You can tell this is an election year Budget. Chancellor of the Exchequer Mr Jeremy Hunt opened his speech reporting a long list of his party’s recent successes – although later fact checks by the BBC found he was slightly misrepresenting the figures he cited – before delivering a large packet of big promises that he knows his party may not have to deliver on.
Mr Hunt did acknowledge the impact of inflation, which has come down significantly from 11% when he first entered the post to its current rate of 4%. However, he has received criticism for failing to acknowledge the fact that the UK fell into recession last month.
But for now, at least, there are several measures within Mr Hunt’s Budget which are likely to impact clients of UNIQ Family Wealth. Here is a breakdown of the key changes.
Savings and Investments
The headline announcement here was the British ISA. This was leaked to the press late last week and has already attracted both praise and criticism from across the financial sector.
The British ISA will be introduced as part of a set of measures designed to boost the UK stock market and to encourage entrepreneurs to “not just start here, but to stay here, especially when it comes to listing on the stock market”. The ISA offers an extra £5,000 tax-free savings allowance, on top of existing ISA allowances, in an account which can only be used to invest in UK assets.
Mr Hunt hopes that this will help to attract more investors to the UK and inject a new lease of life into UK markets.
Pensions
The Chancellor also spoke of changes to pension funds. He said he is looking at reforms to Edinburgh and Mansion House designed to unlock more pension capital and make it easier for pension funds to invest in the UK.
Local authorities and Defined Contribution pension funds will be required to disclose what percentage of their investments are held outside of the UK, with incentives to invest proportionately more within the country. Currently, UK pension funds invest as little as 4% of their assets into UK shares. It is hoped that this measure will encourage them to keep their money closer to home.
Personal Taxes
Following the 2p cut to National Insurance in the Autumn Statement, Mr Hunt today cut a further 2p from the current rate. He stated that “double taxation on work is unfair”, and that “if we want to build a high-wage, high-skilled system, we have to make it a fairer system”.
From 6 April 2024, Employee National Insurance will drop from 10% to 8%. Self-Employed National Insurance will reduce from 8% to 6%. In real terms, this is an extra £749 per year for those on a salary of £50,000.
Mr Hunt concluded this announcement by saying that “the average worker in the UK now has an effective personal tax rate at its lowest rate since 1975”.
Property Taxation
There were two major announcements on property taxation.
The first applies to furnished holiday lets. The chancellor says he will “abolish the furnished lettings tax regime”, by scrapping tax breaks which make it more profitable for second homeowners to let out their properties to holiday makers rather than to long-term tenants to rent. This is effective from April 2025.
Additionally, as a second measure against holiday lets pricing residents out of their areas, Multiple Dwellings Relief (which allows a Stamp Duty discount for those who buy more than one property in a single transaction) will be scrapped in England and Northern Ireland. Mr Hunt said that the relief was being “regularly abused”, having been originally introduced to encourage investment in the private rental market. This tax break will end in June 2024.
The second major announcement relates to Capital Gains Tax (CGT) on property. The higher rate of tax paid on profits from the sale of second homes or buy-to-let properties has been cut from 28% to 24%. This rate applies to sellers whose annual income is above the £50,270 threshold.
The Budget supporting documents elaborated that “this will encourage landlords and second home owners to sell their properties, making more available for a variety of buyers including those looking to get on the housing ladder for the first time, while also raising revenue over the forecast period”.
The lower rate of CGT on property will remain at 18%. Main residences remain exempt from CGT.
Business Taxes
The Chancellor announced several measures in support of the arts and entertainment industries this afternoon, which will be welcome news for this struggling sector.
The main announcement, however, is that the VAT Registration threshold will increase to £90,000. This is an increase of only £5,000. Whilst welcome, this does not go far enough to compensate for the seven-year freeze. Early predictions suggested that the rate may be raised to £100,000; needless to say, there is some disappointment at the limitations of this announcement.
Non-dom tax status
The current non-domiciled tax regime will be replaced with new rules from April. The current regime allows foreign UK residents to register as “living overseas” for tax purposes. They therefore only pay tax on their income or gains from overseas.
Mr Hunt is using this reform to “raise £2.7bn” to fund other changes announced today. Under the new plans, new arrivals will not pay UK tax on foreign income for four years. After that, they will become fully domiciled and will pay the same rate as all other UK residents.
The Chancellor explained that his basis for this was that “those with the broadest shoulders should pay their fair share”. He went on to call this change a “modern, fairer, residency-based system”. Historically, this regime has benefitted wealthy foreign residents in the UK.
Other changes
The full Budget documentation details a plan to make it easier to obtain grants to pay Inheritance Tax (IHT) liabilities. Under current rules, those who are struggling to pay must demonstrate that they have ‘made every practical effort to raise the money’ before they are able to access a grant.
Other measures announced by the Chancellor included:
- Maintaining the freeze on fuel duty for another 12 months, keeping it at 53p per litre.
- Extending the alcohol duty freeze until February 2025, stating “we’re backing the Great British Pub”.
- Extending the Household Support Fund for an additional six months.
- Increasing Air Passenger Duty on non-economy flights only, to account for high inflation in recent years.
- A £160m deal for the UK government to purchase the site of the planned Wylfa nuclear site in north Wales.
- Changes to child benefits. The full benefit will now be paid to households where the highest earning parent earns up to £60,000. This is a £10,000 increase on the previous threshold.
- Increased investment into the NHS. This includes a ‘productivity plan’ to tackle resourcing and integrating AI into operating theatre processes. Mr Hunt claimed that this will improve efficiency and reduce the need for cancellations and delays.
What next?
There is a lot to digest off the back of this Budget, but the British ISA in particular is a welcome addition. Marlene Outrim, our Managing Director, said:
“It is great that the overall ISA allowance has been increased, as it has been at the current level for many years. This will mean a bit more tax-free income and growth, especially as the CGT allowance is due to reduce from April. The UK-specific condition on the extra allowance should be a boost to the economy and its growth, but businesses may be looking for other breaks to make this a successful promotion.”
If you would like to discuss any of the changes and what they might mean for you, please do not hesitate to get in touch. You can contact us by phone at 02920 782330 or email us at theteam@uniqfamilywealth.co.uk
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