Key Summary
The recent Spring Budget brought forth several significant tax reforms, particularly affecting individuals. Among these reforms, notable changes concern the taxation of non-UK domiciled individuals and property.
Here’s a concise breakdown of the key Budget measures:
1. Non-domiciled status: The current ‘remittance basis’ tax system for non-UK domiciled individuals will be replaced with a residency-based system from 6 April 2025. This new regime offers a tax-free period for foreign income and gains during the first four years of UK tax residency. Transitional arrangements will be in place for existing non-doms.
2. Inheritance Tax (IHT): A consultation will explore shifting IHT to a residence-based system, potentially bringing UK assets under IHT regardless of the owner’s residence.
3. Capital Gains Tax (CGT) on residential property: The higher rate of CGT for residential property disposals will be reduced from 28% to 24% from 6 April 2024.
4. Individual Savings Accounts (ISAs): A new UK ISA is proposed, granting an additional £5,000 annual allowance for UK investments.
5. Furnished Holiday Lettings (FHL) tax regime: The FHL regime will be abolished from April 2025, aligning FHL properties’ tax treatment with other residential properties.
6. Extension of Agricultural Property Relief (APR) to environmental land management: APR will extend to non-agricultural environmental land management from 6 April 2025.
7. Child Benefit: The High-Income Child Benefit Charge (HICBC) threshold will rise to £60,000 from April 2024, with a halved withdrawal rate. Consultations will explore administering HICBC on a household basis.
These reforms aim to streamline tax processes and ensure fair treatment across different categories of taxpayers.
Implications for Business
1. Capital Allowances: The government plans to broaden full expensing to cover plant and machinery for leasing, pending favorable fiscal conditions.
2. Oil and Gas: The Energy Profits Levy, a 35 percent tax on upstream oil and gas production profits, will be extended to 31 March 2029. Additionally, the Energy Security Investment Mechanism will be implemented to end the levy if certain price thresholds are met.
3. VAT Registration Threshold: Effective from 1 April 2024, the VAT registration threshold will rise to £90,000, with the deregistration threshold increasing to £88,000. These adjustments follow a freeze at £85,000 since April 2017.
4. Creative Industries: Various reliefs for the creative industries are announced, including an Independent Film Tax Credit, permanent rates for Theatre Tax Relief and others, and additional tax relief for visual effects costs in film and high-end TV. A relief on gross business rates for eligible film studios until 2034 is also introduced.
5. Common Reporting Standard (CRS2): The government seeks feedback on implementing OECD amendments to the CRS and proposals for reporting on crypto assets. This includes a potential extension of the CRS to include reporting on UK resident taxpayers by UK financial institutions.
6. ‘UK ISA’: A new UK ISA with a £5,000 annual allowance will promote investment in UK incorporated businesses listed on UK recognised stock exchanges. A consultation on this initiative is open until 6 June 2024.
7. Reserved Investor Funds: The government’s response to a consultation on Reserved Investor Funds (RIF) outlines plans for a tax regime for professional and institutional investors, with legislation expected in the Spring Finance Bill 2024.
8. Stamp Duty Land Tax – Multiple Dwellings Relief: Multiple Dwellings Relief will be effective from 1 June 2024, following an evaluation. The government aims to engage with the agricultural sector on the impacts of this measure.
Implication for Employer’s
National Insurance Contributions (NIC): From 6 April 2024, the Employee’s Class 1 NIC main rate will decrease from 10 percent to 8 percent, while the Class 4 NIC rate for the self-employed will be reduced from 8 percent to 6 percent. The requirement to pay Class 2 NIC will cease from the same date, with plans for its abolition to follow, subject to consultation.
Globally Mobile Employees – a new residence-based regime: The current tax regime for non-domiciled individuals will be replaced with a residence-based system, known as the Foreign Income and Gains (FIG) regime, from 6 April 2025. This new system will tax all UK residents for more than four tax years on foreign income and gains, regardless of domicile status. Reforms to Overseas Workday Relief (OWR) will also be introduced, impacting internationally mobile employees.
Tackling non-compliance in the umbrella company market: Following a consultation in Summer 2023, the government aims to regulate umbrella companies to strengthen employment rights enforcement and tackle tax non-compliance in the contingent labour market. Updates on this consultation will be provided on Tax Administration and Maintenance Day on 18 April 2024, along with new guidance for workers and organizations engaging with umbrella companies.
Pensions: The government continues to explore a lifetime provider model for Defined Contribution (DC) pension schemes, aiming for long-term implementation, often referred to as the ‘pension pot for life’.