Unveiling the ‘Budget for Long-Term Growth’ on Wednesday, March 6th, 2024, Chancellor Jeremy Hunt promised “more investment, more jobs, better public services, and lower taxes.”
Let’s dive into the key highlights:
Personal Taxation
When it comes to personal taxation, the government is implementing a few key changes for the 2024/25 fiscal year. The basic rate of income tax remains steady at 20%, but the band of income subject to this rate is capped at £37,700. This means that the threshold for the higher 40% tax rate kicks in at £50,270 for those eligible for the full personal allowance.
It’s worth noting that the basic rate band will remain frozen at £37,700 until April 2028. Additionally, the National Insurance contributions upper earnings limit and upper profits limit will stay aligned with the higher rate threshold of £50,270 during these tax years.
For high-income earners, the additional rate of 45% will apply to those with an income exceeding £125,140 in the 2024/25 tax year.
Personal Allowance
Here’s a re-written section on the changes to the personal allowance:
Personal Allowance: A Gradual Reduction for Higher Incomes
While the government aims to provide tax relief, there’s a catch for those with higher “adjusted net incomes.” The personal allowance, which typically reduces the amount of income subject to tax, will see a gradual reduction for individuals earning above £100,000.
Specifically, the personal allowance will be reduced by £1 for every £2 of income exceeding £100,000. This means that those with an adjusted net income of £125,140 or above will effectively lose their entire personal allowance.
Dividend Tax
For those who receive dividend income, there’s an adjustment on the horizon. Currently, the first £1,000 of dividends is chargeable to tax at a rate of 0%, known as the Dividend Allowance. However, this tax-free allowance will be reduced to £500 for the 2024/25 fiscal year.
This change effectively means that a smaller portion of dividend income will be exempt from taxation, potentially increasing the tax burden for individuals with significant dividend earnings.
ISAs
In a move to encourage domestic investment and provide a new tax-efficient savings option, the government has announced plans to introduce the UK ISA (Individual Savings Account). This new initiative will offer a dedicated ISA allowance of £5,000, separate from the existing ISA allowances.
Child Benefit Relief for Higher Incomes
The government has announced changes to the High Income Child Benefit Charge (HICBC), providing relief for families with higher incomes. From April 2024, the income threshold at which the HICBC starts to be charged will increase from £50,000 to £60,000.
Additionally, the rate at which the HICBC is calculated will be halved, reducing from 1% of the Child Benefit payment for every additional £100 above the threshold to 1% for every £200. This adjustment means that Child Benefit will not be completely withdrawn until an individual’s ‘adjusted net income’ reaches £80,000 or more.
Furthermore, the government plans to administer the HICBC on a household basis rather than an individual basis by April 2026. This change will be subject to a consultation process, ensuring a more comprehensive approach to assessing eligibility for Child Benefit among higher-income families.
Non-UK domiciled individuals
The government is introducing a significant shift in how non-UK domiciled individuals are taxed. From April 6, 2025, the current remittance basis of taxation will be abolished and replaced with a residence-based regime.
Under the new system, individuals who opt into this regime will not be required to pay UK tax on any foreign income and gains arising during their first four years of tax residence. However, this benefit is contingent on them having been non-tax residents for the preceding ten years.
For those who have been tax residents in the UK for more than four years, they will be subject to UK tax on their foreign income and gains, aligning with the residence-based principle.
This overhaul aims to simplify the taxation of non-domiciled individuals and create a more transparent and streamlined system based on residency status rather than the remittance of funds.
Employment
The government has introduced a series of measures aimed at reducing the burden of National Insurance contributions (NICs) and supporting employment, particularly for lower-wage workers and veterans.
Following the cut to the main rate of Class 1 employee NICs from 12% to 10% in January 2024, the government has further reduced this rate to 8%, effective April 6, 2024. This move aims to increase take-home pay and boost disposable incomes for employees.
For the self-employed, the government will amend Class 2 NICs from April 6, 2024, and cut the main rate of Class 4 NICs from 9% to 6%, providing relief for those running their own businesses.
In a bid to support the employment of veterans, the government is extending the employer NICs relief for businesses hiring qualifying veterans for an additional year, until April 2025. This means that employers will continue to be exempt from paying employer NICs up to annual earnings of £50,270 for the first year of a qualifying veteran’s employment in a civilian role.
Furthermore, the government has accepted the recommendations of the Low Pay Commission and announced increased rates for the National Living Wage (NLW) and National Minimum Wage (NMW), effective April 1, 2024. Additionally, the NLW will be extended to cover 21 and 22-year-olds, providing better wage protections for younger workers.
These measures demonstrate the government’s commitment to supporting employment, reducing the tax burden on workers and businesses, and ensuring fair compensation for those at the lower end of the wage spectrum.
Holiday Rentals
The government has announced plans to abolish the Furnished Holiday Lettings (FHL) tax regime, effective from April 2025. This move aims to streamline the taxation of short-term and long-term rental properties.
Under the current system, FHLs are taxed differently from longer-term residential lettings. However, with the abolition of the FHL rules, both short-term furnished holiday lets and longer-term residential rentals will be treated the same for tax purposes.
R&D Relief
In line with the announcements made in the Autumn Statement 2023, the government is introducing significant changes to the Research and Development (R&D) tax relief system. The existing Research and Development Expenditure Credit (RDEC) and SME schemes will be merged into a single unified scheme.
For expenditure incurred in accounting periods beginning on or after April 1, 2024, claims will be processed under the merged scheme. The rate for this consolidated scheme has been set at the current RDEC rate of 20%, providing a consistent and streamlined approach to R&D tax relief across businesses of all sizes.
Capital Gains Tax
The government has implemented revisions to the capital gains tax rates applicable to certain types of gains, primarily those arising from residential properties. However, any portion of the gain that qualifies for Private Residence Relief will be exempt from these rate changes.
Specifically, the capital gains tax rates for residential property gains have been adjusted from 18% and 28% in the 2023/24 tax year to 18% and 24% for the 2024/25 tax year.
The government has announced that the CGT annual exempt amount will be reduced from £6,000 to £3,000 from 6 April 2024.
VAT
After years of stagnation, the government has announced an increase in the VAT registration threshold from £85,000 to £90,000, and the deregistration threshold from £83,000 to £88,000, effective April 1, 2024. This move is expected to provide relief for small businesses, allowing them to operate at higher turnover levels before being required to register for VAT.
In addition to the VAT threshold adjustments, the government has extended the freeze on alcohol duty until February 2025, and the temporary 5p cut in fuel duty rates will remain in place until March 2025.
Furthermore, a one-off increase in tobacco duty will also be implemented from the same date as the vaping duty, reflecting the government’s ongoing efforts to curb tobacco consumption and its associated health risks.
