear to have taken the latest round of tax cuts in their stride.

Indeed, financial markets are still pricing in a roughly 40% chance of the first cut in interest rates coming in June. Two-year gilt yields, which are the best measure of where mortgage rates are going, were unchanged at around 4.3%. 

Calm financial markets means that this further injection of fiscal stimulus should help to drag the economy out of recession, although possibly not to the extent predicted by the current Office of Budget Responsibility (OBR) growth forecasts of 0.8% in 2024 and 1.9% in 2025. We estimate that the net c£13bn fiscal giveaway should boost households’ incomes by about 0.5% and economic growth by 0.1% - 0.2% over the next year.

What’s more, by focusing tax cuts on National Insurance, which encourages people to work more, and freezing fuel and alcohol duty, the fiscal stimulus announced yesterday is unlikely to have a significant impact on inflation this year. Overall, this budget is unlikely to materially impact the outlook for interest rates this year. A first interest rate cut in early summer remains our base case, though June is looking more likely than May at this point.

What the chancellor left out of his speech is probably more important for the economy over the next few years than the measures he actually announced in this year’s Spring Budget. He chose not to dwell on the fact that his fiscal headroom of £8.9bn is a fraction of the £27bn average enjoyed by previous chancellors, giving him very little wiggle room if things don’t go according to plan. Jeremy Hunt similarly omitted to mention that fiscal policy is set to be a drag on the economy over the next few years as the government works to shrink the budget deficit down to a more sustainable level. Current plans suggest a tightening of 1.6% of GDP in 2024/25, with the tax take set to rise in total from 36.3% to 37.1% over the next five years. All of this was set against a very tight, some might say unrealistic, spending budget. Whilst total real departmental spending is still planned to be rising at just 1%, per capita spending is flat at best. Given the pressures on everything from education to justice, and the desire to protect health and defence, this looks at best optimistic. 

That might be the real take-away from yesterday; whoever wins the next election is going to be faced with some extremely difficult decisions about tax and spend. For instance, simply holding overall departmental spending constant as a share of GDP would cost an additional £18bn. There is, therefore, a good chance that yesterday’s tax cuts may have to be reversed in the next parliament once the reality of the fiscal situation sets in. 

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Business tax

For companies in general, the 2024 Spring Budget was notable for the absence of significant corporation tax announcements. This is perhaps understandable given the chancellor’s stated intention was to improve investment in key sectors, create jobs, and focus on permanent tax cuts for families; the Spring Budget had a definite eye to boosting the polls in this election year.

Full expensing for assets for leasing

An announcement that will be welcomed by the leasing sector is the intention to extend the full expensing capital allowances regime to assets for leasing, which was excluded when the rules were initially introduced.

What does this mean for businesses?

The extension announced in the Spring Budget would allow businesses that lease out their assets to claim 100% tax relief on certain plant and machinery additions in the year of acquisition.

However, whilst draft legislation is due to be published shortly, the chancellor made it clear that this would only be introduced when fiscal conditions allow. Therefore, it remains to be seen when, or even if, this will take effect. One potential consequence of this uncertainty is that the leasing sector may defer investment in anticipation of the rules taking effect.

Creative sector tax reliefs and R&D

Acknowledging the importance of the cultural sector to the UK economy, the chancellor announced a number of targeted changes to try and help stimulate certain areas of the industry.

  • A new UK independent film tax credit will be introduced for smaller films with budgets up to £15m that meet certain criteria. This will be a significant boost for those films that qualify, effectively providing a cash benefit of 31.8p in the pound for qualifying expenditure, compared to 20.4p under the standard regime.
  • Following a consultation at the end of last year, additional relief will be given to costs incurred on visual effects in film and high-end TV. From 1 April 2025 visual effects costs will be subject to a 5% higher rate of pre-tax relief and will be exempt from the 80% cap on other qualifying expenditure. This is intended to encourage studios to conduct this work within the UK by providing an additional cash benefit.
  • A cut to gross business rates of 40% for film studios will also benefit this industry.
  • There were also changes to cultural reliefs covering theatres, orchestras, museums and galleries. The chancellor announced that enhanced rates of relief, originally introduced in response to the pandemic, will be made permanent, albeit at a slightly lower level than they sit currently. A sunset clause for museums and galleries will also be removed entirely. Whilst this represents a decrease in the current level of benefit, the additional certainty will allow organisations to produce more reliable forecasts and plan their programmes more effectively – all the more important at a time when other sources of funding for the sector are being significantly reduced.

Whilst research and development (R&D) tax reliefs did not feature in the announcements made in this year’s Spring Budget, there have been recent announcements for businesses making R&D claims to grapple with. It is interesting that in light of HMRC’s recent increased scrutiny of R&D claims, an expert advisory panel will be established to support its administration of R&D tax reliefs. This panel is intended to provide HMRC with insight into the R&D undertaken by key sectors such as technology and life sciences.

Best of the rest

Other notable announcements from the Spring Budget impacting business are set out below.

  • The government confirmed a five-year extension to freeport tax reliefs, which will now apply across English freeport tax sites to September 2031 and for tax sites in Scottish green freeports and Welsh freeports until September 2034.
  • The temporary energy profits levy, otherwise known as the ‘oil and gas windfall tax’, will be extended by 12 months to 31 March 2029, given that forecasts show that energy prices will are expected to remain at abnormally high levels. However, if oil and gas prices drop below the levels set in an energy security investment mechanism, the levy may end sooner.
  • Following recent consultation, the government has confirmed that it will introduce legislation to create a new onshore UK investment fund vehicle, the reserved investor fund (RIF). This is intended to be easier to establish and market than current UK fund vehicles, and thereby improve the UK’s attractiveness as a location to set up new funds.
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Employment tax

National Insurance contributions

In a welcome move for an estimated 27 million UK workers, the chancellor formally announced the much trailed ‘make work pay’ reduction in the standard employee’s National Insurance contributions (NICs) rate to a new low of 8% from 6 April 2024. This builds on an initial two percentage point cut announced in November’s Autumn Statement, meaning that the rate has dropped from 12% in December 2023, to 8% from 6 April 2024, the lowest rate since 1989.

How does this impact UK workers?

Combined with the cut announced in the Autumn Statement, this will save the average worker over £900 a year. NICs apply UK-wide, so the reduced rate will also apply to employees in the devolved tax regimes in Scotland and Wales.

What does this mean for employers?

Employers will not see the benefit of the NICs reduction, as their rate remains fixed at 13.8%. In view of the previously announced increase in National Minimum Wage and National Living Wage rates from 1 April 2024 (the latter is also now payable to employees aged 21 (down from 23), employers will be facing an overall increase in employment costs from April 2024. Many employers will be disappointed that, whilst today’s announcement focuses on making work pay, it does not provide them with any additional incentives to provide that work.

From 6 April 2024 the new employee NICs rate will be amongst the lowest social security rates in the world. As a result, we may see more overseas employees preferring to pay UK NICs rather than stay in their home country’s more expensive system whilst on assignment to the UK.

Umbrella companies

Following the joint HMRC/Department for Business and Trade consultation on tackling non-compliance in the umbrella company market in June 2023, it was announced in today’s Spring Budget that the government will set out the next steps for tackling non-compliance in the umbrella company market shortly.

Overseas workday relief

Overseas workday relief (OWR) has been a useful relief for non-UK domiciled employees coming to the UK to work whilst continuing to have non-UK workdays. It has been especially useful for employers that have agreed to tax equalise their employees, reducing the total cost of an international assignment.

It was announced in today’s Spring Budget that the non-domicile tax regime is to be abolished from 6 April 2025 and replaced with a new foreign income and gains (FIG) regime. With this it has also been confirmed that a simplified version of OWR will be available for those individuals who opt to use the FIG rules.

The new relief most likely means that income relating to overseas workdays can be brought into the UK without incurring UK income tax and is available for the first three tax years of residence (although it is not clear from the announcement whether the remuneration still needs to be paid outside the UK before being brought to the UK to qualify).

Historically, the current OWR rule has been difficult to operate, with many individuals falling foul of the practical requirements and having resultant tax liabilities. The new rule is welcome as it will make the process of claiming OWR easier and should be a greater incentive to attract new talent and investment to the UK.

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VAT and indirect tax

VAT turnover threshold rises to £90,000

With the turnover threshold for VAT registration frozen at £85,000 since 2017, the unexpected rise to £90,000 (which takes effect on 1 April 2024) will make up some of the ground lost to inflation over the past seven years. However, it remains to be seen whether this is a one-off increase or if the government will go back to its previous practice of increasing the threshold by a few thousand pounds each year. 

Despite the positive headline, this measure does not address the key problem arising from the UK’s hard VAT threshold. The threshold was frozen to allow the government time to explore solutions to the ‘cliff edge’ effect, where many small businesses are discouraged from growing their turnover beyond the VAT threshold. This is because the addition of VAT to their prices may make them uncompetitive with those trading below the threshold in their consumer-facing markets. Other countries have addressed this in various ways, eg by applying low or even nil VAT thresholds, the impact of which on small businesses is mitigated by simplified obligations for the very smallest businesses. However, no UK proposals to solve this issue have emerged in the Spring Budget small print. So, for now at least, the underlying problem with the VAT threshold remains unresolved.

New excise duty from 2026 on vaping products

The government has set out its plans in this year’s Spring Budget for a new vaping products duty. This had been rumoured for some time, with plans now set to bring this into effect in October 2026. The aim of the new duty is to complement other measures to discourage vaping, which the government regards as having health risks, and to raise revenue to fund public services such as the NHS and anti-smoking initiatives.

The measure will see duty charged on the liquid used in vapes and will be payable at the point of manufacture or import in a similar way to the existing Tobacco Products Duty regime. The rate will range from £1 to £3 per 10ml of liquid, with the highest rate applying to vapes with the highest nicotine strength.

Despite the potential health risks associated with vaping, the government nevertheless acknowledges the role vaping products can play in helping smokers give up cigarettes. To ensure that vaping continues to encourage consumers to give up smoking tobacco, it has been announced that a one-off increase in the duty on tobacco will be made to maintain the financial incentive to choose vaping over smoking. From October 2026 tobacco duties will be increased by £2 per 100 cigarettes, or 50 grams of tobacco, to coincide with the introduction of the vaping products duty.

HMRC and the Treasury have launched a consultation to seek the views of stakeholders on the practical implementation of the duty and its impact on the industry. The consultation period will run until 29 May 2024. 

Ups and downs for leisure, hospitality and tourism 

During the 2024 Spring Budget, the chancellor highlighted the importance of the leisure, hospitality and tourism sector to the UK economy. These businesses are likely to welcome the freeze on alcohol and fuel duty, the increase in the VAT registration threshold and, for those in the hotel sector, the abolition of the furnished holiday lettings regime. However, these changes are likely to be viewed as slim pickings by businesses in this sector especially when seen in context against what the chancellor didn’t announce. Despite the various campaigns in the lead up to the Spring Budget highlighting the benefits of a reduction in the VAT rate for hospitality and lobbying for the re-introduction of the VAT retail export scheme (‘tax free shopping’), no such changes were announced. There is likely to be a collective feeling of disappointment amongst the sector and the sense of an opportunity missed. 

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Personal tax

Changes to the non-dom regime

As predicted, the chancellor announced significant changes to the non-dom tax regime and has abolished the current remittance-based system in favour of one based on residency from 6 April 2025.

What do these changes actually mean?

The current legal construct of domicile will fall away and the new regime will be much simpler; it will apply to individuals who become resident in the UK having been non-UK resident for the previous 10 years. This means that taxpayers born and bred in the UK may also be eligible to take advantage of the new regime, which is in direct contrast to the current non-dom regime which only applies to those with non-dom status. The new regime means that those arriving in the UK will, for the first four years of their residence, pay no UK income or Capital Gains Tax on their non-UK income and gains. Thereafter, they will be taxed in the same way as all other UK taxpayers. 

In less welcome news, the removal of the trust protection regime for settlor interested trusts for those who do not qualify for the new four-year regime was announced during the Spring Budget. This is a game changer and will mean that income and capital gains will be taxed on settlors as they arise. At present, income and gains are received tax free and tax liabilities only arise as and when settlors and beneficiaries receive any value from trusts. Broadly speaking, people will only be able to shelter their wealth from UK taxes for a four-year period, no matter what type of structure they use to hold that wealth. The chancellor acknowledged that the system needs to be perceived as fair, whilst also incentivising overseas investment. However, the changes will make the UK’s tax regime one of the least attractive for overseas wealth. 

There is a raft of transitional measures for existing non-dom taxpayers including a rebasing of capital assets to their 5 April 2019 value. A Temporary Repatriation Facility will be available for 24 months from 6 April 2025, which will enable historic foreign income and gains which were not taxed whilst the individual was on the remittance basis, to be remitted to the UK at a flat rate of tax of 12%. In addition, and for one year only, those who move from the remittance basis to the arising basis on 6 April 2025 will pay tax on only 50% of their foreign income. In other words, the effect of this one-year relief is that foreign income will be taxed at half the prevailing income tax rate. This will appeal to many of those affected and may be enough to encourage funds to be brought into the UK. This reduction does not apply to foreign chargeable gains.

The government also committed to consulting on the Inheritance Tax (IHT) implications of a change to a residence-based system. Whilst this would bring resident UK domiciled individuals potentially within the remit of UK IHT on their worldwide assets, it is good news for UK expatriates who are long term residents outside of the UK as it would reduce their UK IHT exposure to UK situs assets only.

Rewarding working families

In addition to the reduction to National Insurance Contributions rates announced in the Spring Budget, the chancellor has emphasised the importance of getting parents back into work. Alongside supporting childcare providers with finding sufficient resource to enable the provision of free hours to children over nine months old, the much criticised clawback of child benefit by way of the High Income Child Benefit Charge (HICBC) has also been addressed.

The HICBC restricts child benefit for a household where one individual receives income of over £50,000 in a tax year. Child benefit must be paid back in full where that income is over £60,000. The system has been criticised for penalising single income households that have one ‘higher earner’ and has relied on taxpayers knowing to register for self-assessment to enable the charge to be paid. There have been cases before the Tribunal where individuals have received employment income, taxed under PAYE, and were unaware of the requirement to register and report the charge under the self-assessment system. As with income tax bands and allowances, the HICBC threshold has not increased with inflation, and more individuals have been dragged into the system each year.

Responding to a recent freedom of information request from RSM, HMRC confirmed that in 2022/23 there were 2.21 million taxpayers who received income between £50,000 and £60,000. In the same period, the number of individuals earning between £60,000 and £70,000 was 1.15 million.

The chancellor has acknowledged in his Spring Budget announcements that the difference in treatment between a single and dual income household is inequitable. As a result, the government will consult on measures to administer the scheme on the basis of household rather than individual income by April 2026. In the meantime, the threshold before the benefit begins to be repaid has increased to £60,000, and the taper rate is halved, so that the benefit is not fully reduced until an individual receives income of £80,000.

The government has acknowledged that this will reduce the effective rate of tax on the withdrawal of relief from 64% to 53% (for an individual with two children) and estimates that 485,000 families will be better off.

The concepts of independent taxation and self-assessment, introduced in 1990 and 1997 respectively, make individuals take responsibility for their own tax affairs, and pay tax as individuals rather than as households. The HICBC in its current form already sits uncomfortably with the self-assessment system and it is difficult to see how assessing income as a household will be possible within the construct of the current tax system.

Other measures from the 2024 Spring Budget

  • Further support for HMRC to tackle non-compliance and collect tax debts, including a streamlining of HMRC’s digital offering, as well as tightening up the regulatory framework for tax agents and advisers.
  • A reduction to National Insurance Contributions (NICs) for self-employed taxpayers, bringing the headline rate of Class 4 NICs for sole traders, partners and members of LLPs down to 6%, as well as a consultation on how the abolition of Class 2 NICs, as announced in the 2023 Autumn Statement, will be delivered.
  • As more estates are paying Inheritance Tax and the tax needs to be paid before probate is granted, personal representatives often have to seek commercial loans to pay the tax. HMRC will make the process easier by enabling probate to be granted on credit rather than personal representatives needing to rely on commercial lenders.
  • Introduction of a new UK ISA and British Savings Bonds. The new UK ISA will support savers and open up UK retail investment with a specific £5,000 allowance in addition to the current ISA allowance of £20,000 per annum. British Savings Bonds will be available through National Savings and Investments and will offer a guaranteed fixed rate interest return.
  • The government has committed to reviewing pensions to explore a lifetime provider model for defined contribution schemes and to make the investment options broader to facilitate improved investment returns. No changes have been announced, but this remains under review.
  • No change in the Capital Gains Tax rate payable on carried interest, which remains at 28%.
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Property tax

Landlords may feel like they have been targeted by tax changes over the past few years and increasing interest rates, coupled with a restriction in mortgage interest relief, have eroded returns. There was mixed news in the Spring Budget. Some of the announcements are intended to return short term rental properties back into circulation for long term tenancies or allow them to be bought by owner occupiers.

Furnished Holiday Lettings

The Furnished Holiday Lettings (FHL) tax regime will be abolished from 6 April 2025, giving parity of tax treatment between long term and short term lets. Historically, if FHL qualification criteria were met, this was treated as a trading rather than investment business, bringing income tax, Capital Gains Tax and potential Inheritance Tax advantages. There were also measures introduced to ensure that FHL owners were not disadvantaged by coronavirus lockdowns, and enable the occupancy criteria to be maintained, leading to an increase in registered FHLs particularly amongst seaside communities.

As a turnaround to government policy, these advantages have been removed and rental profits from short term lets will be treated as investment income in the same way as other rental profits. This will impact around 127,000 individual-owned FHL businesses in the UK.

Capital gains tax on the disposal of residential property

During the Spring Budget, the chancellor announced a reduction in the higher rate of Capital Gains Tax payable on the disposal of residential properties from 28% to 24%. This will be welcome news for landlords looking to sell their property portfolio in light of the abolition of the FHL tax regime. FHL properties currently qualify for Business Asset Disposal Relief (which may reduce the effective tax on any gain on disposal to 10%, subject to a lifetime limit). Once FHL status has been abolished, the properties will no longer qualify for this relief. Therefore, there is a window of opportunity to sell the properties before April 2025 while FHL status is still available. However, anti-forestalling rules come into effect from today to tackle the use of unconditional contracts to obtain a tax advantage.

Stamp Duty Land Tax – England & Northern Ireland

Multiple Dwellings Relief

Multiple Dwellings Relief (MDR) was introduced to reduce the cost of Stamp Duty Land Tax (SDLT) where between two and five residential properties are purchased in a single transaction. An evaluation of whether the relief is meeting its objectives (to boost supply in the private rented sector and reduce barriers to investment) concluded that there was little to no evidence of it having this effect on private individuals. Amongst businesses the evidence was more varied.

It is no surprise, therefore, that from 1 June 2024 multiple dwellings relief will be abolished. 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.

The abolition of this relief will arguably simplify the SDLT regime, particularly from HMRC’s point of view, as significant resources have been consumed in recent years in litigation to combat claims to relief that it considers to be spurious. However, this change will significantly impact affected transactions with SDLT due on the total consideration rather than per home, resulting in significant increases in SDLT for some.

Mixed acquisitions

The consultation on MDR that concluded in 2022 considered how mixed acquisitions should be taxed. Mixed use properties (those containing both commercial and residential elements) are subject to the non-residential rates of SDLT of up to 5%, as opposed to up to 17% on a residential acquisition. The government has decided not to make any changes in this area or to change the rule which taxes the acquisition of six or more residential properties at these rates. This is positive news for developers and those acquiring property portfolios.

SDLT relief for registered social landlords and public bodies

Existing legislation will be updated to ensure that from 6 March 2024 registered providers of social housing are not liable to SDLT when buying property with a public subsidy, eg using recycled public grants.

Additionally, public bodies will be exempt from the 15% higher rate for certain corporate bodies or non-natural persons. These changes clarify the rules and widen the existing relief for registered providers of social housing and public bodies.

SDLT first-time buyers’ relief

The rules for claiming SDLT first-time buyers’ relief will be changed from 6 March 2024 so that individuals buying a leasehold residential property through a nominee or bare trustee will be able to benefit. This welcome change will now enable a wider group of taxpayers to benefit from the relief, for example victims of domestic abuse using such arrangements to protect their identity.

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Post-Budget webinar

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