Introduction
The Chancellor, Jeremy Hunt, delivered his Spring Budget on 6 March 2023. A lot of the content of the Budget was leaked ahead of his speech.
The biggest announcement in the Budget was that the main rate of employees’ Class 1 National Insurance will reduce by a further 2%. The 2% cut in the 2024 Spring Budget is on top of the 2% national insurance cut in the 2023 Autumn Statement, from 12% to 10%, on 6 January 2024.
For the self-employed, the main rate of Class 4 National Insurance will also reduce by 2%, from 8% to 6% from 6 April 2024. This is in addition to the previously announced reduction from 9% to 8% and means that from 6 April 2024 the main rate will reduce from 9% to 6%.
Income tax
The Income Tax Personal Allowance and tax bands will remain frozen, until 2028, at the current level of £12,570 and £50,270. The additional rate threshold was reduced from £150,000 to £125,140 from 6 April 2023.
Where annual income exceeds £100,000, the personal allowance is lost at a rate of £1 for every £2 of income above £100,000. The loss of the personal allowance means a person is taxed at 40% on the additional £2 of income, and they also pay an extra 40% on the £1 of personal allowance lost. This results in a marginal rate of 60%, which continues up to £125,140. At £125,140, the entire personal allowance is lost.
National Insurance - employed and self-employed
The expected 2% cut in the main rates of employee’s Class 1 National Insurance and self-employed Class 4 National Insurance was confirmed. From 6 April 2024, the rates will be as follows:
| Main rate | Rate above upper earnings/profits limit |
Employees | 8% | 2% |
Self-employed people | 6% | 2% |
There are no changes to the rate or threshold applicable to employers.
Trading vehicle
An employed individual, with average earnings of £35,400, will save £457 a year because of the National Insurance cut, and £913 when including the earlier cut in November 2023.
Individuals who work through a limited company, and take their main income through dividends, will not be affected. It was only a few years ago that National Insurance and dividend tax both increased by 1.25%. The increase was quickly reversed for employees, but not for shareholders with dividend income. The National Insurance reduction will only affect employees who draw salaries more than £12,570.
There is now little fiscal (tax financial) advantage in trading through a limited company.
The self-employed (e.g. a sole trader or partner) will pay 20% income tax and 6% National Insurance on profits over £12,570. The combine tax charge is 26%.
A director-shareholder pays 19% Corporation Tax on profits up to £50,000 and 26.5% on profits over £50,000. They also pay effective dividend tax of 7% (81% of 8.75%) on company profits up to £50,000 drawn as dividends. The combine tax charge is 26%, though dividend tax is payable on amounts over £500, whereas National Insurance is payable on earnings over £12,570.
For those thinking about disincorporating their limited company, and trading as a self-employed individual, please consider the impact of quarterly filing and Making Tax Digital. In two years’ time, from April 2026, Making Tax Digital for Income Tax Self-Assessment may affect you. There are no firm plans to bring in MTD for Corporation Tax yet! The disruption and extra costs of complying with quarterly MTD for Income Tax may be far greater than you may expect.
Child benefit (The Higher Income Child Benefit Charge)
The Chancellor has been under pressure to address some unfair aspects of the charge. Those earning £60,000 or more must repay all Child Benefit or opt out from payments entirely. The claw back of child benefit applies based on the personal income of a single earner in each household. Therefore, a household with one person earning £58,000 and the other £20,000 would be affected by the charge. However, two people, in a single household, each earning £49,000, would not be impacted at all, and would retain all their child benefits.
The way that the high-income child benefit charge operates has long been criticised. In particular, the discrepancy means that a family where each parent earns just under £50,000 can keep their full child benefit. However, a single income household will lose the benefit if any person earns more than £60,000.
The government will consult on moving the HICBC to a household-based system by April 2026.
In the meantime, from April 2024, the withdrawal threshold will be increased to £60,000, from £50,000. In addition, any individual within the household can earn up to £80,000, rather than the current £60,000, before all child benefit is withdrawn.
Child benefit will therefore be clawed back at 1% for every £200 of excess income over £60,000, up to £80,000, rather than 1% for every £100 of excess income between £50,000 and £60,000. This means that from 6 April 2024, full withdrawal won’t arise until ‘adjusted net income’ is at £80,000. Adjusted net income allows total taxable income to be reduced for personal pension payments and charitable donations.
Capital gains tax
The chancellor announced a reduction in the higher rate of Capital Gains Tax for gains on residential property, excluding gain made on your main home.
The current capital gains tax rates, applied to capital gains made on the disposals of residential property are 18% and 28%, for basic rate and higher rate taxpayers respectively. The rates depend on an individual’s level of taxable income and the size of any gain. This compares to rates of 10% and 20% for all other capital gains tax assets disposals. From 6 April 2024, the higher rate, of 28%, will be cut to 24%.
As previously announced, the annual capital gains tax exemption for individuals will reduce from £6,000 to £3,000 from 6 April 2024. The exemption reduced from £12,300 to £6,000 on 6 April 2023.
Furnished holiday lets (FHLs)
The FHL rules treat short-term letting businesses in a similar way to a trading business for taxation purposes and various tax reliefs.
At the moment, landlords who use the furnished holiday lets regime can:
claim capital allowances on fixtures, furniture, furnishings and equipment
are entitled to capital gains tax reliefs, like rollover relief and pay 10% capital gains tax through business asset disposal relief on disposal of a property
deduct the full cost of their mortgage and loan interest from rental income, therefore saving tax on interest paid at the highest rate of income tax, and not restricted to 20%, like on most other property lettings.
The FHL regime will be abolished from 6 April 2025.
The Chancellor argued that this change would help alleviate the strain of housing in coastal areas where landlords are buying properties and converting them to holiday lets meaning there are not enough properties available for long-term rental.
Non-domiciled individuals
Individuals who are UK residents, but who have a non-UK domicile, can currently elect to pay UK tax based on their overseas income remitted to the UK. This is rather than paying UK tax on their overseas income and gains. Currently, unless such income and gain are remitted to the UK, it is not subject to UK taxation.
Your domicile is a legal concept. From April 2025, the non-domiciled status for UK tax purposes will be abolished.
VAT thresholds
In the first increase in seven years, the Chancellor increased the VAT registration threshold from £85,000 to £90,000 from 1 April 2024. The deregistration threshold will increase to £88,000, from £83,000.
The VAT threshold has been set at £85,000 since April 2017. This has resulted in ‘fiscal drag’ meaning that more businesses are brought into the VAT regime through general inflation and higher sales prices.
New £5,000 UK focused ISA allowance
An Individual Savings Account (ISA) is a tax-advantaged savings account, where income and gains arising from within the account are exempt from UK income tax and/or capital gains tax. Income and gains from ISAs do not need to be included on a Self-Assessment Tax Return.
The Chancellor intends to create a new UK ISA, offering an additional tax-efficient allowance of £5,000 for investment in UK-focused assets. This will be on top of the existing ISA allowance, which allow £20,000 pa to be invested / saved each tax year.
The government is proposing that the UK ISA would be restricted to UK shares, gilts and UK corporate bonds, but exclude holding cash in the accounts, therefore encouraging investment in UK assets.
The new ISA will be introduced following consultation running to 6 June 2024.