Spring Budget 2024 - Initial Reaction

As always, before any Budget and particularly when the Budget may be the Chancellor’s last, rumours on possible tax changes or tax giveaways were rife. The mood amongst the public and business owners appeared to be one of general apathy, in the sense that nothing in the Budget will help with the cost of living or reduce the overall tax burden. Many did not want short term, politically motivated tax cuts but would prefer additional funding into public services.

Ultimately, it has to be said that whatever changes were announced today, they may never see the light of day, if there is a change in Government in the very near future. 

A common misconception is that the UK places a very high tax burden on its people relative to other countries. I had to double check this statistic. It is true that relative to earlier years, the total tax take as a percentage of GDP is higher, but overall we still pay slightly less tax in the UK relative to the size of our economy when compared to other wealthy countries. Interestingly, the UK’s tax revenue as a percentage of GDP is approximately 35%, compared to 46% in France and 28% in the US. Against this backdrop, I fear that there is scope for our tax burden to go even higher over the short to medium term.  

Two particular issues came to the forefront of the pre-Budget debate. One was the so-called “fiscal drag”, where additional tax is paid by individuals, the self-employed and business owners simply because tax allowances and tax bands do not raise in line with earnings and inflation. Many wished to see the personal allowance, currently £12,570, increase, to at least prevent pensioners from paying tax on higher pension income, boosted by the triple lock.   Unfortunately, these people were left disappointed.

The other centred around changes to the taxation of “non-doms”. To put this into context, individuals who are UK resident and domiciled in the UK, pay income tax, capital gains tax and inheritance tax on worldwide assets and income. Those who are not UK domiciled, commonly meaning that they have an ultimate desire to live outside the UK permanently, are taxed on foreign income and gains which are “brought into” the UK and do not pay inheritance tax on foreign assets. However, this only lasts for so long, as long-term UK residents are treated as “deemed domiciled” and their tax position is broadly brought into line with UK domiciled individuals.

As it turned out, the Chancellor has confirmed changes to the “non-Dom” tax rules, albeit from April 2025. After spending only 4 years in the UK, people will be required to pay the same level of tax as those who have always lived here.

Many business owners, particularly those in the hospitality sector, wanted to see a reduction in VAT and possibly an increase in the registration threshold, which has remained at £85,000 for 7 years. An increase in the threshold from to £90,000 will be welcome but a £5,000 increase falls well short of what many wanted.

Changes to taxation in the property sector were widely expected after representations from councils around England on the lack of available housing. Individuals who own and rent property as short-term, holiday lets will see an increase in their income tax and capital gains tax bills. Tax relief for mortgage interest and for fixtures and fittings will be curtailed and by changing the activity from “business” to “property investment”, the capital gains tax rate of 10% will be withdrawn.

Surprisingly though, the Chancellor confirmed a reduction in the top rate of capital gains tax of 28% to 24% for residential property sales, for those paying tax at the higher rate. For some time, there has been a big differential in capital gains tax for business owners at 10%, commercial property owners and stock market investors at 20% and residential property owners at 28%. The Government believe that more tax will be collected if the rate is reduced to 24%, as landlords will be more encouraged to sell. The 4% tax saving may also mean that property business incorporations become popular again.  

A package of measures was announced to encourage people back into work and to reduce the number of adults in the UK who are of working age but who do not work. From April 2024 the point at which the Child benefit is taken away will start at annual income of £60,000 rather than at £50,000. In addition, the rate at which the benefit is taken away is being slowed such that at an income level of between £60,000 and £80,000, the benefit is reduced by 1% for every £200 above £60,000. Those with an annual income above £80,000 will enjoy no child benefit at all from April 2024. By 2026, this will change again and the Child benefit will be based on Household income rather than on the income of the highest earning parent.  

As expected, the rate of National Insurance was reduced by a further 2%. The Chancellor noted that those who work pay two types of tax, income tax and National insurance whereas those who don’t work pay only one type, suggesting National Insurance is a disincentive to work. Business owners operating a business through a company can choose of course how best to extract funds and to an extent have a choice of how much National Insurance is paid. Calculators up and down the UK will be busy computing the new, optimum position.

Finally, a surprising statistic struck me. UK pension pots invest only around 4% of their funds into UK companies. The suggestion is that whilst the UK is a good place to undertake R&D, entrepreneurs then leave due to capital constraints. The Government has recognised this and wish to encourage more UK investment particularly in the Tech and Zero Emission sectors, through specific consultation and a new, tax efficient “British ISA”.