Navigating the UK Spring Budget 2024

The UK's Spring Budget 2024 has introduced several key changes that could impact your financial planning, we've distilled the most pertinent updates that you should be aware of.

National Insurance

One of the headline announcements is the further reduction in National Insurance contributions, which follows a previous cut in the autumn statement. From April, the rate will drop from 10% to 8% of pay for employees. This change will provide immediate relief to many workers, up to a maximum saving of £754 pa.

For self employed workers, Class 2 NI will be abolished for those with annual profits exceeding £6,725, individuals will still get access to contributory benefits, including the State Pension. Those with earnings below £6,725 must pay voluntary Class 2 contributions if they wish to retain access to the State Pension and other benefits.

There will also be a further 2% on top of the 1% reduction announced in the Autumn Statement for Class 4 NI. The main rate will therefore drop from 9% to 6% representing annual savings of up to £1,131.

Capital Gains Tax and Property

Changes to capital gains tax on residential property could affect decisions around property investment and disposal. The Chancellor has announced a cut to the rate of CGT payable on the disposal of residential property benefiting multiple homeowners and those with buy to let properties. The higher residential property CGT rate is to be cut from 28% to 24% from 6 April 2024. All other rates remain the same, and as previously announced the annual CGT annual exempt amount will fall from £6,000 to £3,000.

Child Benefits

From April 2024, the threshold at which child benefit is withdrawn will increase from £50,000 to £60,000, and the rate of withdrawal will be £1 for every £200 of income. Child benefit will therefore be extinguished once the highest earner's income exceeds £80,000.

There are also plans to make the system fairer by administering the benefit on a household basis, rather than on the highest earner. The government aims to introduce this by April 2026 following consultation.

UK ISA & Bonds

A new 'UK ISA' is to be introduced to support UK investment and could have a positive impact on tax efficient savings vehicles. This will give savers an additional annual subscription allowance of £5,000 on top the existing £20,000 limit. Consultation on the design and implementation of the ISA will be open until 6 June 2024.

In a similar theme, the government also announced that NS&I will launch a product which will offer a guaranteed interest rate, fixed for three years. This will be brought on sale in early April 2024.

Furnished Holiday Lets

Furnished holiday lets will be taxed in the same way as buy to let properties from 6 April 2025. This will mean that income from these properties will cease to be relevant UK earnings for pension purposes and may reduce other benefits.

Non-UK Domiciles

It was announced that from the 6 April 2025 the remittance basis of taxation for non-UK domiciled individuals will be abolished. This is to be replaced with a new Foreign Income and Gains (FIG) regime which is determined by UK residency rather than domicile.

Individuals who become UK resident having been non-resident for more than 10 years will not pay UK tax on their overseas income and gains for the first four tax years of UK residence and will be free to bring these funds to the UK free of any additional tax. They will continue to pay tax on their UK income and gains in the normal way.

There is also to be a consultation on changes to inheritance tax for non-UK doms. Currently someone who is non-UK domicile is only subject to UK IHT on assets situated in the UK. The proposed new rules, intended to apply from 6 April 2025, would apply IHT on their worldwide assets once someone has been resident in the UK for more than 10 years. Also, where someone ceases to be UK resident they will remain subject to IHT for 10 years after leaving the UK.

Pensions

The Chancellor confirmed reforms to Defined Contribution workplace pensions that aim to boost investment into UK business. This had previously been announced at the beginning of March. Broadly these changes will require:

• Pension Trustees/providers of defined contribution workplace schemes to publicly disclose, for their default fund, how much they invest in UK businesses compared to overseas. Similar requirements will also be placed on Local Government Pension Scheme funds.

• Using the Value for Money (VFM) framework, require such pension schemes to compare their performance data against competitor schemes.

• Give new powers to The Pensions Regulator and the FCA (Financial Conduct Authority) to prevent poorly performing workplace schemes from accepting new business from employers. Consolidation of the workplace pensions market is the name of the game.

The Government plan to implement the VFM framework across the workplace pension market and provide the Regulators with new powers at the earliest opportunity. The requirement to disclose investment in UK businesses is due by 2027 and is one of several announcements to encourage UK investment. This is not unsurprising given the UK’s stock market is in relative decline – in the past two decades the number of liquid stocks is shrinking and trading volumes have stagnated, without pension fund investment the outlook is not encouraging.

Vaping, Tobacco & Business Class Flights

Hunt has introduced a new levy on vaping. There will also be a one-off increase in tobacco duty to ensure it’ll still be more expensive to smoke cigarettes.

The government is increasing the Air Passenger Duty (APD) for business class travellers.

Conclusion

The UK Spring Budget 2024 presents a complex array of changes that will require careful consideration and strategic planning. As financial advisers, we are here to guide you through these changes and ensure that your financial plans remain robust and aligned with your goals. For a personalised analysis and advice, please reach out to us at Velarium Wealth.

This post is the opinion of Velarium Wealth and contains our understanding of points from the latest Government Budget Statement as of 6th March 2024 that we feel is relevant at the current time. This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not contain all of the information which an investor may require in order to make an investment decision.