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The Spring Budget 2024 impacts everyone – from workers to business owners. With a streamlined focus, this article demystifies changes to National Insurance, tax rates, and how these could benefit or affect you. We’re cutting through the noise to give you a clear rundown on the essential takeaways without overwhelming detail, enabling you to make sense of your new financial landscape.

Key takeaways

  • The Spring Budget 2024 includes a 2% reduction in National Insurance contributions for both employees and the self-employed, intended to increase disposable income and potentially stimulate economic growth.
  • Capital Gains Tax for high-rate taxpayers has been reduced from 28% to 24%, aiming to incentivise investment in the property market, even though the tax reduction’s impact on private investments and total tax revenues is debated.
  • The budget revises the criteria for Temporary Non-Residence with a new Four-Year Foreign Income and Gains (FIG) regime, impacting individuals’ tax on foreign income and introducing measures to support UK residents with overseas income.

Navigating national insurance adjustments

National Insurance contributions

The Spring Budget 2024 puts a spotlight on the National Insurance contributions. With a core focus on tax relief, you’ll find that the government has introduced a 2% reduction, a move aimed at alleviating the financial burden on the hardworking families. But how does this impact various groups, and what are the wider fiscal implications?

The impact on employees

Employees are poised to benefit from the budget. The decrease in National Insurance contributions from 12% to 8% is set to bolster disposable income, thereby providing a potential boost to economic growth. The average worker will have an extra £900 in their pocket annually.

But the benefits vary with earning levels. If you’re earning £25,000, you’ll save approximately £249, while someone earning £35,000 will save £449. The higher the earnings, the greater the savings. With more disposable income, we might see increased consumer spending, which could stimulate economic growth.

Benefits for the self-employed

The budget also provides for self-employed individuals. Commencing from 6 April 2024, the main rate of Class 4 National Insurance contributions will drop from 10% to 8%, and the government is contemplating the abolishment of Class 2 NICs. These changes translate to an average yearly saving of approximately £650, benefiting over 2 million people.

But the benefits aren’t just monetary; they also come in the form of simplifying tax reporting and payments for self-employed individuals. The government’s move to cut back on the complexities of tax returns is a welcome relief for many.

Fiscal implications of NIC adjustments

Although many welcome the adjustments to National Insurance contributions, these changes do have fiscal ramifications. The Office for Budget Responsibility projects that NIC cuts will increase real household incomes by 0.5%, equating to the work hours of 98,000 full-time employees.

However, it’s important to note that these cuts favour higher-income households more than low-income ones in terms of disposable income. The largest fiscal measure in the budget, these cuts will cost around £10 billion annually, funded through other tax rises, increased government borrowing, and improvements in the borrowing forecast.

Capital gains tax: a closer look

Capital Gains Tax reductions

The Spring Budget 2024 also notably reduces the capital gains tax for high-rate taxpayers from 28% to 24%. This change is intended to incentivise investment by high earners, who are significant contributors to capital markets.

Motivations behind the cut

The government aims to stimulate the disposal of second homes, buy-to-let properties, and other residential assets through the reduction of capital gains tax. As a result, it seeks to increase the volume of transactions within the residential property market. However, there’s a major point of contention regarding these cuts, particularly the critique that they could provide a disproportionate windfall to the wealthiest segment of the population.

Projected outcomes for investors

For investors, the reduction in capital gains tax is projected to:

  • Increase property market transactions
  • Result in an increase in the disposal of residential properties not covered by private residence relief
  • Lead to a rise in market transactions.

However, historical evidence suggests that reductions in capital gains taxes do not significantly elevate levels of private investment. So, while the reduced tax rates could prevent investors from being penalised for capital gains concentrated in a single year, the overall impact on private investments remains a matter of debate.

Revenue implications and critiques

Revenue implications and critiques accompany the cuts to capital gains tax. The government anticipates an initial loss of £70 million in tax revenue for the fiscal year 2023/24. However, this loss is expected to be offset by increased revenue in subsequent years due to higher transaction volumes in the property market.

Critics argue that the capital gains tax cuts may encourage tax sheltering, leading to economic inefficiencies and a reduction in overall tax revenues. Moreover, there’s skepticism about whether reductions in capital gains tax rates would substantially increase saving and investment, as saving rates are not highly responsive to changes in returns.

Temporary non-residence rules revised

The Spring Budget 2024 also revises the criteria for determining Temporary Non-Residence to ensure a fair taxation system. During the transitional period, individuals ineligible for the 4-year Foreign Income Gain (FIG) regime will face a 50% tax rate on their foreign income for the 2025/26 tax year without relief for foreign gains.

Understanding the new criteria

Comprehending the new criteria for the Four-Year Foreign Income and Gains (FIG) regime is key to understanding the revised tax rules. To be eligible for the new regime, an individual must have not been a UK tax resident in any of the 10 tax years preceding the four-year period.

Eligible individuals will not pay UK income tax or capital gains tax on any foreign income and gains during their first four years of UK residency, but they will forfeit their personal allowances and the capital gains tax annual exempt amount. The four-year FIG regime is optional and can only be claimed during the first four years of UK tax residency, with individuals able to choose whether to claim it each year within this period.

Duration and transitional provisions

It’s noteworthy to mention the transitional provisions for the tax reforms. For the first year of the new regime (2025-26), individuals transitioning from the remittance basis to the arising basis, who are not eligible for the 4-year FIG regime, will benefit from a temporary 50% exemption on their foreign income subject to tax.

A two-year Temporary Repatriation Facility has been introduced. This allows individuals to bring foreign income and gains into the UK at a reduced tax rate of 12% if they have previously paid tax on the remittance basis. However, non-UK residence periods within the first four years may negatively affect the advantages of the new tax regime.

Impact on UK residents with foreign income

UK residents with foreign income will now have access to an Overseas Workday Relief (OWR) which provides tax relief on foreign employment earnings for the first three years of UK residence. The new Temporary Repatriation Facility (TRF) offers UK residents the option to remit foreign income and gains at a beneficial, flat tax rate of 12% for two tax years.

However, it’s worth noting that from April 6, 2025, trust protections will cease for those not qualifying for the new Four-Year Fixed Income and Gains (FIG) regime, leading to potential UK tax liabilities on foreign trust income and gains for UK resident settlors.

Individuals planning to remit their significant foreign income and gains to the UK can make use of the TRF to benefit from the lower tax rate compared to current rates.

Spring budget 2024: comprehensive overview

The Spring Budget 2024 includes the following key measures:

  • Prolonging the alcohol duty freeze until February 2025
  • Unveiling over £1 billion in new tax reliefs for the creative industries
  • Delivering key tax relief measures
  • Enhancing public sector productivity through significant investments
  • Extending the Growth Guarantee Scheme to foster a supportive environment for innovative industries.

Tax relief measures unpacked

The 2024 budget heavily features new tax relief measures. Some of the key measures include:

  • £1 billion worth of measures over the next five years to benefit the creative industries
  • The introduction of the Independent Film Tax Credit
  • Increased relief for UK visual effects costs in film and TV

These measures aim to support and promote growth in the creative industries.

Furthermore, fuel duty rates will be maintained at current levels for an additional 12 months, with an extension of the temporary 5p cut and cancellation of the planned increase in line with inflation for 2024-25. The energy profits levy freeze on alcohol duty is also extended until February 2025, resulting in a 2p per pint saving on beer compared to the planned increase.

Enhancing public sector productivity

Public sector productivity investments

Significant investments aimed at enhancing public sector productivity also form a central part of the Spring Budget 2024, which is expected to have a positive impact on the UK economy. The NHS in England, for example, is set to receive an additional £2.5 billion for its operations.

A total of £3.4 billion in capital funding is allocated to NHS IT systems to modernize and digitize, aiming for £35 billion in cumulative productivity savings. Beyond the NHS, £800 million is allocated to boost productivity across other public services over three years. The priority areas for investment include:

  • Transformation
  • Digitisation
  • Automation
  • AI research and development

Bolstering the Growth Guarantee Scheme

An additional £200 million funding is extending the Growth Guarantee Scheme, previously known as the Recovery Loan Scheme. This move is expected to support 11,000 small businesses from 1 July 2024 to 31 March 2026.

The extended Growth Guarantee Scheme will bolster small and medium-sized enterprises (SMEs) by making essential finance more accessible, thus promoting the environment conducive to business investment. The extension and the additional funding are significant as they provide substantial financial reinforcement to the UK’s small business sector.

Addressing the cost of living

The government is tackling the pressing concern of the rising cost of living through various support mechanisms outlined in the Spring Budget 2024. Changes to national insurance rates were instituted to stimulate the economy and provide relief for taxpayers burdened by the higher cost of living.

Household support fund extension

Household Support Fund Extension

The Household Support Fund in England has been extended with a further £500 million. This extension is set to cover the period from April to September 2024, providing additional financial assistance to families.

Child benefit reforms for working parents

Child benefit reforms are another key feature of the budget, intended to support working parents. The High Income Child Benefit Charge threshold will be raised, affecting families with earnings between £50,000 and £60,000 who were previously subject to this charge.

Due to the increased threshold, approximately 170,000 families will no longer be subject to the High Income Child Benefit Charge. The charge rate will be halved under the new reforms, meaning Child Benefit is not repaid in full until an individual is earning £80,000, benefiting single-earner households.

Investment and infrastructure initiatives

Investment and Infrastructure Initiatives

The Spring Budget 2024, following the guidelines of the autumn statement, incorporates crucial investment and infrastructure initiatives. These include the introduction of a new British ISA and the extension of full expensing for strategic manufacturing sectors.

Fostering creative industries

The creative industries in the UK, including sectors like:

  • advertising
  • music
  • design
  • film
  • TV
  • publishing

have been given a significant boost in the budget. Enhanced tax reliefs for creative industries, such as a new UK Independent Film Tax Credit from 1 April 2024 and increased relief for UK visual effects costs in film and TV, are part of these measures.

Infrastructure development across the UK

Infrastructure development across the UK is also a key focus of the budget. This includes a significant devolution deal with the North East Mayoral Combined Authority (NEMCA), which targets affordable housing, transport, skills, employment, with emphasis on culture and creative industries to stimulate economic growth.

Tax system overhaul

The Spring Budget 2024 also signifies a substantial revamp of the tax system. The remittance basis of income tax and capital gains tax for non-domiciled residents is set to be abolished after April 6, 2025, as part of the transition to a residence-based tax system.

Residence-based regime implementation

From April 2025, the government plans to replace the tax system, including the stamp duty land tax, for non-UK domiciled individuals with a new residence-based regime.

This change ensures that all UK residents who stay in the UK for over four years will pay UK tax the same way on foreign income and gains.

Simplifying tax compliance

The budget also places significant emphasis on simplifying tax compliance. The VAT registration threshold, for instance, will be increased from £85,000 to £90,000 starting on April 1, 2024.

Summary

In summarising the main points of the Spring Budget 2024, it’s clear that the government has taken significant steps to stimulate the economy, support various sectors, and address the rising cost of living.

If you’re trying to determine the new tax rates as a self-employed individual, or a company owner, our team are able to produce an in-depth report; to highlight all considerations. Or perhaps you’re still thinking about moving abroad, and want to determine if nows a good opportunity to leave the UK; again our team are able to provide this advice – remember the UK has many double tax agreements.

We can help people move to: Cyprus, Malta, Portugal or the United Arab Emirates – let’s help you!

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