The UK Spring Budget, delivered on March 6, 2024, by Chancellor Jeremy Hunt, focused on long-term growth through tax cuts, increased investment, and improved public services. Here’s a breakdown of the key announcements with figures:
UK Spring Budget 2024: Background briefing
Chancellor Jeremy Hunt presented his ‘Budget for Long Term Growth’ on Wednesday, March 6, 2024. He pledged to boost investment, create more jobs, improve public services, and reduce taxes.
Hunt stated that the UK has successfully navigated through a financial crisis, a pandemic, and an energy crisis due to war in Europe. He recognized that although interest rates are still high to combat inflation, the situation allows for not only temporary cost-of-living aid but also lasting tax reductions. He described this budget as one focused on sustainable growth.
Tax Cuts & Investment and Spending 2024:
The Chancellor has announced several significant policy changes:
1. Individual Savings Accounts (ISAs): For the 2024/25 fiscal year, the total contribution limit for Individual Savings Accounts (ISAs), covering both cash and stocks and shares, remains at £20,000.
Additionally, the Chancellor announced plans for a new ‘UK ISA’. This would provide an extra £5,000 annual allowance to encourage investment in promising UK businesses, although it is still under consultation and lacks a confirmed start date.
2. High Income child benefit charge: The High-Income Child Benefit Charge (HICBC) is a tax that affects high earners who or whose partners receive Child Benefit. Starting in April 2024, the income threshold for this charge will increase from £50,000 to £60,000.
The charge is calculated as 1% of the Child Benefit received for every £200 of income that exceeds this threshold. This means the more you earn over £60,000, the higher the charge you will pay.
3. National Insurance Contributions
For Employees: From January 6, 2024, the main rate of Class 1 National Insurance Contributions (NICs) for employees was reduced from 12% to 10%, as announced in the Autumn Statement 2023. The recent budget further cuts this rate by an additional 2 percentage points to 8%, effective from April 6, 2024. This 4% total reduction applies to earnings between £12,570 and £50,270.
For Self-Employed Individuals: Self-employed individuals earning more than £12,570 annually are subject to two types of NICs: Class 2 and Class 4. Starting April 6, 2024, significant changes, as outlined in the Autumn Statement 2023 and extended in this budget, will take effect:
- The main rate of Class 4 NICs will drop from 9% to 6% for the 2024/25 fiscal year, with a continued 2% rate on profits over £50,270.
- Class 2 NICs will be abolished, resulting in an annual saving of £179.40.
4. Value Added Tax: The government has announced an increase in the Value Added Tax (VAT) registration threshold from £85,000 to £90,000. Additionally, the deregistration threshold will rise from £83,000 to £88,000, both changes effective from April 1, 2024.
5. Capital Gains Tax: The government has announced a reduction in the Capital Gains Tax (CGT) annual exemption limit. Starting April 6, 2024, the exemption will decrease from £6,000 to £3,000 for individuals and from £3,000 to £1,500 for trustees. This follows previous reductions from £12,300 for individuals and £6,150 for trustees in the 2022/23 tax year.
The CGT rate for residential properties will remain at 18% for basic rate taxpayers. However, for those with residential property gains exceeding their basic rate band, the rate will decrease from 28% to 24% starting from the same date. Other CGT rates will remain unchanged.
6. Corporate taxes: Corporate tax rates and thresholds will remain unchanged for the year ending March 31, 2024. Companies with profits over £250,000 will continue to be taxed at a rate of 25%.
For companies earning £50,000 or less, the small profits rate will stay at 19%. Profits between £50,001 and £250,000 will be taxed at the main rate of 25%, but with a reduction provided by marginal relief. Additionally, there will be no changes to the rules of capital allowance.
7. Upcoming Tax Changes:
- Furnished Holiday Letting (FHL):
From April 2025, the specific tax regime for FHL will be discontinued. This change will treat short-term furnished holiday lets the same as longer-term residential rentals for tax purposes, eliminating the need to report these income streams separately. - Cash Accounting for Self-Employed:
Starting in the 2024/25 tax year, the cash basis of accounting will become the standard method for self-employed individuals, with the option to choose the accrual basis if preferred. - Stamp Duty Land Tax (SDLT) Changes:
The multiple dwelling relief, which provides bulk purchase relief for SDLT, will be abolished from June 1, 2024. - Simplification Measures:
The government is developing a new online service for employees to claim tax relief on all their expenses in one centralized location. HMRC will process these claims automatically. - Taxation of Benefits in Kind:
Starting April 2026, the government will require the reporting and payment of income tax and Class 1A National Insurance Contributions (NIC) on benefits in kind through payroll software. - Other Considerations:
- HMRC is evaluating the potential extension of full expensing to leased assets.
- Plans are in place to merge the Research and Development Expenditure Credit (RDEC) scheme for large entities with the scheme for R&D intensive small and medium-sized enterprises (SMEs).
- The remittance basis of taxation will be phased out and replaced by a residence-based regime, under which UK residents will start paying UK tax on foreign income and gains after four years of residency.
Economic Forecasts:
1. Economic Growth Forecast:
The Office for Budget Responsibility (OBR) forecasts a slightly faster growth rate for the economy in 2024 and 2025 compared to its projections in November 2023. However, the growth experienced at the end of 2023 was weaker than initially anticipated.
2. Inflation and Interest Rates:
The OBR predicts that both inflation and interest rates will decline more rapidly than previously expected.
3. Government Borrowing Projections:
According to the OBR, government borrowing is expected to decrease from £114 billion in 2023/24 to £87 billion in 2024/25. Subsequently, borrowing is forecasted to decline in each financial year, reaching £39 billion by 2028/29.
4. Borrowing as a Percentage of GDP:
Analysis reveals a consistent pattern of borrowing decreasing relative to GDP, as depicted in the chart.
5. Underlying Debt:
The government’s underlying debt, which was 84.9% of GDP by the end of 2022/23, is projected to increase annually. The OBR forecasts that debt will peak at 93.2% of GDP in 2027/28 before slightly decreasing to 92.9% in 2028/29.
6. Stability in Debt Forecast:
The OBR’s forecast for underlying debt remains largely unchanged from its November 2023 projections.
Further Resources:
If you want further details about the UK Spring Budget 2024, the following resources would be great help:
- For comprehensive insights into the Spring Budget 2024, including the Chancellor’s speech and supporting documents, visit the UK government website: Spring Budget 2024
- To delve into a detailed summary of the tax and spending announcements, explore the resources provided by the House of Commons Library: Spring Budget 2024 Summary