Contents
Understanding the spring budget 2024
Business and entrepreneurial focus
Addressing the cost-of-living crisis
Navigating the property market
Enhancing childcare and education
The 2024 UK spring budget can be deemed controversial for several reasons but mainly due to the unfunded nature of the tax cuts promised right before a General election. There is speculation that this budget is less focused on bringing about meaningful change to the tax system, as it is about creating a trap for the next government that they will struggle to extricate themselves from.
From the view of budget responsibility, the moves to cut taxes in this one are even more drastic then the Autumn statement 2023 and whilst adding more spending money in peoples pockets can be good for economic growth, at the time of writing the UK is at a 97% debt to GDP ratio which is very close to the levels experience by countries like Greece and Spain during their sovereign debt crisis in 2009.
This underlying debt in our economy can create an economic disaster if the debt interest payments increase any further and they are already high at approximately £110 billion a year, which is three quarters of what we spend on the NHS.
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GET IN TOUCHKey Takeaways
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The Spring Budget 2024 focuses on stimulating UK economic growth, aiming for a 2% inflation rate by Q2 2024 and a 0.7% GDP enlargement by 2028-29, with significant tax adjustments to enhance work participation and ambitious public spending plans, including the abolishment of the FHL scheme.
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National Insurance Contributions (NICs) have been significantly reduced, offering workers and self-employed individuals savings of around £900 and £1,242 respectively, while broader tax reforms include the implementation of a residence-based regime for non-domiciled individuals, effective from April 2025.
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Key personal tax changes include the decrease in higher rate capital gains tax for residential properties from 28% to 24%, the introduction of a ‘British ISA’ with an increased allowance, and investment bonds to encourage savings, coupled with mechanisms to support SMEs, such as the Growth Guarantee Scheme.
Understanding the Spring Budget 2024: Key Takeaways
National Insurance Adjustments
The UK tax system incorporates National Insurance as a key component. In the Spring Budget of 2024, there will be over £10 billion in annual cuts to National Insurance Contributions for workers throughout the nation. With this major cutback, an yearly saving of around £900 is expected for your average worker, thereby augmenting their net income and simplifying their ability to pay income tax.
Self-employed persons are likewise poised to reap benefits from these changes. They’re set to experience reductions in both Class 2 and Class 4 NICs that could lead to an estimated annual savings of about £1,242 due largely to the eradication of Class 2 and a reduction in the main rate for Class 4 NICs plunging from its current rate of nine percent down into just six percent territory. These revisions within National Insurance are designed not solely for aiding workers in pocketing more money, but also expectedly play a role fostering broader economic advancement.
Tax System Reforms
The Spring Budget 2024 contains an overhaul in how non-UK domiciled individuals will be taxed, moving away from the current model to implement a new residence-based tax regime commencing on April 6th, 2025. The impact of this change is set to profoundly alter taxation for those not domiciled within the UK.
Under this newly proposed system, transitional provisions are being put into place that include the opportunity for these individuals to reassess their capital assets’ values as of April 5th, 2019. During the fiscal year of 2025-26, there’s an exemption allowing them to pay tax on only half of their overseas income. After residing in the UK for more than four years under this policy shift, they would need to comply with UK tax requirements concerning foreign income and gains. Newcomers can benefit from relief measures applicable through their initial four years.
With aims towards enhancing fairness and streamlining operations within its fiscal framework, the budget also sets out reforms extending beyond individual taxpayers—such as abolishing certain rules specifically aimed at non-UK domiciles alongside property-related tax amendments expected to incrementally generate upwards of £600 million annually by financial year-end 2028-29. Collectively these extensive overhauls represent efforts both toward equalising the distribution across various taxpayer categories while simultaneously amplifying efficiency in amassing outstanding taxes by enforcing uniformity within existing regulations.
Personal Finance Adjustments
There is a further development with the introduction of a new savings vehicle termed “British ISA” as part of this budget. This account enables individuals to invest in UK assets and enjoy untaxed returns while also boosting their total annual ISA limit by £5,000 – thus pushing it up to £25,000. The strategic intention behind this British ISA is clear: it’s crafted not only as a financial boon for savers but also as a means by which more funding can be directed towards domestic companies thereby bolstering economic growth within Britain itself.
Capital Gains Tax Modifications
In the Spring Budget 2024, there will be a notable adjustment to the Capital Gains Tax. Effective from April 6, 2024, the higher rate of this tax on sales of residential property not covered by Private Residence Relief is set to reduce from its current rate of 28% down to 24%, providing some financial respite for homeowners. It’s important to note that for gains falling within the basic income rate band associated with residential properties, they will continue to be taxed at their existing rate of 18%.
These alterations are part and parcel of wider changes in real estate taxation which are anticipated to reshape investor activity and alter housing market dynamics. Property owners who possess rental properties or secondary homes could see considerable benefits as a result of these fiscal policy adjustments. Consequently, such incentives may promote additional investments into real estate assets.
ISA and Savings Enhancements
The launch of the “British ISA” marks a pivotal transformation in the UK’s economic environment, offering tax-exempt opportunities to invest within British assets. This innovative ISA augments an individual’s annual tax-free investment limit by £5,000, elevating it to a comprehensive allowance of £25,000 per fiscal period. It introduces an additional benefit for investing up to £5,000 in UK equities without taxation alongside existing ISAs as part of its strategy to direct increased capital into domestic firms.
Business and Entrepreneurial Focus
The 2024 Spring Budget has introduced a series of initiatives aimed at strengthening support for small and medium-sized enterprises (SMEs) as well as entrepreneurs. These initiatives are designed to improve their ability to obtain financial backing through the expansion of loan programs, with the intention of fostering business development and invigorating the economy. An important modification is that what was previously known as the Covid recovery loan platform will now continue under a new title, the Growth Guarantee Scheme, for an extra two years in order to meet smaller businesses’ financial requirements.
Following on from previous successes achieved by past versions of Recovery Loan Scheme, which successfully distributed £4.3 billion in finance among UK companies, it’s expected that this rebranded and continued Growth Guarantee Scheme will bolster around 11,000 businesses between mid-2024 and early-2026. In conjunction with these efforts, there’s also substantial funding being injected into scientific progress. Namely a sum totalling £360 million earmarked for research and development within key industrial segments plus an additional investment amounting to £45 million focused specifically on medical studies related to serious illnesses.
Growth Guarantee Scheme Extension
The rebranding of the Recovery Loan Scheme as the Growth Guarantee Scheme is a key element within the Spring Budget 2024, aimed at supporting small-scale enterprises in obtaining critical financing for expansion and fostering economic progression and resilience.
Crucially, despite its new name, the conditions underpinning the Growth Guarantee Scheme have been preserved. This consistency offers lenders and businesses uninterrupted access to vital funding sources, enhancing their potential for growth. Such provisions are integral to realizing the overarching objectives outlined in the Spring Budget 2024, with particular advantages accruing to SMEs.
VAT Registration Threshold Increase
The Spring Budget 2024 brings about a notable adjustment with the increase of the VAT registration threshold. Beginning on April 1, 2024, businesses will encounter an upsurge in this limit from a taxable turnover of £85,000 to £90,000. If their taxable turnover drops below the updated deregistration threshold of £88,000, businesses now have the option to opt out of VAT.
These enhancements in both registration and deregistration thresholds for VAT are set forth with multiple objectives.
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They serve to reduce administrative strains faced by smaller enterprises.
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They help smaller B2C-type businesses maintain profits by not suffering a tax burden
Addressing the Cost of Living Crisis
The Spring Budget 2024 introduces several measures to address the cost of living crisis. One such measure is the maintenance of fuel duty rates at current levels for another 12 months, including a temporary 5p cut and the cancellation of the planned inflation increase for 2024-25. This freeze continues a pattern that has effectively kept fuel duty rates unchanged since 2011.
This measure is anticipated to provide tax cuts of approximately £3.1 billion for drivers in the current year, equating to savings of around £50 for the average car driver. This significant saving is expected to provide some relief to drivers amid the rising cost of living.
In addition to the fuel duty freeze, the extension of the alcohol duty freeze until February 2025 forms an integral part of the measures to mitigate the cost of living crisis. This extension helps mitigate costs for both consumers and businesses, particularly pubs, breweries, and distilleries, thereby easing some of the financial pressures brought about by the rising cost of living.
Navigating the Property Market
In the Spring Budget for 2024, there have been key updates to policies affecting the real estate sector. Notably, from June 1st, 2024, Multiple dwellings relief (MDR) within the Stamp Duty Land Tax framework will be discontinued. If contracts were exchanged by March 6th, 2024 or earlier, MDR can still be applied.
The government is undertaking a renovation of the tax system concerning property transactions, which is anticipated to generate upwards of £600 million annually by fiscal year 2028-29. This includes introducing new exemptions under Stamp Duty Land Tax for social housing providers acquiring properties with public funding starting from March 6th this year. These amendments are likely to transform how investments and ownership in the social housing market operate.
In an effort expected to contribute £300 million to government coffers, reforms include eliminating Furnished Holiday Lettings’ tax reliefs. As such changes take effect regarding taxation on tourist rental properties, they may reshape investment strategies and modify patterns of property ownership within that niche market segment.
Enhancing Childcare and Education
The Spring Budget 2024 has implemented substantial changes in the sectors of childcare and education, notably with adjustments to child benefits. The revision includes a rise in the threshold for the High Income Child Benefit Charge up to £60,000, with a progressive charge applying to incomes between £60,000 and £80,000. This alteration will result in diverse financial benefits for families based on their income levels. Gains from changes in Child Benefit could vary between approximately £1,109 and £1,664.
Starting on April 6th of 2024, when new claims are submitted for Child Benefit, they will be retroactively affected by charges if earnings surpass the newly set threshold of £60k. These modifications are integral components within an overarching plan aimed at strengthening both educational infrastructure and care services provided during early childhood.
What’s not in the budget?
Private and Public Sector Productivity
Quite possibly the biggest challenge to the UK economy has not been addressed in this budget and by that I’m referring to the chronic productivity issues which mean that we now have the highest levels of long term absence and sickness since the 90’s.
Whilst working people can now keep more of what they earn and the governments claim that an extra 300,000 should return to work because of the announcements, there is little to support for training and apprenticeships, with the biggest problem being the large gap between minimum wage rates and what trainees realistically get paid while they are learning to be productive which can disincentivise many people to start training.
Making the Tax System Fairer
There is an argument that the tax system isn’t necessarily getting fairer, with many of the cuts supporting people in work but little to deal with VAT and local authorities council taxes, which are a tax burden on everyone regardless of their ability to afford it.
As it stands the failure to collect tax debts by HMRC means that up to £40 billion is left outstanding, and there are still many businesses out there failing to declare their cash sales and pay tax on these.
Summary
The Spring Budget of 2024 sets forth a comprehensive strategy to kickstart economic expansion, with significant shifts in tax policies and detailed proposals for public expenditure. By lowering National Insurance contributions and rolling out the novel “British ISA”, as well as broadening the scope of the Growth Guarantee Scheme and raising the threshold for VAT registration, this budget charts a tactical course aimed at enhancing Britain’s economic fortitude.
Together with initiatives to mitigate living costs via the household support fund and overhaul real estate market regulations, these sweeping revisions signal an important transformation within Britain’s fiscal environment. As we adapt to these developments, it becomes evident that the measures laid out in the Spring Budget 2024 are intended not only to reinforce but also revitalize the British economy—a move projected to have positive ramifications across individuals, commercial entities, and society at large.
Frequently Asked Questions
What are the major changes in the Spring Budget 2024?
The major changes in the Spring Budget 2024 include a reduction in National Insurance rates, introduction of a “British ISA,” extension of the Growth Guarantee Scheme, increase in the VAT registration threshold, and measures to address the cost of living crisis.
How will the National Insurance adjustments benefit workers?
Adjustments to National Insurance will result in the typical worker seeing annual savings amounting to £900, while those who are self-employed can anticipate a greater reduction, with an average of around £1,242 kept in their pockets each year.
These changes are set to enhance the yearly financial retention for workers.
What changes have been made to the Capital Gains Tax?
Beginning April 6, 2024, the elevated Capital Gains Rate will increase. Tax rate applied to sales of non-qualifying residential properties will be lowered from its current 28% down to 24%.
What is the new “British ISA”?
The recently introduced “British ISA” permits investments in UK assets without the burden of taxes, while also raising the overall ISA limit to £25,000 each fiscal year.
Seize this opportunity now and begin benefiting from the enhanced allowance immediately.
How is the Spring Budget 2024 addressing the cost of living crisis?
In tackling the cost of living crisis, the Spring Budget 2024 has decided to keep fuel duty rates constant and prolongs the suspension of alcohol duty until February 2025, an initiative geared towards reducing financial strain on households.
