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6.3.2024. Updates

Spring Budget – March 2024 – Haffner Hoff Update

Pre-election Budget

Earlier today, the Chancellor, Jeremy Hunt, delivered what many expect to be his and the Tories last budget for some time. Whilst some of the tax changes introduced had been leaked prior to the budget, others came as more of a surprise.

Below we set out some of the relevant changes as well as points to consider.

Individuals

Property Sector

 

Individuals

 

National Insurance (NIC) for employees

Having already reduced the main rate of National Insurance (NIC) for employees at the Autumn Statement, the Chancellor today announced a further reduction, as had been expected.

Currently, National Insurance paid by employees earning between £12,570 and £50,268 is 10%, and 2% on earnings above that. The Chancellor announced that from 6 April 2024, the main rate of employee NIC would be cut to 8%.

There is no change to the rate of NIC paid by employers.

Self-employed

Class 4 National Insurance Contributions (NIC)

Having previously announced that the main rate of NIC for the self-employed – Class 4 NIC (which is currently levied at 9% on profits between £12,570 and £50,270) would be reduced to 8% from 6 April 2024, the Chancellor today went further by announcing that the main rate will now be reduced to 6% from April.

This is in addition to the abolition of Class 2 NIC, announced at the Autumn Statement, due to take effect from 6 April 2024.

High Income Child Benefit Charge (HICBC)

Currently, Child Benefit (CB) starts being clawed back through the tax system when either parent has taxable income of over £50,000 per year, with 1% of the CB being clawed back for every £100 of additional income above the £50,000 threshold until 100% of the CB is clawed back where income reaches £60,000 per year.

The Chancellor has announced that from April 2024, these thresholds will increase to £60,000 and £80,000 respectively. This effectively means the rate at which CB is clawed back is halved, with 1% of CB being clawed back for every £200 of additional income above the new £60,000 threshold.

Furthermore, currently, the High Income Child Benefit Charge depends simply on the parent who has the higher income. This means that even where both members of the couple earn £50,000 each, they can still receive full Child Benefit, whereas if one earns moderately more than £50,000 and the other earns nothing, they can lose their CB.

The government is consulting on arrangements to change this and make the Charge depend on combined household income, rather than just the higher earners. This is expected to come in from April 2026.

Haffner Hoff comment

The lack of fairness of the HICBC has been talked about for some years now and today’s announcement, particularly the consultation to move to a household-based system from April 2026, is welcome news.

The immediate changes open up the CB system to higher rate tax payers for the first time (albeit, only as a result of fiscal drag not increasing the basic rate tax threshold!) and will enable more parents to be able to receive additional funds to provide for their children.

Non-UK domicile tax regime

There had been wide speculation in the press before the budget, that the Chancellor would be making some changes to the non-UK domicile tax regime. In his announcement today, the Chancellor revealed that he would be removing the regime altogether with the UK moving to a new residence-based regime from April 2025.

Current regime

Currently, individuals who are resident in the UK but who are non-UK domiciled, are able to benefit from certain tax breaks on their non-UK income. (Domicile is not defined in statute, but is broadly understood to be the country that a person treats as their permanent home, or lives in and has a substantial connection with. A non-UK domicile, therefore is someone for whom the UK is not their “permanent” home. The criteria around this, although not entirely prescriptive, are quite exhaustive and an individual cannot “decide” to be non-UK dom. It is a question of fact).

UK resident, non-domiciliaries are able to benefit from the Remittance Basis, which ensures that these individuals are only taxed on foreign income that they remit to the UK. Any foreign income kept outside the UK is not liable to UK Income Tax.

Until today, individuals claiming the remittance basis were able to do so without any additional tax charge as long as they had been resident in the UK for less than 7 out of the previous 9 years. Once an individual has been resident for more than that length of time, they would need to pay the following “Remittance Basis Charge” (RBC) each year to benefit from the remittance basis.

Resident in UK for at least 7 out of the previous 9 years – £30,000 RBC per year

Resident in UK for at least 12 out of the previous 14 years – £60,000 RBC per year

Resident in UK for at least 15 out of the previous 20 years – becomes deemed UK domicile and can no longer claim the Remittance Basis.

New regime

Under the new residence-based scheme announced today, new arrivals taking up residency in the UK from April 2025 (who have had 10 consecutive years of non-UK residence), will be eligible for full tax relief on their non-UK income for the first 4 years of being UK resident. The relief will be available on all foreign income, even that which is remitted to the UK.

The new regime will also be available for existing residents still within their first 4 years of UK residency.

Transitional rules for those currently on the old regime

So as to smooth the transition for those currently claiming the remittance basis, the Government has announced several transitional arrangements (the finer details of which still need clarification):

  • A temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-doms who will lose access to the remittance basis on 6 April 2025 and are not eligible for the new 4-year exemption regime.
  • Re-basing of capital assets to 5 April 2019 levels for disposals that take place after 6 April 2025 for current non-doms who have claimed the remittance basis. This means that when foreign assets are disposed of, affected individuals can elect to be taxed only on capital gains since that date.
  • Non-doms will be able to remit foreign income and gains that arose before 6 April 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27.
  • While the government is removing protections on non-resident trusts for all new foreign income that arises within them after 6 April 2025, foreign income that arose in protected non-resident trusts before 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than 4 years.

Haffner Hoff comment

Taxation of non-UK domiciles has been a hot political topic in recent years, most notably with the Prime Minister’s wife having claimed the remittance basis on her foreign income until very recently when the press and certain politicians called her out for what they felt was tax avoidance. (Many accountants and tax advisers would disagree and simply call this sensible tax planning!).

The changes made will undoubtedly reduce the incentive for certain non UK individuals to move to the UK, with a tax system that already disincentivises foreign investment, with one of the highest Corporate Tax rates in the developed world.

However, the transitional rules represent an unexpected opportunity for those individuals already on the remittance basis, who may have been coming towards the end of their time on the scheme. With careful planning, some of these individuals may be able to remit large amounts of foreign income to the UK at a relatively low rate of tax under the transitional rules. We will need to see the full details of the measures to understand how they will operate and if they have any unseen restrictions.

UK ISA

To incentivise further investment in UK focused assets, the Chancellor announced the introduction of a new UK ISA which will be a £5,000 allowance for people to invest in the UK, in addition to the existing ISA allowance.

This is expected to be available from April 2025.

 

Property Sector

 

Capital Gains Tax (CGT) on residential property

Currently CGT paid on the disposal of residential property by individuals is charged at 28% for gains falling in the higher rate tax bracket (and 18% for gains in the basic rate).

The Chancellor announced that the higher rate of CGT on residential properties will be reduced to 24% from 6 April 2024.

Haffner Hoff comment

The operative date for CGT is generally the date of exchange of contracts. Individuals looking at exchanging on their residential property in the near future, may want to consider deferring such action until 6 April if they are likely to be liable to higher rates of CGT. However, it is important to bear in mind that the Annual Exemption, will be dropping from £6,000 currently to £3,000 from 6 April, meaning that £3,000 more of the gain on disposal will be liable to tax (albeit it at 24% rather than 28%).

Furnished Holiday Lets (FHL)

The Government had previously incentivised landlords (both individuals and companies) to let their properties on short term holiday lets by providing certain tax breaks to qualifying FHL businesses.

This has, to an extent, backfired on the Government as it has contributed to the shortage of long term lets on the market.

To provide more availability of long term lets, the Chancellor announced that from April 2025, the FHL tax breaks will be removed.

Stamp Duty Land Tax (SDLT) – Multiple Dwellings Relief (MDR)

Currently, purchasers of residential property, purchasing more than one dwelling in a single transaction are able to calculate their SDLT based on an average value per dwelling, as opposed to the aggregate value of the total dwellings, thus enabling purchasers to benefit from significantly reduced SDLT calculations. This is called MDR.

The Chancellor has announced that from 1 June this relief will no longer be available (except for transactions where contracts have been exchanged on or before 6 March 2024).

An example of the difference between a transaction benefitting from MDR and one without, is set out below:

Example:

An individual purchasing 5 properties for £100,000 each, purchased under one contract:

With MDR
Average property cost £100,000
SDLT per property
£100,000 at 3% £3,000
SDLT on 5 properties with MDR £15,000
Without MDR
SDLT on total contract
First £250,000 at 3% £7,500
Next £250,000 at 8% £20,000
SDLT on 5 properties without MDR £27,500

Therefore, in the above example, there is an additional £12,500 of SDLT due as a result of the removal of MDR.

Haffner Hoff Comment

Although the abolition of MDR will likely result in increased SDLT in many cases, there is another rule to consider, where 6 or more residential properties are purchased under as part of the same transaction. In such a scenario, SDLT is calculated using commercial rather than residential rates. Up until now, this method was usually redundant as MDR generally produced a better result than commercial rates and was able to override the commercial rates rule. However, the removal of MDR will bring the commercial rates calculation back into use more frequently. Indeed, now that MDR is going, we may see an increase of purchases of portfolios of 6 or more residential properties.

Investors thinking of purchasing a portfolio of residential properties or transferring a portfolio they already own between entities should consider crystalising the SDLT before the 1 June. Conveyancers are likely to be busy!

VAT

The Chancellor has announced that from 1 April the VAT registration threshold will increase from £85,000 to £90,000, the first such increase to the threshold for seven years.

Although some of the changes introduced may have taken many by surprise, on the whole, they provide a large section of society with tax cuts (NIC, CGT), opportunities (those moving from non-dom to new residence-based regime) or the possibility of squeezing in some last minute transactions before the changes come in (MDR).

What remains to be seen is who will be in power in the next Government and which of these changes will last or even, be brought in to effect.

As always should you have any queries regarding any of the above, please do be in touch.

Haffner Hoff

See our new website – www.haffnerhoff.co.uk

This update is not intended to constitute tax advice. The information provided in this update is based on our understanding of current (and draft) tax law; but we do not represent or warrant the accuracy of the information contained herein, and any information provided may be incomplete or condensed. The suggestions contained within this document are for discussion purposes only and should not be relied on. You should seek formal tax advice before proceeding with any of the suggestions contained in this update.

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