In total, £10 billion of tax cuts were introduced for the 2024/25 tax year. The reductions in national insurance and the high-income child benefit represent most of these cuts.
The introduction of a new foreign income and gains regime from April 2025 will impact UK resident, non-domiciled individuals. Property investors will also feel the force of tax rises with the abolition of the Furnished Holiday Lettings (FHL) regime and, the removal of stamp duty relief for multiple dwellings.
According to the Office of Budget Responsibility, tax revenues as a share of the economy is projected to rise to 37% of GDP by 2028/29 partly due to the freezing of income tax thresholds until April 2028.
This week saw the much-anticipated 2024 Budget. Led by the Chancellor of the Exchequer and policymakers, the government outlined a strategic plan with an overall objective to steer the country towards stability and growth. While it remains to be seen if this will be the final fiscal event before the next election, it's clear that the government faces constraints due to fiscal rules on public sector debt, making any attempts at tax cuts for electoral gain a challenging prospect.
This article will now look to highlight the key takeaways from Wednesday’s Budget.
Personal allowance and the basic rate tax band will remain at £12,570 and £37,700 respectively. The threshold before additional rate tax becomes payable is £125,140. The tax rates will continue to remain frozen until April 2028.
The previously announced reduction in dividends allowance from £1,000 to £500 will come in from April 2024. Dividend tax rates remain unchanged at 8.75% for basic rate, 33.75% for higher rate and, 39.35% for additional rate taxpayers.
In Scotland, a new 45% tax rate is set to be introduced from April 2024 which applies for those earning between £75,000 and £125,140. For those earning in excess of £125,140, the top rate of tax will be 48%.
The main rate class 1 rate of national insurance will be cut from 10% to 8% from April. This is projected to be worth c. £450 to someone earning £35,000 a year according to the Office of Budget Responsibility.
The class 4 self-employed NI rate will be cut from 9% to 6% also from April 2024.
The higher rate of capital gains tax payable on residential property will be reduced from 28% to 24% from 6 April 2024. For basic rate taxpayers however, the rate applicable on disposal of residential property will remain unchanged at 18%.
This now means that depending on the specific asset disposed, reliefs claimed and marginal tax rate applicable, there are five possible CGT rates applicable; 10%, 18%, 20%, 24% and 28%.
The previously announced reduction in capital gains exempt allowance from £6,000 to £3,000 comes in also from 6 April 2024.
A consultation on a new residency-based Inheritance Tax (IHT) regime for UK resident non domiciled individuals has been launched with new rules expected from April 2025 onwards. At present, UK resident non domiciled individuals become deemed UK domiciled once they have been UK resident for 15 out of 20 tax years, hereby becoming liable to UK IHT on their worldwide estate.
No changes were made to inheritance tax rates. The nil rate band remains frozen at £325,000 and £175,000 for the resident nil rate band.
ISA allowance will remain at £20,000 per individual.
A new UK ISA of £5,000 is set to be introduced. A consultation seeking views on the design and implementation will be open until June 2024.
No additional changes were announced to those which were firstly introduced in the 2023 Spring budget.
The abolition of the lifetime allowance will come into place from April 2024. The lifetime allowance will be replaced by two new lump sum allowances.
The lump sum allowance will cap the amount of tax-free cash available at £268,275 for those without any protection.
The death benefit lump sum allowance will be £1,073,100 for those without any protection arrangements. This is the maximum tax-free lump sum payable to beneficiaries in the event of a member’s death prior to age 75.
Under current rules, the benefit is tapered at a rate of 1% for every £100 income exceeding £50,000. The way in which the HIBC applies has always been viewed as somewhat unfair. As an example, a household with two individuals earning £49,000 each a year are able to benefit whereas a single earner household with a gross income of £60,000 does not benefit.
The government will now be increasing the threshold at which the HICB applies from £50,000 to £60,000 with the tapering of the benefit set at 1% for every £200 income exceeds £60,000. Those with income in excess of £80,000 will face a tax charge equating to the child benefit payment.
A consultation will then look into how a more comprehensive household-based assessment can be introduced from April 2026.
At present, UK resident, non-domiciled individuals (UK res non-doms) can pay tax on a remittance basis in the first 15 out of 20 years of UK residency. This means that they only incur UK tax on overseas income and gains, to the extent the funds are brought to the UK. A new foreign income and gains (FIG) regime is set to be introduced from April 2025. The changes announced are as follows:
UK res non-dom individuals who have not been UK resident in any of the previous 10 years will not pay UK tax on foreign income and gains (FIG) for a period of four years after becoming UK resident. They will be free to bring the funds into the UK. Subsequently, UK tax would then apply on their worldwide income and gains.
Transitional rules will be introduced to enable UK res non-doms to remit FIG that arose prior to April 2025 into the UK at a preferential tax rate of 12%. This facility will be available for two tax years starting from 6 April 2025.
UK res non-dom individuals who have previous claimed the remittance basis will be able to rebase assets to 6 April 2019 valuations for capital gains tax where the asset is disposed after April 2025.
UK res non-doms who lose access to the current remittance regime from April 2025 without being eligible for the new four-year FIG regime will only pay tax on 50% of their foreign income (not capital gains) in 2025/26.
Protections applicable to overseas trusts arrangements will be removed from April 2025 with the possibility of income/capital gains tax liabilities applying to a UK resident settlor. Pre-April 2025 trust settlements may still retain their IHT benefits.
Furnished holiday lettings regime, which effectively treats income from FHL as trading income will be abolished with effect from 6 April 2025. In the case of a FHL business, business asset disposal relief, which would have enabled capital gains tax to be payable at a rate of 10% will be removed with immediate effect.
Furnished Holiday Lets investors should now plan for a 24% CGT rate.
Multiple dwellings relief which enabled property investors to reduce the rate of stamp duty payable where two or more properties were being acquired will be removed from June 2024.
Regardless of the outcome of the next election, it appears that the trajectory of tax burdens will persist at elevated levels for the foreseeable future.
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