Spring Budget 2024 Unveiled by Chancellor Jeremy Hunt – by Simon Wilkinson, Director, Botting & Co
Overview of the Spring Budget 2024 Highlights
The chancellor, Jeremy Hunt unveiled the Spring Budget 2024 in what is likely to be the last financial/fiscal event of this parliament before the next election, although is possible that there will be another Autumn Statement ahead of the general election later in the year.
There was some expectation that the Spring Budget 2024 would include some sweeteners to try and win back disillusioned Conservatives voters who appear to be switching to other political parties, however, given the tight financial headroom available for tax cuts and spending increases, it is unsurprising that the budget did not significantly shift the dial on the overall tax burden for individuals and business.
Personal UK Tax Changes in Jeremy Hunt’s Budget 2024
Continuation of Tax Policies
The income tax personal allowance remains frozen at £12,570 until 2028, as do the higher rate and additional rate limits at £50,270 and £125,140 respectively.
This has been one of the most contentious areas of government tax policy since its introduction in 2022, as it has pulled millions of taxpayers into higher tax bands that would not have been the case if bands had increased in line with inflation, as historically had been the case.
The term fiscal drag is used to describe this phenomenon and has resulted in a bonanza in tax revenues for the government, especially in view of the wage growth that has been a feature of the economy in the last few years.
Despite criticism of its impact on economic growth, the government has remained steadfast to this policy and it remains to be seen whether a new incoming government will reverse this trend, although probably unlikely in the face of the government debts position.
National Insurance Contributions Reduction
A key feature of the Spring Budget 2024 highlights the reduction in Primary Class 1 National Insurance Contributions from 10% to 8% from 6th April 2024 and self-employed Class 4 Contributions from 9% to 6%. This follows previously announced reductions in National Insurance rates in the Autumn Statement which took effect in January 2024.
The Chancellor obviously considers bringing down National Insurance costs as the most desirable method of reducing the tax burden, probably this is mainly due to the much lower cost than reducing income tax rates and also as it can be labelled as direct help to working people rather than benefitting wealthier taxpayers such as pensioners, who have done fairly well under the triple lock regime.
The Chancellor professed a wish to abolish National Insurance when it was fiscally responsible to do so but this ambition is probably unachievable considering the ever-rising spending burden faced by all governments trying to grapple with an ageing population and the costs of the NHS and social care.
Future Tax Structure and Savings
Potential Merger of Income Tax and National Insurance
More likely is that Income tax and National Insurance will be merged into a single tax at a rate between the current rate of income tax and the current combined income tax and National Insurance level.
There were no changes to the tax rates on savings income or dividends, other than previously announced reductions to the dividend allowance from £1,000 to £500 – this will potentially bring several individuals into the tax net.
Adjustments to Child Benefit and Investment Schemes
Higher Income Child Benefit Charge Adjustments
There was some welcome news on the Higher Income Child Benefit Charge (HICBC), with the starting threshold increasing to £60,000 and the tapering cap moving to £80,000 – the point at which all child benefit is clawed back.
This still does not address the main inequality of the HICBC, whereas a household can have 2 persons earning just below the starting threshold who do suffer the HICBC, while a household with just one person earning over the threshold are liable to the charge.
Introduction of a New UK ISA
The proposal for a new UK ISA will increase the total annual ISA allowance to £25,000 but whether it is advisable to have a UK only equity fund is questionable as it would not meet the usual recommended fund diversification principle.
Business Taxation and Incentives
Corporate Tax and SME Support
There were no significant changes announced in respect of the personal pension savings regime.
Business Tax
Unfortunately, there was no good news for companies hoping that the recent significant hike in the corporation tax would be scaled back.
The Autumn Statement announcement about the future permanency of full expensing is not particularly exiting for SME’s considering that the Annual Investment Allowance was and still is available to such companies for capital spending up to £1 million.
Full Expensing and Leased Assets
Consultation on the extension of full expensing to leased assets is welcome to some companies but overall the tax burden has increased considerably on companies with the corporation tax rate increase and the return of the old associated company rules further complicating the picture.
Impact of National Insurance Reductions
With the reduction in the National Insurance rates, the decision as whether to incorporate a sole trader business or pay salary or dividend from a company has become increasingly marginal with tax savings now wafer thin in many circumstances.
Furnished Holiday Let Tax Regime Changes
The scrapping of the Furnished Holiday Let (FHL) tax regime is a blow to landlords supplying holiday home lets but was well flagged up prior the budget and was dressed up as an attempt to improve the supply of affordable residential accommodation in tourist hotspots such as the west country and northern England.
Tax Policy Revisions and Cultural Incentives
Non-Domiciled UK Tax Changes 2024: A Shift in Policy
However, it is more likely that the abolition of FHL was a way of balancing the books from the National Insurance cuts and likewise the new regime for the taxation of non-domiciled UK resident tax payers, which from 6 April 2025 will abolish the current remittance basis rules and will be replaced by a new 4 year income and gains for individuals who become UK tax resident after a period of 10 years non residence.
The Non dom changes are rather embarrassing for the government given that this has been a flag ship policy of the Labour party for many years, however, I am rather sceptical about the amount of revenue this measure will raise and how it affects the UK’s standing for inward foreign investment.
Enhanced Cultural Tax Reliefs
Cultural tax reliefs for film production, theatres, orchestras and galleries etc have been made permanent from 1/4/25 and maintained at higher levels than previously proposed.
Capital Taxes and VAT Adjustments
Capital Gains Tax Reduction
A key announcement in the Spring Budget 2024 highlights was the reduction in the higher rate capital gains charge for residential properties, which is decreasing from 28% to 24% – some compensation for FHL landlords who lose Business Asset Disposal Relief on the sale of their properties.
No other changes to the bands and rates of tax for capital gains tax or Inheritance Tax.
VAT Threshold Increase
The raising of the VAT threshold from £85,000 to £90,000 was a surprise announcement although it does little to help the numerous businesses that have been required to register for VAT since the threshold was frozen in 2017. If the threshold had been raised in line with inflation, it would now be around £110,000.
The deregistration threshold has been increased to £88,000.
The raising of the threshold is a step in the right direction but hardly disguises the impression that the government is at best ambivalent about the VAT burden on small businesses and is happy to see more businesses dragged into the VAT net.
Reflections on the Budget’s Direction and financial changes after Spring Budget 2024
Economic Implications and Forecast
The financial changes after Spring Budget 2024 give the overall impression that while there were some helpful tax cuts and changes, the direction of travel is still an ever-increasing burden on the public due to the continued freezing of tax rates and bands.
The forecast drop in inflation and potential interest rate reductions are likely to be best tools for stimulating a flat lining economy, as tax cuts remain politically difficult in view of the state of the public finances and the hard gaze of the financial markets, who caused such problems for Lizz Truss!