UK Spring Budget 2024

Spring Budgets in an election year tend to be a balance of speaking to the wider public and placating the party faithful. In setting out a swath of considered tax cuts, the UK Chancellor has certainly played to form.

From slashing another 2% off National Insurance Contributions, an extension to child benefit, the freezing of alcohol and fuel duty and an increase in the VAT registration threshold, the Chancellor has lent a hand to struggling households with a boost to disposable incomes. The cuts will certainly be welcome and will go some way in making up for the erosion of real incomes which has occurred in recent years as a result of the inflationary environment.

The Office for Budget Responsibility’s (OBR) forecast suggests that cost pressures may be less of an issue in the coming months predicting that inflation will fall to 2% by next month, pared back significantly from the 8% projection this time last year.

The OBR also delivered more good news in the form of higher-than-expected growth forecasts, all of which helped convince the Chancellor that the UK economy was beginning to turn a corner and it was an appropriate time to make further tax cuts for working people in particular.

Our KPMG Belfast team have prepared an overview of the main tax items in today’s Budget affecting both individuals and businesses, all of which have application in Northern Ireland unless indicated otherwise. 

• National Insurance Contributions to fall by 2% to 8% for employees, a move which follows the 2% cut announced in the Autumn Statement.
• The top rate of capital gains tax will be cut to 24% from 28% for disposals of any residential property, other than a home.
• The non-domiciled tax regime will be scrapped with effect from April 2025 and replaced with a new residence-based regime.
• Significant future changes to the scope of UK inheritance tax have been sign posted.
• The threshold for VAT registration will climb to £90,000 from £85,000.

Turning our attention back locally, the Chancellor announced that Northern Ireland would be allocated an additional £100m of resources from HM Treasury.

Our dual market access to both the European Union and UK markets afforded under the Windsor Framework has already piqued the interest of global investors who have noted the return of stable government to Stormont with interest.

Coupled with the potential to devolve corporation tax-setting powers to The Executive – recently reaffirmed by the UK government – and a range of transformational city deals, these factors combined offer a very compelling investment proposition in Northern Ireland.

The tax changes announced in today’s Budget should go some way to improving that attractiveness further.

Though well trailed, the Chancellor today formally announced several fundamental reforms to the taxation of non-domiciled individuals including the abolition of the remittance basis.

The Chancellor has also indicated significant future changes to the scope of UK inheritance tax.

The combination of these will impact on many individuals currently resident in the UK.

A key Labour tax policy has been to abolish the “non-dom” tax regime if they win a general election. However, the Conservatives have taken the initiative and announced today, that from 6 April 2025, the existing non-dom regime with be replaced with a new relief on foreign income and gains [FIG] which will be available for the first four years of UK tax residence. To qualify for relief the individual must not have been UK tax resident in the previous ten years prior to becoming UK resident.

The new regime allows FIG arising in the first four years to be remitted with no additional UK taxes.

Individuals who on 6 April 2025 have been tax resident in the UK for less than four years (after ten years of non-UK tax residence) will be able to use the new regime for the remainder of those four years.

Individuals who move from the remittance basis to the arising basis on 6 April 2025 and are not eligible for the new four-year FIG regime will, for 2025-2026 only, pay tax on 50% of their foreign income. This reduction applies to foreign income only; it does not apply to foreign chargeable gains. For 2026-27 onwards, tax will be due on all worldwide income in the normal way.

From 6 April 2025, individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025-26 and 2026-27 only. The TRF will not apply to pre-6 April 2025 FIG generated within offshore trust structures.

From 6 April 2025, an individual who is not, or who later ceases to be, eligible for the new four-year FIG regime will be taxed on foreign gains in the normal way. Transitionally, individuals who have claimed the remittance basis will, on a disposal of an asset held personally at 5 April 2019, be able to elect for UK CGT purposes to rebase that asset to its value as at that date.

From 6 April 2025, the protection from UK taxation on future income and gains as it arises within trust structures (whenever established) will be removed for all current non-domiciled and deemed domicile individuals who do not qualify for the new four-year FIG regime. 

FIG arising in non-resident trust structures from 6 April 2025 will be taxed on the settlor (if they have been UK resident for more than four years) on an arising basis. FIG which arose in the trust or trust structure before 6 April 2025 will be taxed on settlors or beneficiaries if they are matched to worldwide trust distributions. 

From 6 April 2025 the government intends to move inheritance tax from a domicile-based regime to a residence-based regime. This will be subject to consultation, but initial commentary would suggest that UK IHT on worldwide assets would apply when a person has been resident in the UK for ten years. There may be a “tail” mechanism which could keep a person within the scope of UK IHT for ten years after the cessation of UK residence.

UK situs assets are likely to remain within the charge to UK IHT on the same basis as present, regardless of residence.

The IHT consultation will deal with the design of this new residence-based system for IHT to apply from 6 April 2025. There will be a number of detailed issues and interactions that will need to be consulted on, including transitional provisions, length of residence criteria and “tail” provisions etc.

For the self-employed, the main rate of Class 4 National Insurance contributions will be reduced by 2 percentage points from 8% to 6% from 6 April 2024.

From 6 April 2024, self-employed people will no longer be required to pay Class 2. 

The HICBC seeks to claw back child benefit received by “higher earners”. From 6 April 2024, the starting threshold for clawback will be increased from £50,000 to £60,000.

The claw back will apply at a rate of one per cent of the full Child Benefit award for each £200 of adjusted net income between £60,000 and £80,000, halving the rate at which HICBC is charged. The charge on taxpayers with income above £80,000 will be equal to the full amount of Child Benefit paid.

The government will introduce a new UK ISA with its own allowance of £5,000 a year. The government will consult on the details at a later date.

As previously announced, the capital gains tax annual exempt amount will be reduced from £6,000 to £3,000 from 6 April 2024. This represents a further significant reduction in the annual exempt amount which formerly stood at £12,300 before 6 April 2023.