In what was very likely to be the last economic event before a UK general election, Jeremy Hunt delivered his Spring Budget yesterday.
Like recent budgets much of the content was mostly “leaked”, but unlike recent events there was not a “rabbit out of the hat”. We have taken a look at some of the key areas below.
National Insurance
The Chancellor confirmed that Class 1 National insurance Contributions (NICs) for employees will be cut from 10% to 8% on earnings of between £12,570 and £50,270 a year, and is planning to bring forward legislation next week, so that the change can take place from 6 April 2024.
This is the second cut to National Insurance this year, it was cut from 12% to 10% on 6 January 2024, as announced in the Autumn Statement.
People will continue to not pay national insurance on earnings below £12,750, while there’s no change to the 2% national insurance rate on earnings over £50,270.
In simple terms a reduction in National Insurance and a freeze on the thresholds means more money in the pocket for workers. The following table highlights an estimate of the potential savings an employee could receive when comparing the NIC rates announced in the Autumn Statement compared to the further reduction announced in the budget.
| Annual Salary | Annual cost at rates from 6 January 2024 to 5 April 2024 | Annual costs at rates from 6 April 2024 to 5 April 2025 | Annual Saving from 6 April 2024 compared to now |
| £25,000 | £1,243 | £994 | £249 |
| £35,000 | £2,243 | £1,794 | £449 |
| £50,000 | £3,743 | £2,994 | £749 |
| £75,000 | £4,265 | £3,511 | £754 |
| £85,000 | £4,465 | £3,711 | £754 |
| £100,000 | £4,765 | £4,011 | £754 |
However, some employed workers will still be worse off overall due to the continued freezing of tax thresholds (as noted below) and covered in our recent article, National Insurance reduction – do you really benefit from the headline figures?, which can be found here.
Self employed
The rate of ‘Class 4’ NICs, which is the main rate paid on self-employed profits of between £12,570 and £50,270, will be cut from 9% to 6% from 6 April. This rate had been due to fall to 8% from 6 April, as set out in the Autumn Statement, but the Chancellor has taken it one step further in the budget.
As also announced in the Autumn Statement, mandatory ‘class 2’ contributions, currently £3.45 a week, will be scrapped. However, those earning less than £6,725 a year can still choose to pay class 2 NICs to gain access to certain benefits, including the State Pension. Those earning between £6,725 and £12,570 are entitled to the National Insurance credits without having to pay the tax.
The additional 2% rate on earnings over £50,270 will remain. The following table summarises what self-employed people will pay from 6 April 2024:
| Yearly Profit | What is paid in the 2023/24 tax year | What would be paid in the 2024/25 tax year |
| Below £6,725 | £3.45 a week if chosen to do so | £3.45 a week if chosen to do so |
| Between £6,725 and £12,569 | Nothing – but would be entitled to National Insurance credits | Nothing – but would be entitled to National Insurance credits |
| Between £12,570 and £50,270 | 9% plus £3.45 a week | 6% |
| Over £50,270 | 2% on everything above that | 2% on everything above that |
Capital Gains Tax (CGT)
The Chancellor announced that the higher rate of CGT for residential property gains will be reduced from 28% to 24% with effect from 6 April 2024.
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. This would equate to 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.
Non-dom tax rules
As widely predicted, one of the key changes in the budget was to the non-dom tax rules, with the Chancellor confirming that the current regime will be completely abolished from April 2025.
Under the current rules, individuals who are tax resident in the UK but not domiciled here can elect to be taxed on the ‘remittance basis’ for up to 15 years. This means that they only pay UK tax on income/gains brought into the UK (subject to an annual charge after a few years).
These rules will no longer apply from 6 April next year. Instead, while new arrivals to the UK will pay no additional tax for their first four years of residence (provided they have been non-UK resident for the preceding ten years), after that they’ll pay UK tax on all of their foreign income and gains in the same way as any other UK taxpayer.
Transitional arrangements will apply for people already claiming the remittance basis, including:
• An option to rebase the value of capital assets to 5 April 2019
• A temporary 50% exemption for taxation of foreign income for 2025/26
• A two-year window in which foreign income and gains accrued before April 2025 but brough into the UK after that can be taxed at a reduced rate of 12%
While the income tax and CGT changes are the only amendments to the non-dom regime at present, the Chancellor did also announce a consultation on a move to a residence-based regime for inheritance tax. This would include changes to:
• the rules on when an individual is subject to IHT on their worldwide assets on death
• the rules on excluded property trusts (trusts created by an individual before becoming UK resident)
Further updates on this are due to be issued in the coming months.
The new rules are undoubtedly more stringent, but delaying the implementation until April 2025 does at least allow some time for planning before then.
UK Individual Savings Account (ISA)
The government is considering creating an additional ISA 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.
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 June 2024 and considers the type of investments that should be held such as UK company shares, corporate bonds and gilts.
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 is likely to have a bigger impact on the investment return, and a globally based investment in a taxable investment may generate a higher return than a tax-free investment into the UK.
Allowances
Both national insurance and income tax thresholds, which determine when you start paying each rate of tax, have been frozen since 2021 and continue to be. They’re currently planned to stay frozen until April 2028.
The starting rate for savings will remain at £5,000 for the 2024/25 tax year, maintaining its current level.
The CGT annual exemption will reduce to £3,000 from £6,000 as of 6 April 2024.
The Dividend allowance will reduce to £500 from £1,000 as of 6 April 2024.
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 ISAs of the same type within the same tax year (with the exception of the Lifetime ISA)
• Partial transfers of current year ISA subscriptions between ISA managers will now be allowed
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.
Probate and payment of inheritance tax (IHT)
Whilst the headline here might be welcome news to those involved in probate and payment of IHT, it is important to consider the full picture.
As many people who have been through the probate process will know, some or all of the IHT due on an estate must be paid before the Grant of Probate can be issued. This can cause immense difficulties when there are insufficient liquid funds available, with families often having to take out loans from commercial lenders at ever-higher rates of interest.
From 1 April 2024, this will no longer be necessary, as people will be able to apply to HMRC for a ‘Grant on Credit’ without having to go down the borrowing route first.
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.
High Income Child Benefit Tax Charge
The Chancellor announced an increase in the starting level where the High Income Child Benefit (HICBC) tax charge applies.
Presently the HICBC tax charge applies where there is one partner with adjusted net income of over £50,000 in a household where child benefit is claimed; 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 in order to reduce their adjusted net income below the threshold.
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.
This budget will undoubtably have a huge impact on many individual and families. We at Henwood Court continue to review the changes and how these impact clients and their plans and consider appropriate strategies to make the most of the changes announced. Should you have any questions, please do not hesitate to contact your Financial Planner who will be more than happy to discuss the changes and options available to you.
