Press Room


6 Mar 2024

Spring Budget 2024 – No surprises, but no alarms?


Earlier today, Chancellor Jeremy Hunt delivered what might be the last major speech on the state of the UK economy and his last opportunity for vote-winning tax cuts before the General Election to be held at an unknown time later this year.

The two major announcements, the 2p cut to National Insurance and the abolition of the ‘non-dom tax regime’ were widely rumoured in the last few days. Indeed, Chancellor Hunt might be forgiven for wanting to keep surprises to a minimum with the fall-out from the “Kamikwasi Budget” of September 2022 still being felt by the electorate. Today’s changes may still be viewed through a wider lens of pervasive fiscal drag which have continued to increased tax for many as a result of frozen allowances and thresholds.

As ever, the devil remains in the details and much focus will rest on rules which will replace the non-dom regime and the transitional rules that will bridge the two. We explain these changes below as they stand today but much can change between the dispatch box and the final legislation, so those affected should keep a watching brief and Andersen will be following events closely to keep you informed.

I am pleased to summarise the key tax and regulatory measures from today’s speech. Please contact me or any of the Andersen team to discuss your questions or concerns.

 

Huw Griffiths

Director

T: +44 (0)20 7242 5000
Ehuw.griffiths@uk.Andersen.com

 

Spring Budget 2024 – No surprises, but no alarms?

 

Non-domicile rule changes

While the abolition of the non-dom regime came as a surprise to no one, its replacement is not as bad as many feared. For people arriving in the UK from 6 April 2025, they will only be taxed on their UK source income and gains for the first four years. Then, once those four years are up, if they stay, they will be taxed as any other UK resident – no more remittance basis, clean capital and mixed funds to worry about.

The new regime will not depend on their domicile, so there will be no more questions about where one’s Dad was born or where one intends to be buried. The sole determining factor will be whether one has been resident in the UK for at least 10 years.

Anyone who has just arrived in the UK will be able to take advantage of the new regime from 6 April 2025 until they hit four years of residence. For those who are already past this limit, there are sweeteners to try and stop them from rushing for the airport. Pre-April 2025 income and gains can be brought to the UK in 2025/26 and 2026/27 with a flat rate of 12%, assets rebased to April 2019 and income and gains within a pre-April 2025 trust will not be taxed as long as they stay there.

We await the draft legislation with keen interest!

Inheritance Tax

Along with the abolition of the non-dom regime for Income Tax and Capital Gains Tax, Inheritance Tax is to be switched to a residence-based system from 6 April 2025.

However, the current treatment (i.e. protection) will continue for non-UK property settled into a trust by a non-dom prior to 6 April 2025.

National Insurance

Doubling down on the reductions introduced following the 2023 Autumn Statement, the rate of employees’ National Insurance will be reduced from 10% to 8% and the Class 4 National Insurance rate for the self-employed will be reduced from 8% to 6%. These changes will become effective 6 April 2024.

Today’s changes, combined with those announced in Autumn 2023, were delivered with a stated objective of giving a targeted tax cut to workers which would not be met with a cut to income tax.

Other personal tax

The Chancellor has announced he wants to introduce a UK ISA worth £5,000 annually. This would be in addition to the existing ISA allowance of £20,000. Income and gains realised within an ISA are exempt from UK tax.

The additional £5,000 is to invest in and provide additional capital for UK businesses, but also to support a culture of individuals investing in the UK.

A consultation process has started today, with responses required by 6 June.

Business income tax

New announcements on changes to business income tax were few and far between – although innovative businesses might be pleased with no changes to R&D tax reliefs after the regime featured prominently over the last few years.

The Chancellor confirmed his commitment to making the full expensing on capital allowances a permanent feature of the UK tax system and making full expensing available for leased assets, albeit the latter will only take place “when fiscal conditions allow”. The full-expensing measures allow a 100% first year allowance for plant and machinery assets and a 50% first year allowance for special rate pool assets.

A starring role was given over to the creative industries. Orchestras, theatres and museums & galleries were boosted by the temporary increase in tax relief being made permanent – the higher rates are 45% for touring productions/orchestras and 40% for non-touring productions. Additional support is also to be given for eligible UK independent film productions, visual effects expenditure and eligible film studios.

Property taxes

The rate on disposals of residential property for Capital Gains Tax purposes will be cut from 28% to 24% in an effort to increase tax revenue (despite lowering the rate) by effecting behavioural change to increase the number of transactions that are subject to the charge – the Laffer Curve in action!

The Chancellor announced that the furnished holiday lets regime would be repealed from April 2025, in a revenue raising measure that should net £600m over the following four years. This is because the regime benefits from an exemption to the finance cost restriction, better capital allowances, access to reliefs for capital gains tax purposes such as rollover relief, and the profits can also constitute earnings for pension purposes.

In another revenue raising measure, Multiple Dwellings Relief (MDR) will be abolished from 1 June 2024. In recent times, MDR has been the subject of more than its fair share of tax controversy so it is perhaps not surprising that the relief will be withdrawn.

Value Added Tax

The increase in the compulsory VAT registration threshold by £5,000 to £90,000 does not counter the effect of fiscal drag with the threshold having been frozen for the last 5 years.

Duties

Following much lobbying by national newspapers and industry bodies, the 5p per litre cut in fuel duty first introduced March 2022 will be extended for a further 12 months to 22 March 2025 and the alcohol duty freeze is extended from 1 August 2024 to 1 February 2025.

As part of a commitment to creating a smokefree generation and tackling youth vaping, the Government intends to introduce a new duty on vaping and increase tobacco duty from October 2026.

Anti-avoidance

In ruling in favour of the taxpayers in the Fisher case, the UK Supreme Court had stated that if any gaps had been created by its ruling, Parliament could speedily fill it. The Court found that transfers made by UK resident companies were not within the ambit of the Transfer of Assets Abroad code (‘ToAA’) nor were shareholders of such companies’ quasi-transferors.

The Government has today proposed an amendment to the ToAA rules to deem transfers of assets abroad made by UK resident close companies (or overseas companies which would have been close if UK resident) to be transfers of the participator. The new rules will apply where an individual has a qualifying interest in the company and receives a capital sum or has power to enjoy the income arising abroad.

It is not clear what a qualifying interest in a close company will be. However, the proposal refers to ownership or financial interest in the company. The new rules are subject to a motive defence and are not supposed to catch genuine commercial transactions and transactions without any tax avoidance purpose.

Investment Zones and Freeports

The Government announced further details of six Investment Zones: Greater Manchester, Liverpool City Region, North-East of England, South Yorkshire, and West Midlands and Tees Valley.

The refocused Investment Zones programme, launched at the Spring Budget 2023, gives areas a £160 million envelope to catalyse local growth and investment. There are also tax reliefs to attract businesses to these Zones, and initial investments in a range of interventions including on skills, research & innovation, and infrastructure.

The Government also confirmed the extension to Freeport tax reliefs to September 2031 that was announced at the Autumn Statement 2023 will apply across English Freeport tax sites. The 10-year window to claim reliefs has also been agreed with the Scottish and Welsh Governments, meaning the range of enhanced tax reliefs and benefits relating to business rates, VAT, employer’s NIC, capital allowances and SDLT – and its Scottish and Welsh equivalents – will be available until September 2034 in tax sites in Scottish Green Freeports and Welsh Freeports.

Reserved Investor Fund

HM Treasury and HMRC published a document with the responses to the Government’s consultation on the design and scope of a tax regime for a new UK investment fund vehicle: the Reserved Investor Fund (Contractual Scheme) (the “RIF”). The consultation was launched in April 2023 following the review of the UK’s funds regime launched in the Budget 2020.

The document confirms the intended policy approach in the areas covered. The RIF is designed to complement and enhance the UK’s existing funds regime by meeting industry demand for a UK-based unauthorised contractual scheme with lower costs and more flexibility than the existing authorised contractual scheme. The RIF will be open to professional and institutional investors.

The intention is to proceed with three types of restricted RIFs. These are:

  • where at least 75% of the value of the RIF’s assets is derived from UK property (so the RIF is ‘UK property rich’ for the purposes of the non-resident capital gains rules); or
  • where all investors in the fund are exempt from tax on gains; or
  • where the fund does not directly invest in UK property, or in UK property rich companies.

The RIF will also be able to invest in a wide range of asset classes beyond real estate, subject to being within one of the three above restricted regimes.

Broadly the aim is for an RIF to be taxed similarly to the UK Co-ownership Authorised Contractual Schemes (CoACS) and be treated as a ‘transparent’ fund for UK income tax purposes, meaning income arises to UK investors as soon as it is receivable by the RIF. There will be additional rules designed to ensure that non-UK residents are subject to tax on UK property gains.

The Government intends to proceed with the RIF and will begin legislating for the RIF in the Spring Finance Bill 2024.

AI and Government efficiency

The expected cuts to the public sector did not materialise, with the Chancellor accepting that any cuts would impact service delivery. However, an increase to improve services was not forthcoming either, with the Chancellor commenting on the fall in public sector productivity and highlighting the need for increased efficiency.

To achieve this, there will be an increased focus on the “use of AI and digitisation, and upstream prevention to boost public sector productivity.” The Cabinet Office will be leading the digital charge with the establishment of an “incubator for AI”. We would expect this investment in AI to be applied to identity tax avoidance and evasion by scouring tax returns in a level of detail which is not possible today.

However, with the recent focus on the service levels from HMRC increasing frustration for all, it is unclear if more bots to answer questions are really what either the public, taxpayers or tax agents need.

Cryptoasset Reporting Framework

As part of increasing transparency with cryptoassets, the Cryptoasset Reporting Framework (CARF) has been announced in the budget. This is not a surprise, as the intention to implement the framework was announced by the Treasury on 10 November 2023. The timing must be now to ensure that the information is being recorded for the first exchange of information to occur in 2027.

Over 50 countries have stated they will implement CARF. If you are operating a platform (of any nature) in a country that adopts CARF and facilitates the exchange of tokens, information on the users will need to be shared with the local tax authority. If the users are in the UK, that tax authority will automatically share the information with HMRC. From the start of 2026, systems and processes will be required to capture the information ready to share in 2027.

Disappointingly, what has not been included in the Budget, despite an extensive consultation period, is any action to simplify the taxation of Decentralised Finance (DeFi). This has been a focus for tax professionals working with HMRC to ensure that any new legislation is workable. Despite the Chancellor’s comments about making tax simpler, DeFi investors will have to continue to wrestle with laws that were never intended for a digital age.

 

 

Andersen LLP, 2 George Yard, London, EC3V 9DH

Tel: +44 (0)20 7242 5000  |  Fax: +44 (0)20 7282 4337

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The content of this newsletter and any subsequent updates we send do not constitute tax or legal advice and should not be acted upon as such. Specific tax and / or legal advice should be taken before acting on any of the topics covered.