As tax professionals, it is our duty to provide our clients with a comprehensive and unbiased analysis of the Spring 2024 Budget, delivered by the Chancellor on March 6th 2024. This review is written contemporaneously and will not be updated to reflect later fiscal or political changes. Our focus is on the aspects of the budget that are most relevant to our typical client at Tax Accountant. While not exhaustive, we have thoroughly examined all HMRC and Treasury documents published with the budget to identify potential “smoking guns.”

The Political and Economic Context

It is important to recognize that this budget was presented in a pre-election context by a politically weak government facing defeat in the polls. The economy has been sluggish, with low growth and high inflationary pressures, further compounded by ongoing conflicts in Ukraine and Gaza and the global recovery process from the pandemic. These circumstances undoubtedly limited the Chancellor’s room for manoeuvre, and it is likely that he would have wished to do more to showcase his party’s policies ahead of the election.

Personal Tax and National Insurance

One of the most significant announcements in the budget was a 2% cut to the main National Insurance (NI) rate for employees, effective April 6th 2024. This reduces the main rate to 8%. The High Income Child Benefit Charge (HIBC) thresholds have also increased. The charge now tapers out the benefit over £20,000 (previously £10,000) for the highest-earning parent, with the lower threshold increased to £60,000 (previously £50,000) and the upper threshold to £80,000 (previously £60,000). The taper rate has also been halved. These changes apply from April 6th, 2024, with the government planning to reform HIBC to work on a household basis by April 2026.

Another notable change is the removal of tax exemptions for Non-Domiciled individuals from April 6th 2025, along with removing the concept of Domicile from the UK tax system. However, there were no changes to Income Tax rates, thresholds, allowances, or NI thresholds. The pre-announced reduction in the Dividend Allowance from April 6th 2024 to £500 remains in place, with no changes to Dividend Tax rates.

Business Tax

For the self-employed, Class 4 NI will reduce from 9% to 6% from April 6th 2024, with 1% of this reduction announced in the Autumn of last year and the other 2% announced in this budget. Class 2 NI will no longer be payable by most self-employed individuals from April 6th 2024, but they will continue to accrue State Pension and benefit rights. Effectively, Class 2 NI drops to £0.00 rather than being abolished. Those with small business profits below £6,725 a year can make voluntary Class 2 contributions at £3.45/week, paid annually via Self Assessment, to preserve their State Pension and benefits.

There were no changes to NI thresholds for the self-employed, Employer NI rates, Corporation Tax rates and thresholds, or Capital Allowance rates and thresholds. Some targeted measures were announced, such as increases to Corporation Tax credits for Independent Film Producers and changes to Corporation Tax relief for Theatres, Orchestras, and Galleries to make some, but not all, of the post-COVID enhancements to these schemes permanent.

The budget also introduced harmonization of penalties for late submission or payment across Making Tax Digital for VAT and Income Tax. A significant change is the abolition of the Furnished Holiday Lettings (FHL) tax regime from April 2025. This regime provided a halfway system between property taxation and self-employment, and its abolition means that, in most cases, FHLs will be treated like any other property. The current benefits of the FHL regime, which will be lost, include the ability to claim Capital Gains Tax reliefs for traders, entitlement to plant and machinery capital allowances, and counting profits as earnings for pension purposes.

HMRC has also updated its guidance on the deductibility of training costs for sole traders, providing clearer guidelines without introducing new relief or changing boundaries.

VAT

The VAT registration threshold has been raised from £85,000 to £90,000, but the VAT rate and scope have remained unchanged.

Capital Taxes

The Higher Rate of Capital Gains Tax (CGT) on Residential Property will be reduced from 28% to 24% from April 6th 2024, to stimulate the property market for disposals of Buy-To-Let properties, Second Homes, and similar. This change does not affect the tax exemption on the only or main residence. The lower rate of 18% remains unchanged. As previously announced, the CGT Annual Allowance for individuals will be reduced to £3,000 from April 6th 2024. There were no changes to the Inheritance Tax (IHT).

Business Rates

The budget introduced minor anti-avoidance measures around empty properties but made no other significant changes to Business Rates.

Duties – Alcohol, Tobacco, Fuel, Air Travel

Fuel duties have been frozen for 12 months, including the 5p per litre temporary cut from Spring 2022. Alcohol duties have also been frozen. A new duty on vapes will be introduced from October 2026. Air Passenger Duty has been frozen for economy flights, while tobacco duties have been increased.

Stamp Duty / SDLT

Multiple Dwellings Relief, which provided an alternative Stamp Duty calculation when multiple properties were purchased simultaneously (e.g., by an investor), will be abolished from June 1st 2024. No other significant Stamp Duty changes were announced.

Spending and Economic Development

The budget included announcements of consultations on an Accelerated Planning System for major commercial applications and streamlining householder applications, as well as an additional £5,000 ISA allowance for investing in the UK. A “Public Sector Productivity Programme” was also introduced, with a £3.4 billion investment to save £35 billion in productivity through digital transformation and AI.

Tax Accountant’s View

The reduction in NI was widely anticipated in the days before the budget. However, the impact of freezing both Income Tax and NI thresholds/personal allowance (known as “fiscal drag”) will likely counter a significant portion of the benefit derived from this reduction.

It is disappointing that the Employer’s NI remains unchanged, as the current rate of 13.8% represents a substantial additional cost to employment.

Removing the Furnished Holiday Lettings regime will likely impact only professional Air BnB landlords. The rationale behind this change is unclear, as it seems to be a detriment to investment and regeneration in areas like the Isle of Wight, where there has been a shift away from traditional “bucket and spade” holidays towards shorter breaks and flexible holidaying. While the argument may be “local houses for local people,” this appears to be a conflation of issues.

The removal of Non-Dom rules is a totemic move but may not be as significant as initially thought. Non-Doms, for the most part, do not avoid taxes altogether but rather pay them in another country. This change brings that tax revenue into the UK. However, it remains to be seen how many Non-Doms will accept this change or move their capital and/or residence elsewhere. Interestingly, there is a one-year lead-in to this change, which is a cynical move.

The Spring 2024 Budget, delivered in a challenging political and economic context, introduced several changes that will impact our clients. While some measures, such as the reduction in NI rates and increased High Income Child Benefit Charge thresholds, may provide relief for individuals, others, like the abolition of the Furnished Holiday Lettings regime and the removal of Non-Dom rules, could have unintended consequences for businesses and investment.

As always, we recommend that our clients seek personalized advice to understand how these changes may affect their circumstances. Our team is committed to providing the most up-to-date and relevant guidance to help our clients navigate the complexities of the UK tax system and make informed decisions for their financial future.