The Chancellor, Jeremy Hunt, has delivered the 2024 Spring Budget, alongside an independent economic and fiscal outlook prepared by the Office for Budget Responsibility (OBR).
The Chancellor said a lot about future growth in this Spring Budget, but he clearly also has one eye on the upcoming general election, with measures aimed at individuals more than businesses. Our teams have analysed the key announcements, including the proposed replacement of the non-dom regime, further reduction of National Insurance contributions, increase in the Child Benefit threshold, and pledges to build on previously announced tax measures to encourage long-term investment in the UK.
"As the Chancellor turned his attention to what today’s Budget delivered for the electorate, this was a Budget light on headline-grabbing tax announcements for businesses, with only a small number of targeted tax measures aimed at corporates.
While light on business tax announcements, there was continued recognition of the role business investment will play in driving growth, a key ambition of today’s Budget. With the Autumn Statement not that long ago, the Chancellor drew reference to previously announced measures, most notably permanent full expensing, to drive forward business investment. In that context, he confirmed the desire to extend permanent full expensing to leased assets as soon as affordable.
One sector of the business community that was specifically mentioned by the Chancellor was the creative industry sector, with enhancements to reliefs available for those in the performing arts space, a new tax credit, and other enhanced reliefs for the British film and TV industry.
This was the first fiscal event in a long time where research and development (R&D) tax announcements have not taken a leading role. This was expected, given the government had announced in November that the R&D tax review, which has been ongoing since Spring 2021, had concluded. Though away from the spotlight of today’s announcements, businesses will quickly need to prepare and plan for the impact of the new merged scheme. It was confirmed earlier this week that it will take effect for accounting periods starting on or after 1 April 2024, so next month for some.
Today’s Budget is only part of the story, for businesses and entrepreneurs making long term investment decisions today, the tax landscape in a year, five or ten year’s time when they are putting into action their investment plans, and ultimately seeing the rewards of that investment, are equally important. With a general election on the horizon, it will be important for businesses to plan for what may come next from a future government.
Labour has confirmed its position on several big-ticket items, including pledges to cap the headline rate of corporation tax at 25% for the next parliament and maintain full expensing and the Annual Investment Allowance. However, more detail is still expected, with a commitment that if they were elected, they would publish a business tax roadmap within six months alongside Business Rates reform."
"‘2p or not 2p’ was the question for Jeremy Hunt as he attempted to craft a tax-cutting budget that would appeal to voters and challenge the Labour Party.
Arguably, the biggest change for the UK tax system was the Chancellor’s abolition of the non-dom regime, with the proposal being that this be replaced by a four year residency-based regime where full tax relief will be given for foreign income and gains. Based on the detail released so far, it is clear that the Chancellor is trying to balance a regime that is attractive to those looking to bring wealth to the UK with a number of transitional provisions designed to incentivise those already in the UK to stay.
While this announcement may be cause for concern for non-doms already in the UK, caution is needed both in relation to the detail yet to be seen and the key uncertainty of a general election before this new regime is introduced from 5 April 2025, with Labour also targeting this regime.
In other announcements, whilst a cut to income tax seems to have been a step too far given government finances, the cut in National Insurance is welcomed. Many people will be left scratching their heads, however, trying to understand if the combined effects of fiscal drag, being the freezing of tax thresholds at which taxpayers suffer higher rates of tax, and the two cuts in National Insurance actually mean they are materially better off as the Government continue to give with one hand and take with the other.
There was also some relief for those caught in the ‘super tax’ banding, where child benefits are tapered away from £50,000. The threshold was raised to £60,000 and tapered over a broader level of earnings, along with a signpost to further reform.
While the Chancellor prefaced these changes as ‘simpler and fairer,’ our clients typically want simplification and certainty in their financial affairs. I suspect that there will be continued uncertainty as we look forward to the general election anticipated later this year, particularly with regard to our non-dom clients."
"Today’s announcement that the government will reform the UK’s non-dom rules has the potential to be a significant change to the UK’s tax landscape. In designing the new regime, it will be essential that the Government maintains a focus on making the UK an attractive place to live, work and invest.
Beyond the significant impact on the taxation of high net worth individuals and entrepreneurs living in the UK, the "non-dom" rules also underpin the operation of short-term tax reliefs for employees coming to work in the UK, and today, the Government has also announced reform to Overseas Workday Relief (OWR). Eligible employees will be able to claim OWR for the first three years of tax residence, benefitting from income tax relief on earnings for employment duties carried out overseas but with current restrictions on remitting these earnings removed. For eligible employees, this brings welcome simplification to an overly complex regime and ensures the UK remains a competitive destination for talent. Further details as to who will be eligible are expected to follow."
"The Chancellor has taken a “copy and paste” approach to employment tax rates by “doubling down” on the reduction to National Insurance (NI). He confirmed a further two percentage point cut to NI for employees and the self-employed from 6 April 2024. This is in addition to the reductions introduced only in January thereby increasing the employment tax savings for employees over the course of the year.
The Government is encouraging more people back into the workforce, including reforming the high-income child benefit charge. The first step, which applies from 6 April 2024, is to increase the income threshold at which the benefit is tapered from £50,000 to £60,000. They will consult on assessing income on a household rather than an individual basis by April 2026. This will be welcome news for parents and employers alike and, together with the changes in NI, is expected to increase total hours worked in the economy by the equivalent of more than 100,000 additional full-time workers by the 2028/29 tax year.
The Government has confirmed they will set out further tax administration and maintenance announcements on 18 April 2024. Building upon the announcement in January of their intention to mandate the payrolling of benefits in kind from April 2026 to collect income tax and Class 1A NIC on a more real-time basis and remove year-end P11D reporting, further updates are expected. They have confirmed their intention to provide an update on their consultation into using umbrella companies and, in particular, how to address their non-compliance. Following the most recent consultation into the new IR35 tax liability offsetting legislation, we expect final confirmation on several design points before its introduction on 6 April 2024."
"It was disappointing that no firm decision was made today on The Retail Export Scheme, with the government still considering the OBR findings. The scheme had been a valuable tool in attracting overseas visitors and maximising Great Britain's retail spending from those visitors before it was withdrawn in 2021. This scheme allowed visitors to make VAT-free purchases and to transport these goods home in their luggage, making the most of duty-free allowances, where applicable, on their return home.
Many in the retail, leisure and hospitality sectors had campaigned for the reintroduction of this scheme, to increase the appeal of Great Britain as a tourist destination in a highly competitive international market. We expect that campaigning will continue, and people in these important sectors to the economy will hope this policy may yet be reintroduced in the future."
"As with recent fiscal events, this Spring Budget has been light on new environmental tax announcements, with little appetite from the government to match the green subsidies offered in the EU and USA through the Inflation Reduction Act.
Following last year’s confirmation that the UK will introduce a Carbon Border Adjustment Mechanism (CBAM) by 2027, businesses will still have to wait a little longer to see the details, with the government today reconfirming they will not be releasing the consultation until later in 2024. Expected to impact businesses with global supply chains importing many different physical products into the UK, many multinationals are already familiar with the concept of a CBAM, with the EU CBAM transitional period having already come in-force from 1 October 2023. However, there are expected to be divergences between the two mechanisms that businesses will need to prepare for, and they have been eager for further details.
There was also no news on the 2023 Plastic Packaging Tax (PPT) consultation, which considered introducing new methods of measuring packaging's recycled content. Businesses will have to continue to wait to see whether there will be welcome developments for those that use chemically recycled plastics, who are currently often unable to obtain the necessary proof to consider their recycled plastic outside the scope of PPT.
With the fiscal headroom for tax cuts tight, we also saw revenue-raising measures that could loosely fall under an environmental taxes heading, such as the extension of the Energy Profit Levy by one year and a one-off adjustment in air passenger duty for non-economy flights."
"The property sector has been a constant feature of the Government’s previous Budget announcements, and this year’s Spring Budget was no exception. This Budget saw a mixture of measures, including:
The removal of the MDR rules will undoubtedly have a significant impact on purchasers of multiple dwellings, who will now suffer higher rates of SDLT. Large-scale private investors will see effective rates of SDLT increase by up to 4%, and the increase could be even higher for smaller-scale investors. It will also be interesting to see whether Scotland and Wales, which have different, devolved land transaction tax rules, follow a similar path.
However, it is encouraging to see a reduction in the rate of CGT for residential property from 28% to 24%. This measure is hoped to increase housing supply by reducing the tax burden for individuals on the sale of properties previously held for investment.
Similarly, the abolition of the Furnished Holiday Lettings regime is intended to encourage the holding of properties for long-term rents rather than shorter-term holiday lets, thereby boosting the housing supply. Whether these changes are enough to foster a change in behaviour remains to be seen.
Finally, the introduction of a new Reserved Investor Fund regime was announced. We welcome these changes and expect that the regime will support further investment in UK real estate via UK-domiciled vehicles."
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