With speculation growing about the timing of the 2024 general election, many wondered what the Chancellor, Jeremy Hunt, would announce in his Budget to win voters over. According to the BBC, UK taxes are approaching the highest levels since the Second World War when compared to UK Gross Domestic Product, so it’s no surprise that many hoped it would be a tax-cutting Budget.
These hopes started to fade, however, as it emerged the Chancellor probably hadn’t got the 'fiscal headroom' to make significant changes to Income Tax or follow up on rumours around scrapping Inheritance Tax (IHT). This was largely because of the higher costs now associated with the government’s borrowing after interest rates rose in 2023.
So, it was against this backdrop that we today learned what the Chancellor had in store. Before we look at some of his key announcements, we need to look at the health of the UK economy in more detail.
The UK is technically in a recession
According to the Office for National Statistics (ONS), inflation stood at 4.2% in January 2024, which is still more than twice the Bank of England’s target of 2%. Official figures also reveal that Britain’s economy dropped by 0.1% in the third quarter of 2023, and then fell again by 0.3% in the final quarter of the year.
While this means that the UK is technically in a recession, the Chancellor remained upbeat about the economy. He pointed to the Office for Budget Responsibility’s (OBR) expectation that the economy will grow by 0.8% this year and 1.9% next year, which is 0.5% higher than their autumn forecast.
He also said that the OBR estimated that inflation will go below the Bank of England’s target of 2% in the next few months. So against this backdrop, let’s now look at some of the announcements in the 2024 Budget.
A cut to National Insurance Contributions
As speculated by many media pundits, the Chancellor reduced Class 1 National Insurance Contributions (NICs) by a further two pence in the pound. The cut follows Mr Hunt’s announcement during the 2023 Autumn Statement that the main class of NICs for employed people would reduce by 2% for those earning between £12,570 and £50,270.
There was good news for self-employed people as well. During 2023’s Autumn Statement, Mr Hunt also abolished Class 2 NICs, which is paid by the self-employed, as from April 2024. He also cut Class 4 NICs, which are also paid by those who work for themselves, from 9% to 8% for earnings between £12,570 and £50,270. This was due to come into force in the 2024/25 tax year. In the Budget, he confirmed that this rate will drop a further 2% to 6%.
As a result, the NICs will drop to 8% for employed basic rate taxpayers, and to 6% for self-employed people in the same earnings band from April 6 2024.
Reduction to the property Capital Gains Tax
According to the ONS, the average UK house price fell by 1.4% in the 12 months to December 2023. With this in mind, it’s not surprising that the Chancellor said he wanted to support the housing market and announced that he would cut the highest rate of Capital Gains Tax (CGT) on property that was not a main residence.
As from April 2024, the higher rate will fall from 28% to 24%, which the Chancellor said would increase revenues by creating more property transactions. The lower rate of 18% CGT will remain for basic-rate taxpayers.
Scrapping of non-dom tax status
The Chancellor confirmed that he would scrap non-dom tax status. This option is often used by individuals who live in the UK but whose principal home is in another country.
The Chancellor announced that he would abolish the current non-dom tax regime as from April 2025, replacing it with a “fairer and simpler” residence-based regime. Under the changes, non-doms will only pay tax on money earned in the UK for the first four years of tax residence.
If they stay in the UK as a resident for longer, they will be taxed on income or gains generated in foreign countries. Transitional arrangements will be put into place for existing non-doms claiming on the old (remittance) basis.
The child benefit threshold has risen
Currently, when a parent who claims child benefit starts to earn more than £50,000, they have to start paying it back. For every £100 they earn over the threshold, they have to repay 1% of the child benefit received. By the time they earn £60,000, all of the child benefit is lost.
It has long been a point of contention, that two parents earning up to £50,000 each would not fall foul of this charge. Yet a family with one main breadwinner earning £60,000 or more would not be eligible for child benefit payments. In recognition of this, the Chancellor has now increased the threshold to £60,000.
He also confirmed that the point at which the full benefit is withdrawn will go up to £80,000. Mr Hunt also pledged to carry out a consultation on how the benefit could be applied to collective household income, rather than on an individual basis.
New ISA to support UK investment
A surprise announcement by the Chancellor was the introduction of a new ISA. Called the ‘British ISA’, it provides an additional £5,000 tax-efficient allowance for those who want to invest exclusively in the UK, which can be used in addition to the current £20,000.
This means investors could be able to place up to £25,000 into Stocks and Shares ISAs in a tax year.
An increase in the VAT threshold
The threshold for VAT registration will go up from £85,000 to £90,000 in the 2024/25 tax year. While this will be welcomed by many small business owners, the increase falls short of the £100,000 threshold many had hoped for.
Get in touch
If you would like to discuss how the announcements made by the Chancellor could affect your finances, please call us on 01527 577775 or speak to one of our advisers, as we’d be happy to help.
Wednesday 6 March 2024 | 4:30pm