The Spring Budget 2024: a private client perspective

On 6 March 2024, Jeremy Hunt presented his second Budget and fourth fiscal event (the 2024 Budget).

Despite recent warnings from the Institute for Fiscal Studies that “the economic case for tax cuts…is weak”, with a general election on the horizon, the Chancellor focused on a number of measures intended to differentiate his approach from that of Labour including, most notably, a 2% cut to national insurance rates.  Of course, any reduction in tax needs to be funded, and so the Chancellor also announced various revenue raising measures including significant reforms to the tax treatment of non-UK domiciled individuals.

We comment below on the key announcements of relevance to private clients.

Income tax

Rates

Despite speculation about a possible reduction in the rates of income tax, this did not materialise. Accordingly, income tax rates for the 2024/25 tax year will remain at 20% (basic rate), 40% (higher rate) and 45% (additional rate). Dividend tax rates will also remain at 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate).

Thresholds and allowances

In his Autumn Statement in 2022, Mr Hunt announced the freezing or reduction of certain income tax thresholds and allowances. No changes were announced in the 2024 Budget to these measures which slowly increase the amount of tax paid. This means that:

  • the income tax personal allowance (the amount of income an individual can receive free of tax – tapered for individuals with income above £100,000 and not available for non-UK domiciled individuals claiming the remittance basis of taxation) is fixed at its current level of £12,570 until April 2028;
  • the higher rate threshold (the level of income above which the higher rate of 40% is charged – currently £37,700 plus the personal allowance, if available) is also fixed at its current level until April 2028;
  • the additional rate threshold (the level of income at which the 45% rate starts to apply) remains at £125,140; and
  • the dividend allowance (the tax-free allowance for dividend income) will be halved from £1,000 to £500 from April 2024.
National insurance

In his Autumn Statement in 2023, the Chancellor announced cuts to national insurance rates:

  • the main rate of employee primary class 1 national insurance contributions (NICs) was reduced from 12% to 10% (taking effect from 6 January 2024); and
  • the main rate of self-employed class 4 NICs was reduced from 9% to 8%, and compulsory class 2 NICs abolished (with effect from 6 April 2024).

The 2024 Budget went further, with a further 2% cut to national insurance rates. This means that, from 6 April 2024:

  • the main rate of employee primary class 1 NICs will drop to 8%; and
  • the main rate of self-employed class 4 NICs will fall to 6%.

According to the Government, these tax cuts will save the average worker around £900 per year and the average self-employed person approximately £650 per year.

Property taxes

Capital gains tax rate on disposals of residential property

The sale of residential property at a gain gives rise to a capital gains tax charge if it does not qualify for principal private residence relief (which applies to a disposal of an individual’s main residence).

Currently, residential property gains (along with carried interest profits) are taxed at a higher rate than gains in respect of other assets. The current rates are 18% for residential property gains falling within the basic rate band and 28% thereafter (as compared to rates of 10% and 20% for gains arising in respect of other assets).

However, the Chancellor announced in the 2024 Budget that the higher rate of 28% would be reduced to 24% in respect of gains arising on residential property disposals that exchange on or after 6 April 2024. Note that the lower rate will remain at 18% (and these changes also do not affect the 28% rate which applies to carried interest).

It is unclear what prompted this announcement; however, papers published alongside the 2024 Budget state that the measure “is expected to incentivise earlier disposals of second homes, buy-to-let property and other residential property where accrued gains do not fully benefit from [principal private residence relief]”.

Stamp Duty Land Tax – abolition of Multiple Dwellings Relief

Under current rules, property buyers are able to claim relief from Stamp Duty Land Tax (SDLT) where multiple dwellings are purchased as part of a single transaction (or as part of a series of linked transactions). Multiple Dwellings Relief (MDR) operates by fixing the SDLT rate by reference to the average chargeable consideration, rather than the aggregate chargeable consideration (subject to a minimum rate of 1% of the total consideration).

The Government published a consultation in November 2021 which suggested that “the current rules are leading to potentially unfair outcomes, incorrect claims, or abuse of the rules” and proposed various options for limiting the application of MDR. A change to the MDR rules had therefore been expected for quite some time; however, its entire abolition (as was announced in the 2024 Budget) had not been anticipated.

These announcements confirm that MDR will no longer be available for transactions completed after 31 May 2024 (although transitional rules will be available for contracts which are exchanged on or before 6 March 2024).

It should be noted that this measure only affects property in England and Northern Ireland. Scotland and Wales have devolved regimes which, for the moment at least, still contain a form of MDR. Taxpayers should also be aware that, in addition to suggesting changes to MDR, the November 2021 consultation considered reforms to another SDLT relief, applying to mixed-property purchases involving both residential and non-residential property. However, the response to this consultation, published on 6 March 2024, notes that “HMRC continues to have success in challenging spurious claims to mixed-property treatment. Therefore, on balance, the government has concluded that it will not currently be taking forward the introduction of apportionment for mixed-property purchases and no other changes to the rules for mixed-property are planned.”

Abolition of the Furnished Holiday Lettings regime

The Chancellor announced in the 2024 Budget that the Furnished Holiday Lettings regime would be abolished from April 2025. Under the current regime, furnished holiday lettings are treated as a trade and so property owners are able to claim deductions, capital allowances and capital gains tax reliefs which would not be available to property investment businesses. However, from April 2025, these benefits will be lost.

Capital gains tax

Rates

As mentioned in our property taxes section above, the higher rate of 28% that currently applies to gains arising on the sale of residential property will be reduced to 24% for property disposals which exchange on or after 6 April 2024.

No other announcements were made in respect of capital gains tax rates.

Thresholds

It was announced in the 2022 Autumn Statement that the capital gains tax annual exempt amount (the level of chargeable gains which can be received free of tax in a tax year) will be reduced to £3,000 (for individuals and personal representatives) or £1,500 (for trustees) from April 2024. Papers published concurrently with the 2024 Budget confirm this reduction.

Inheritance tax

General reform

Currently, an individual’s liability to inheritance tax depends on their domicile status and the location of the asset in question. However, the Government announced in the 2024 Budget that it intends to move to a residence-based regime for inheritance tax from 6 April 2025. Although there will be a consultation on how this is best achieved (and so the timing of any legislation enacting the changes is unclear, especially in light of the upcoming general election), it is suggested that an individual’s worldwide assets would fall within the scope of UK inheritance tax once such an individual has been UK resident for ten years, and once within the scope of UK inheritance tax will remain as such for ten years after the individual ceases UK residence.  

Under current rules, non-UK assets, held in trust structures which were established by non-UK domiciled individuals before they became deemed domiciled in the UK, are outside the scope of UK inheritance tax (even after the individual becomes deemed domiciled in the UK). In an attempt to provide certainty to affected taxpayers, the Government has confirmed that “the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime”. This may therefore provide a reason for some individuals to retain existing trust structures despite the loss of other tax benefits (explained in our section on “non-doms” below).

Rates and thresholds

No changes were announced in respect of inheritance tax rates and documents published alongside the 2024 Budget also confirm that the inheritance tax nil rate band amount (last increased on 6 April 2009) will remain at £325,000 until April 2028. However, in light of the forthcoming consultation (mentioned above) on a wholesale reform of inheritance tax, future changes to rates and thresholds cannot be ruled out.

Agricultural property relief and woodlands relief

The 2023 Budget confirmed that, from April 2024, the scope of agricultural property relief (APR) and woodlands relief would be restricted to property in the UK (a decision triggered by Brexit). Alongside the 2024 Budget, draft legislation was published in respect of these changes.

The Government had also published a consultation at the 2023 Budget, exploring other possible reforms to APR. Suggestions made included:

  • expanding the relief to cover certain types of environmental land management; and
  • introducing restrictions so that, where a farm business tenancy exists, 100% relief will apply only if the tenancy is for more than eight years.

Alongside the 2024 Budget, the Government published a response to this consultation, confirming that the scope of APR would be extended, from 6 April 2025, to land managed under an environmental agreement with, or on behalf of, the UK government or other public/approved responsible bodies. The consultation response also confirmed that the Government has decided not to restrict APR to tenancies of at least eight years.

In this context, it should also be noted that a report published by the Institute for Fiscal Studies in September 2023 suggested that “abolishing agricultural and business reliefs and bringing pension pots within the scope of inheritance tax could raise up to around £1.5 billion a year”. There have also been reports that the Labour Party is examining agricultural and business property reliefs as possible areas for reform. Therefore, although the changes confirmed in the 2024 Budget in respect of APR and woodlands relief are not particularly significant, private clients whose inheritance tax planning involves the application of APR (or other inheritance tax reliefs) should watch this space for possible future developments in this regard.

Non-doms

The special tax rules for UK resident non-domiciled individuals (RNDs) have been a key feature of the UK tax regime for many years. RNDs who qualify for the remittance basis of taxation pay UK tax on UK source income and gains as they arise but only pay UK tax on non-UK income and gains when they bring them into, or otherwise use them in, the UK.

Such a regime – which attracts wealthy internationally mobile individuals to make their home in a jurisdiction by offering them beneficial tax treatment – is by no means uncommon, and similar regimes can be found throughout Europe.

For some time, a key policy of the Labour Party has been to abolish the non-dom regime. However, until recently, there have been no signs that this plan would be taken up by the current Government. Indeed, at a Treasury Select Committee session in November 2022, the Chancellor expressed concerns that reforms to the regime “would cost us more money than it would make us”. However, in the 2024 Budget, the Chancellor announced the abolition of the non-dom regime, to be replaced with a new four-year residence-based regime, taking effect from 6 April 2025.

Our separate note considers these reforms in further detail.

Tax avoidance – transfer of assets abroad regime

Amongst the Chancellor’s announcements at the 2024 Budget was a change to the transfer of assets abroad (ToAA) regime, by which income arising to a non-resident entity (typically a trust or company) can be taxed on a UK individual who has transferred assets to that entity (referred to as a ‘transferor’ in the relevant rules). Although not expressly stated as such, the changes appear to be a response to the recent Supreme Court judgment in HMRC v Fisher [2023] UKSC 44, where it was held (amongst other things) that shareholders of a company that makes a transfer of assets abroad should not be regarded as "transferors" for the purposes of the ToAA regime simply by virtue of having an interest in the relevant company (this having been an area of much uncertainty in the past).

The changes announced effectively reverse the Fisher decision, the result being that, from 6 April 2024, an individual participator (including a shareholder) in a close company (broadly, a UK-resident company which is under the control of five or fewer participators or any number of director participators), or a non-UK resident company equivalent, is to be deemed a "transferor" of assets transferred by that company. Consequently, such a person will now expressly be within the scope of the ToAA charging regime.

It should be noted that the Government intends to limit the application of these new rules to participators who will (i) have the power to enjoy the income arising abroad; or (ii) have received a capital sum as a result of the relevant transactions. These new provisions will also be subject to the motive defence (broadly meaning that transactions where there is no tax avoidance purpose or which are genuine commercial transactions will not be caught).

In practice, and according to the Government’s own guidance, this change is likely to affect a very small number of taxpayers and is a very specific targeted anti-avoidance measure. However, as with much of the 2024 Budget, how these rules will apply practically will need to be seen in time, as and when further details are published.

Tax management and compliance

Investment in HMRC debt management capability

Papers published alongside the 2024 Budget confirm that the Government plans to invest a further £140m “to improve HMRC’s ability to manage tax debts”, suggesting that taxpayers ought to expect a firmer approach from HMRC in respect of any unpaid tax. However, in this context, it should be noted that a House of Commons Committee report on HMRC performance, published on 28 February 2024, expressed concerns about HMRC’s approach to debt collection: “while we recognise the progress HMRC is making to tackle tax debt, we are concerned that it should have sufficient checks to protect taxpayers from being pursued too forcefully”. The report recommended that HMRC should “establish a clear, easily accessible route for taxpayers to report issues they face when dealing with debt collection agencies working on behalf of HMRC”. It remains to be seen how HMRC will balance the Government’s expectations of improving its tax debt management with the Committee’s concerns that some taxpayers are being pursued too forcefully for unpaid tax.

New penalty regime for late payment and late submission

The 2024 Budget announced the introduction of a new points-based penalty regime for tax return submission obligations, the intention being to ensure that taxpayers who persistently fail to comply with filing and payment deadlines are penalised more harshly than those who make the occasional slip-up. However, although the new regime is expected to come into effect for VAT in respect of accounting periods beginning on or after 1 January 2023, it will not apply to income tax self-assessment returns until 6 April 2026 at the earliest.

Conclusion

The 2024 Budget contained a number of significant changes for private clients, in particular for those who currently qualify for the non-dom regime. More information will emerge in due course, and taxpayers should watch out for further details and new announcements on “Tax Administration and Maintenance Day”, scheduled for 18 April 2024. It should also be noted that, for measures which are due to come into effect after the general election, a change of government may well bring further changes to these measures.