Despite some early speculation that the Chancellor may cut income tax, he instead chose to cut the rate of National Insurance by 2% - a move to specifically help workers. Income tax bands and rates remain unchanged.
Other notable announcements were an increase in the threshold before child benefit begins to be clawed back, the scrapping of the non-doms remittance basis rules, the introduction of a new 'UK ISA' to encourage investment in UK equities, and a reduction in the higher rate of CGT on residential property.
There were no significant announcements on pensions, with the abolition of the lifetime allowance having already been confirmed.
We've summarised the key points for advisers from today's Budget.
National Insurance
Following fast in the footsteps of a cuts to NI announced in the Autumn Statement the Chancellor has announced a further 2% cut to the main rate of NI.
Employees
The main rate (Class 1) will be cut by 2%. The new rate of 8% will apply to earnings between the primary earnings threshold and the upper earnings limit, giving a maximum saving of £754 pa (£37,700 x 2%). Employees will continue to pay 2% on earnings above the upper earnings limit.
This measure will start from 6 April 2024.
There are no changes to the actual thresholds, and these will remain at 2023/24 levels.
Self-employed
As previously announced, there are changes to the way the self-employed will pay NI from April.
Class 2 NI will be abolished for those with annual profits exceeding £6,725. The current weekly rate is £3.45. Individuals will still get access to contributory benefits, including the State Pension.
Those with earnings below £6,725 must pay voluntary Class 2 contributions if they wish to retain access to the State Pension and other benefits, although there could be further changes to this next year. The rate for those who wish to do so will be frozen at £3.45 per week.
Self-employed also pay Class 4 NI contributions on profits between the lower and upper profits limit (up to £37,700). From April, this will be cut by a further 2% on top of the 1% reduction announced in the Autumn Statement. The main rate will therefore drop from 9% to 6% representing annual savings of up to £1,131. The rate applicable to profits above the upper profits limit will remain at 2%.
There will be no change to the actual limits and thresholds for Class 2 or Class 4 next year.
Employer
There were no changes to employer rates of NI which will remain at 13.8%.
Pensions
There were no new changes announced affecting pension today. This will be welcome news as the industry is still getting to grips with the abolition of the Lifetime Allowance (LTA). The LTA is to be replaced by two new allowances from April 2024.
The Lump Sum Allowance (LSA) will cap the amount of tax-free cash which can be taken and is set at £268,275 for those without protection.
The Lump Sum and Death Benefit Allowance (LSDBA) places a cap on tax free lump sums paid during the member’s lifetime and on death before age 75.It has been set at £1,073,100 for those without protection and is reduced by any LSA used.
ISA changes
ISA subscription limits remain fixed at £20,000 for adult ISAs and £9,000 for Junior ISAs.
UK ISA consultation
A new 'UK ISA' is to be introduced to support UK investment. This will give savers an additional annual subscription allowance of £5,000 on top the existing £20,000 limit.
Consultation on the design and implementation of the ISA will be open until 6 June 2024.
Previously announced ISA changes
The 'one ISA of each type per tax year' restriction will be removed from April 2024. This simplification will mean investors will be able to subscribe to multiple cash or stocks and shares ISAs in a year without fear of invalidating their subscriptions leading to a loss of tax-free status on their savings.
From April 2024 it will also be possible to do partial transfers of ISA funds. Currently there are separate rules for the transfer of current and previous years subscriptions. While it is possible to do a partial transfer of previous years subscriptions, transfers of current years subscriptions must be for the whole amount including the attributable investment growth. This will be relaxed from April allowing partial transfers to apply to all ISA subscriptions whenever they were made.
The age at which an adult ISA can be opened will fixed at 18 across all ISA types from April. This will mean it will no longer be possible to open an adult Cash ISA at age 16, removing the ability for 16 and 17 year olds to pay £29,000 into ISAs by combining contributions into both a Cash ISA and Junior ISA.
Income tax
Despite speculation of a cut to income tax in the lead up to the budget there were no changes announced to rates or allowances.
The personal allowance and basic rate bands for income tax will remain at £12,570 and £37,700 respectively. The threshold for additional rate tax will remain at £125,140.
With regards to dividends, the dividend allowance will be halved from £1,000 to £500 for 2024/25. The dividend tax rates for basic rate, higher rate and additional rate taxpayers will remain at 8.75%, 33.75% and 39.35%.
Reforming child benefits
Child benefit is currently based on the highest earner in a household and is withdrawn at the rate of £1 for every £100 earnings they have over £50,000. This is achieved via a tax charge and means that families will not enjoy any child benefit if the high earner has income over £60,000.
From April 2024, the threshold at which child benefit is withdrawn will increase from £50,000 to £60,000, and the rate of withdrawal will be £1 for every £200 of income. Child benefit will therefore be extinguished once the highest earner's income exceeds £80,000.
Clients should be reminded that individual pension contribution can reduce income for the purposes of this test, enabling them to keep more of their child benefits.
There are plans to make the system fairer by administering the benefit on a household basis, rather than on the highest earner. The government aims to introduce this by April 2026 following consultation.
Capital gains and residential property
The Chancellor has announced a cut to the rate of CGT payable on the disposal of residential property benefiting multiple homeowners and those with buy to let properties. The higher residential property CGT rate is to be cut from 28% to 24% from 6 April 2024. Gains falling within basic rate will continue to be taxed at 18%. An individual’s main residence will still be exempt from CGT as Principle Private Residence Relief will continue to apply.
The CGT rates for all other disposals of non-residential property remain at 10% and 20% and as previously announced the annual CGT annual exempt amount will fall from £6,000 to £3,000.
Furnished holiday lets
Furnished holiday lets will be taxed in the same way as buy to let properties from 6 April 2025. This will mean that income from furnished holiday lets will cease to be relevant UK earnings for pension purposes.
Changes to the taxation of non-UK domiciles
It was announced that from the 6 April 2025 the remittance basis of taxation for non-UK domiciled individuals will be abolished. This is to be replaced with a new Foreign Income and Gains (FIG) regime which is determined by UK residency rather than domicile.
Individuals who become UK resident having been non-resident for more than 10 years will not pay UK tax on their overseas income and gains for the first four tax years of UK residence and will be free to bring these funds to the UK free of any additional tax. They will continue to pay tax on their UK income and gains in the normal way.
There is also to be a consultation on changes to inheritance tax for non-UK doms. Currently someone who is non-UK domicile is only subject to UK IHT on assets situated in the UK. However, they become subject IHT on their worldwide assets if they become UK domicile or deemed domicile.
The proposed new rules, intended to apply from 6 April 2025, would apply IHT on their worldwide assets once someone has been resident in the UK for more than 10 years. Also, where someone ceases to be UK resident they will remain subject to IHT for 10 years after leaving the UK.
There are also proposals which may remove the IHT effectiveness of excluded property trusts taken out after 6 April 2025.
Inheritance tax
There were no changes to inheritance tax announced in today's budget. The nil rate band will remain frozen at £325,000 and £175,000 for the residence nil rate band.
A consultation on a new IHT regime for non-doms has been launched with the proposed rules anticipated to take effect from 6 April 2025.
Corporation tax
There were no further changes to the rates and thresholds. The main rate will remain at 25% and the rate for small companies with profits below £50,000 continues at 19%. There's tapering relief for businesses with profits between £50,000 and £250,000 so that they also pay less than the main rate.
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