Odd, isn’t it, that an impending general election always imbues any Chancellor, of whatever political hue, with fresh optimism? Even the most dour of incumbents discovers that the state of the economy, so recently thought to have been languishing, is not really as bad as all that, and a down payment on all the good things just round the corner can certainly be afforded.
National Insurance Contributions (‘NICs’)
Curious, too, that National Insurance, which all politicians assiduously avoid calling a tax when rates increase, magically becomes one when rates reduce. The reduction in Mr Hunt’s Budget – Class 1 employee NICs will be cut from 10% to 8%; Class 4 self-employed NICs will be cut from 8% to 6% – doesn’t help pensioners, of course.
But that is not all that is to be found in Mr Hunt’s Cabinet of Curiosities.
Property taxes
It turns out after all these years that furnished holidays lettings (‘FHLs’) may not have been an unqualified Good Thing. Instead of (or, perhaps, despite) being a boon to the economy of tourist areas, they stand accused of exacerbating housing pressures to the detriment of local residents (many of whom also happen to be voters in marginal seats). So out go the extraordinarily generous tax advantages afforded to FHLs.
A slight comfort to investors wanting to get out of FHLs is that they will benefit from the reduction to 24% (from 28%) of the rate at which Capital Gains Tax is charged on gains on residential property; though quite why there should be any differential at all between residential property and other assets remains something of a mystery.
Incidentally, purchasers of property will also have to contend with the loss of Multiple Dwellings Relief (‘MDR’): this is a relief which reduces the Stamp Duty Land Tax payable if an expensive property is bundled up with a cheaper one on purchase. It’s given rise to a stream of cases in which taxpayers have tried – often on dubious grounds and encouraged by specialist firms – to claim MDR on the purchase of a family home said to contain within it a secondary residence such as a granny flat or annexe. It seems HMRC have lost patience with the volume of such claims.
High Income Child Benefit Charge (‘HICBC’)
From the moment HICBC was introduced in 2013, its critics have volubly pointed out the design fault that leads to its imposition on a single-earner household with income over £50,000 while two-earner households may potentially enjoy income of £100,000 before the charge bites. And since 2013 the criticism has been ignored.
The scales have now fallen from the Chancellor’s eyes: liability for the charge is in future to be assessed by reference to household income. The change is, however, delayed until 2026, while HMRC, used to assessing individuals, works through the practicalities of assessing a household unit.
Meanwhile, the £50,000 limit is increased to £60,000 and the upper limit to £80,000. It would be churlish to point out that revalorisation in line with RPI would have required the lower and upper limits to be increased to some £76,000 and £92,000 respectively; so we’d better not.
Non-UK domiciled individuals and tax relief
There’s been an epiphany, too, on non-doms. It seems we were mistaken in rolling out the red carpet for wealthy foreigners and seeking to lure them (and, more importantly, their money, influence and expertise) to the UK with generous tax breaks. Apparently, the complete abolition of these breaks from April 2025 and their replacement with a time-limited relief for new residents will not result in their mass exodus and consequent hit to the economy that we so earnestly feared since time immemorial. Hunting with dogs may have been abolished: but the Government isn’t above shooting the opposition’s foxes.
The change has some knock-on effects including on the treatment of the income and gains of offshore trusts settled by non-domiciled UK residents. There will also be transitional provisions for non-doms currently paying tax on the remittance basis, including a 12% tax rate on foreign income arising before April 2025 but brought into the UK in the tax years 2025/26 or 2026/27.
Looking further ahead, consultation has been announced on charging Inheritance Tax on the basis of residence rather than (as at present) domicile: it thus looks as if the idea may be to retire the concept of domicile entirely for tax purposes. But don’t hold your breath on that: consultations have a habit of coming to nothing, especially if a change of government intervenes.
So once again, as so often before, an approaching election renders suddenly achievable and attractive many things that have hitherto been considered as an article of faith to be undesirable, impracticable or unaffordable. Perhaps we should have elections more often…
For more on Spring Budget 2024 and its tax implications, our team would be very pleased to welcome you to our Budget webinar tomorrow (Thursday 7 March) from 1:00pm. A recording will be available on our website afterwards, and emailed to everyone who registers for the webinar.
Our Spring Budget 2024 coverage also includes:
