The Spring Budget: what the changes mean for you and your clients

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Watch our short video to hear the thoughts of Mike Ambery, Retirement Savings Director, on the key announcements from the Spring Budget. These include a fresh 2% reduction in National Insurance and significant changes to the income threshold for child benefit. 

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Jeremy Hunt took the opportunity in the March 2024 Budget to announce that inflation is likely to fall under the government’s 2% target by Q2 2024 and to make modest tax cuts.  

Many of the measures he announced had already been discussed prior to the budget, so there were no rabbits out of the hat this time.  

We’ve cut through the noise to pick out these key messages for your clients:  

• National Insurance cuts for the employed and self-employed 
• The introduction of a UK ISA 
• Changes to the High Income Child Benefit charge 
• Reduction in Capital Gains Tax liability  

Here’s our summary of the key points from the Spring Budget 2024. 

Pensions 

National Insurance Contribution Cuts 

As a result of the Spring Budget, workers will see a further cut in their rate of National Insurance (NI) contributions, providing a welcome boost to their pay packet.  
 
Class 1  
The government is cutting the main rate of Class 1 employee NI contributions from 10% to 8%. This will take effect from 6 April 2024. 
 
Class 4  
The government is supporting the self-employed by cutting the main rate of Class 4 NI contributions from 9% to 6% from 6 April 2024. 
 
Class 2  
The government confirmed the abolition of Class 2 NI contributions from 6 April 2024. 

The government will continue to allow people access to contributory benefits including State Pension through NI credits without paying NI as they do now.  
 

Small pots - a pension for life, not just for one employment 

The government has confirmed that it remains committed to exploring a lifetime provider model for Defined Contribution (DC) pension schemes in the long term.  

The government will undertake continued analysis and engagement to ensure that this would improve outcomes for pension savers, and build on the foundations of reforms already underway, including the Value for Money Framework. 
 

Individual Savings Accounts (ISAs) - extra investment in the UK, but when? 

The UK ISA will provide an ISA allowance of £5,000 on top of any existing ISA allowances (currently £20,000). 

To be eligible, the investments must be linked to the UK. The exact nature of what will be allowed is subject to an HMRC consultation with shares, bonds, gilts and Investment funds all mentioned as choices. 

There is no launch date confirmed as yet, and the consultation closes in early June 2024.

The consultation also asks questions regarding whether transfers will be allowed and whether more than one UK ISA can be opened in the same tax year. There are likely to be restrictions on holding cash within the UK ISA. 
 

High Income Child Benefit Charge – staged reform 

From April 2024, the government will raise the High Income Child Benefit Charge threshold to £60,000 (£50,000 in 2023/24). In addition, they will increase the upper threshold, where the benefit is lost entirely, to £80,000 (£60,000 in 2023/24).  

This will increase the opportunity to take families completely outside this charge by reducing the adjusted net income of the higher earner by making a pension contribution.  

The eventual aim is for the charge to operate based on household income, but this is not likely to happen until 2026.  
 

Mixed news for landlords – reduction in higher rate of Capital Gains Tax but furnished holiday lettings abolished 

From 6 April 2024, the higher rate of Capital Gains Tax for residential property disposals will be cut from 28% to 24%. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band. These rates apply to UK individuals with more than one residential property.  

The Furnished Holiday Lettings tax regime will be abolished from 6 April 2025. This regime allows landlords who let property on a short-term basis to have the income from this treated as profits from a trade. 

Your clients who are eligible for this treatment may be making pension contributions based on this treatment, so may need to revise their retirement income strategy.  

Taken together, these measures are designed to increase the supply of property for sale and long-term rental.  
 

Reform of non-domicile taxation and the domicile basis for Inheritance Tax – from 6 April 2025

The remittance basis of taxation for non-UK domiciled individuals will be abolished and replaced with a residence-based regime. Individuals who opt into the new regime will not pay UK tax on any foreign income and gains arising in their first 4 years of tax residence, provided they have been non-tax resident for the last 10 years. After this period, non-domiciled individuals will pay tax in the UK on worldwide income and capital gains.  

This contrasts with the current regime where the non-domiciled basis can be claimed for 7 years without any tax charge, and can be extended on payment of an annual tax charge.  

Transitional arrangements for existing non-doms claiming the remittance basis will apply.  

The government has also announced its intention to move to a residence-based regime for Inheritance Tax (IHT) and will consult in due course on the best way to achieve this, including consulting on a 10-year exemption period for new arrivals and a 10-year ‘tail-provision’ for those who leave the UK and become non-resident. No changes to IHT will take effect before 6 April 2025 

This should give more certainty over tax affairs for UK-based individuals than the complex criteria for determining domicile. Current IHT treatment will continue for any non-UK property that is settled by a non-UK domiciled settlor before 6 April 2025. This means that non-domiciled individuals may wish to consider their estate planning before that date.
 

British Savings Bond 

NS&I will launch a British Savings Bond from 6 April 2024. There will be a growth version and an income version. 

It will pay a guaranteed rate of interest which is still to be confirmed. The minimum investment is £500, the maximum is £1 million.