Spring Budget Summary

The Chancellor of the Exchequer delivered a Spring Budget with some expected announcements (National Insurance and Higher Income Child Benefit Charge) and a couple of surprises (Furnished Holiday Lets and Capital Gains Tax on residential property).

Some of the announcements will positively impact earners but ‘stealth tax’ is still creating a significant increase in tax payable - not least the Personal Tax Allowance and income tax rate bands being frozen for six years since 2021 (initially for 4 years by former Chancellor Sunak and subsequently extended for 2 years by Chancellor Hunt) but with inflation having exceeded 10% during this period, this has had the effect of dragging people into the basic and higher rate tax brackets.

PERSONAL TAX

National Insurance Contribution (NIC) rates

The main rate of Class 1 employee NICs will be reduced by 2p (from 10% to 8%) from 6 April 2024. This is in addition to the 2p cut announced in the Autumn Statement 2023 (which took effect from 6 January 2024).

The main rate of Class 4 NICs, paid by self-employed earners, will be reduced by 3p from 9% to 6% from 6 April 2024. This replaces the cut to 8% announced at Autumn Statement 2023.

The government will launch a consultation later this year to deliver its commitment to fully abolish Class 2 National Insurance. This follows the announcement at the 2023 Autumn Statement that from April 2024 no self-employed person will be required to pay Class 2, whilst those who pay voluntarily will continue to be able to do so to build entitlement to contributory benefits.

High income child benefit charge

The threshold for the High Income Child Benefit Charge will rise from £50,000 to £60,000 from 6 April 2024. There will also be a tapered charge between £60,000 and £80,000. The government will also consult on moving to a household-based system rather than one based on individual incomes from April 2026.

Income Tax

The tax-free personal allowance will remain at £12,570 in 2024/25. The personal allowance is partially withdrawn if income is over £100,000 and then fully withdrawn if income is over £125,140.

For 2024/25, income tax rates and thresholds remain frozen at their 2023/24 levels.

After the tax-free ‘personal allowance’ has been deducted, remaining income is taxed in bands in 2024/25 as follows:

‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or partner in a business, rental income, pension income and anything else that is not exempt.

Note: Without inflationary increases to the income tax bands, the Chancellor is effectively imposing an income tax increase; as wages and earnings rise and a larger proportion falls into higher tax bands. This is known as ‘fiscal drag’.    

Non-domiciled individuals

The current tax regime for non-UK domiciled individuals will be abolished and replaced with a residence-based regime:

The beneficial tax regime will be replaced with a simpler residence-based regime, which will take effect from 6 April 2025.

• Individuals coming to the UK who opt into the regime will not pay UK tax on foreign income and gains for the first four years of tax residence.

• Existing non-domiciled UK tax resident individuals who have been UK tax resident for fewer than four years will be eligible to opt into the new scheme and will benefit from relief until the end of their fourth year of tax residence.

• Under the new regime, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, regardless of their domicile status.

The government also intends to move to a residence-based regime for Inheritance Tax and will consult on the best way to achieve this.

Capital gains tax

The higher rate of Capital Gains Tax charged on residential property gains will reduce from 28% to 24% for disposals made on or after 6 April 2024. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band. This mainly affects second (or more) homes and buy to let residential property, the main residence continues to be eligible for Private Residence Relief.

Furnished holiday lettings

The furnished holiday lettings regime is to be abolished, thus 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. These changes will take effect from April 2025. We await to see the detailed draft legislation but this potentially has a significant tax impact for holiday lets with the withdrawal of Capital Allowances on most capital expenditure, mortgage interest tax relief restricted to 20%, Capital Gains Tax not being subject to BADR (Business Asset Disposal Relief) and the withdrawal of Business Rates eligibility. There is no mention of a consultation so it looks like it will go straight to the draft legislation before Parliament.

UK ISA and British Savings Bonds

The launch of a new UK ISA and British Savings Bonds were announced.

The UK ISA will be a £5,000 allowance in addition to the existing £20,000 yearly ISA allowance. Money paid into this will be put in UK investments.

The British Savings Bonds will be delivered through NS&I and will be launched in April 2024. This will offer a guaranteed interest rate, fixed for three years, increasing the savings opportunities available to consumers.

Childcare

The hourly rate childcare providers are paid to deliver the free hours (which are being rolled out for children aged 9 months to 4 years old) will increase “in line with the metric used at Spring Budget 2023” for the next two years, the Treasury said.

It added: “This reflects that workforce costs are the most significant costs for childcare providers and represents an estimated additional £500 million of investment over two years.”

Transfer of Assets Abroad

Legislation will be passed in the Spring Finance Bill 2024 to ensure individuals cannot use a company to bypass anti-avoidance legislation (known as Transfer of Assets Abroad (ToAA) provisions) in order to avoid UK income tax. The changes will take effect for income arising to a person abroad from 6 April 2024.

Investment in HMRC Digital Services

HMRC’s digital services to support Income Tax Self Assessment taxpayers seeking to pay tax in instalments will be “improved and simplified” - with changes being implemented from September 2025.

BUSINESS TAX

Capital allowances

‘Full Expensing’ (which allows businesses to write off the full cost of qualifying plant and machinery investments against their taxable profits) was made permanent at the Autumn Statement.

The government has now announced that full expensing will be extended to assets for leasing when fiscal conditions allow (a draft legislation will be published shortly).

R&D tax reliefs

An expert advisory panel will be established to tackle complexities in the incoming R&D regime amid concerns that the law is vague and guidance is lacking.

The panel will provide insights into the cutting-edge R&D occurring across key sectors such as tech and life sciences, and will work with HMRC to review relevant guidance, ensuring it remains up to date and provides clarity to claimants.

Investment zones

Further details of six investment zones were announced: Greater Manchester, Liverpool City Region, North East of England, South Yorkshire, West Midlands and Tees Valley.

These investment zones will offer various tax reliefs (subject to eligibility criteria) including enhanced capital allowances, enhanced structures and buildings allowance, business rates relief, employer’s national insurance relief and stamp duty land tax relief between their designation and 30 September 2034.

As well as covering these tax reliefs, the funding envelope made available to the investment zones will also facilitate other interventions including skills, research and innovation, and infrastructure.

INDIRECT TAX AND OTHER ANNOUNCEMENTS

VAT registration threshold

The VAT registration threshold will increase from £85,000 to £90,000 from 1 April 2024. This is the first increase to the threshold since it was frozen with effect from 1 April 2017.

The deregistration threshold will also increase from £83,000 to £88,000.

Recovery Loan Scheme / Growth Guarantee Scheme

The Recovery Loan Scheme will be extended until the end of March 2026 and renamed the "Growth Guarantee Scheme".

The scheme is a government-backed loan scheme that aims to support small and medium-sized businesses to “access the finance they need to grow and invest”.

Vaping and tobacco products duty

A vaping products duty will be introduced:

• £1.00 per 10ml for nicotine free liquids

• £2.00 per 10ml on liquids that contain 0.1-10.9 mg nicotine per ml

• £3.00 per 10ml on liquids that contain 11mg or more per ml

This will take effect from 1 October 2026 with registrations for the duty opening from 1 April 2026.

A one-off tobacco duty increase of £2.00 per 100 cigarettes/50 grams of tobacco will also be introduced from 1 October 2026.

Fuel duty

The rates of fuel duty at the current levels will be maintained for a further 12 months.

Alcohol duty

Alcohol duty rates will be frozen at current levels until 1 February 2025.

Air passenger duty

The non-economy class rates of Air Passenger Duty will be increased from 2025-26 to account for high inflation in recent years.

Landfill Tax

Landfill tax rates will be adjusted for the year 2025-26. The standard rate of Landfill tax will increase to £126.15 per tonne and the lower rate will increase to £4.05 per tonne.

Stamp duty land tax - multiple dwellings relief

Multiple Dwellings Relief will be abolished from 1 June 2024.

Crypto asset reporting framework

A Crypto-Asset Reporting Framework will be introduced from 2026 (with the aim of improving transparency and compliance).