Budget 2024: key tax announcements

With tax as a percentage of GDP at a record high, one might have expected more in the way of tax giveaways in the Budget. But with an election looming, the Chancellor largely ‘played it safe’ with pre-trailed tax announcements. Our experts outline the key tax measures affecting our clients and their businesses.

Despite the Chancellor reiterating the Government’s general desire to turn the UK into the next Silicon Valley, there were no material tax announcements specifically targeting technology companies. Tax news was similarly quiet for life science companies, although the non-tax announcements on the delivery of the Canary Wharf life sciences hub and support for the development of the Cambridge Biomedical Campus will be welcome news for some. The 2p reduction in National Insurance Contributions helps all employers and employees and will no-doubt grab the headlines but the corporation tax regime was largely left alone. 

Personal and employment taxes 

Despite pre-budget speculation, income tax rates and thresholds were maintained at their current levels, with the key changes on the personal tax front being the reduction in the rate of National Insurance Contributions and the abolition of the ‘non-dom’ rules, as outlined below. 

National Insurance Contributions (NICs)

The Chancellor announced a 2p reduction to the main rates of employee and self-employed NICs from 6 April 2024. Class 1 employee NICs will reduce to 8% and Class 4 self-employed NICs will reduce to 6% from next month. The Government also reaffirmed that, as per the Autumn Statement 2023 announcement, from April 2024 no self-employed person will be required to pay Class 2 NICs and the government will launch a consultation to fully abolish this form of contribution which is seen as an unnecessary complexity. The Chancellor referenced a long-term ambition to end the ‘unfairness’ of applying ‘double tax’ (income tax and NICs) to working income with a loose promise to continue to cut NICs when it would be ‘responsible’ to do so.

Non-UK Domiciled Individuals and IHT residency based regime

In a move that many believe was designed to steal the opposition’s thunder, the Government will abolish the current “non-dom” tax regime and replace it with a new residence-based regime. Under the new system, new arrivals to the UK will be able to benefit from a 100% tax relief on their foreign income and gains for the first four years they are UK tax resident, but after that will be liable to pay UK tax on their worldwide income and gains. This new system will apply from 6 April 2025, with transitional rules for non-UK domiciled individuals already tax resident here. These transitional measures will include:

• an option to rebase the value of capital assets to their value as at 5 April 2019;
• a temporary 50% exemption for the taxation of foreign income between 6 April 2025 and 5 April 2026; and
• a two-year Temporary Repatriation Facility to bring previous foreign income and gains into the UK at a tax rate of 12%.

The Government also intends to move to a residence-based Inheritance Tax (IHT) regime, which would include a 10-year exemption period for new arrivals and a 10-year 'tail provision' for those who leave the UK and become non-resident. A consultation on how this will be adopted will follow in due course but no changes will be made to IHT before 6 April 2025.

British ISA

Following the Mansion House reforms announced in 2023, a new UK Individual Savings Account (ISA) with a £5,000 allowance will be introduced. This allowance will be in addition to the £20,000 that can be subscribed into an ISA, and will be a new tax-free product for people to invest in UK-focused assets. The Government will consult on the details but the objective is to provide more savings and investment opportunities for individuals whilst unlocking more capital for UK based companies.

Child Tax Benefit

Finally addressing the blunt operation of the child benefit system, the Government intends to administer the High Income Child Benefit Charge (HICBC) from April 2026 on a household rather than an individual basis. From April 2024, the Government will increase the HICBC threshold from £50,000 to £60,000. The rate at which HICBC is charged will also be halved so that Child Benefit will not be fully withdrawn until an individual earns £80,000 or more. This will reduce the marginal tax rate resulting from HICBC which has been flagged as particularly punitive. 

Business tax measures

VAT Registration Threshold 

The turnover threshold that must be reached before a business is required to register for UK VAT will be increased from £85,000 to £90,000 with effect from 1 April 2024. The deregistration threshold (being the turnover at which a business can choose not to be VAT registered) will be increased from £83,000 to £88,000, also with effect from the same date. 

R&D expert advisory panel

Companies engaged in innovative research and development will no-doubt be grappling with the new rules in the recent Finance Act reforming the UK’s R&D tax regime and may also be dealing with challenges relating to HMRC’s increased focus on R&D tax claims. Whilst the R&D tax system was spared further tinkering in this Budget, the Chancellor did announce that HMRC will establish an expert advisory panel to support the administration of R&D reliefs. This panel will provide insights into the cutting-edge R&D occurring across key sectors such as tech and life sciences, and work with HMRC to review relevant guidance, ensuring it remains up to date and provides clarity to claimants. 

Full Expensing: intention to extend the rules to leasing assets

The Chancellor was keen to remind taxpayers of the government’s commitment to full expensing for certain capital expenditure which was announced at last year’s Budget and made permanent in the Autumn Statement 2023. Building on this generous relief, the Budget confirmed that draft legislation will be published to extend full expensing to assets for leasing, with the intention that this comes into force “when fiscal conditions allow”. 

Tax Measures for Creative Industries

The Creative Industries were clearly the ‘winner’ in today’s Budget, with film makers in particular clearly having made their voices heard. 

Audio-Visual Expenditure Credit: enhanced credit for UK independent film

A new UK Independent Film Tax Credit was announced for films with budgets under £15m  that meet the requirements of a new British Film Institute Test (which will, as a minimum, require a film to have either a UK writer, a UK director or be certified as an official UK co-production). An enhanced tax deduction at 53% of qualifying expenditure incurred from 1 April 2024 onwards will be available provided films started principal photography from 1 April 2024.

Audio-Visual Expenditure Credit: additional tax relief for visual effects

The credit rate for film and high-end TV visual effects costs will be increased from 34% to 39% from April 2025 and the 80% cap will be removed for qualifying expenditure for visual effects costs. A consultation on the type of expenditure that will qualify for additional relief will follow, with implementing legislation in a future Finance Bill.

Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Tax Relief

The rates of the above reliefs will be fixed at 40% for non-touring productions and 45% for touring productions and orchestra productions with effect from 1 April 2025. The Museums and Galleries Relief sunset provision will be removed so the relief will continue to be available beyond March 2026.

Business Rates Relief for film studios

From 1 April 2024, eligible film studios in England will receive a 40% relief on gross business rates bills over the next 10 years until 2034. Bills will be backdated to 1 April 2024 once eligibility has been clarified and the relief implemented.

Property Tax Measures

SDLT multiple dwellings relief abolished

From 1 June 2024, the government will abolish Multiple Dwellings Relief (MDR), a relief from Stamp Duty Land Tax (SDLT) available to any purchaser buying 2 or more dwellings in a single transaction (or linked transactions) which enables tax to be calculated based on the average value of the dwellings purchased as opposed to their aggregate value. The Budget material noted that there is no strong evidence that MDR is meeting its original objectives of supporting investment in the private rented sector. Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. By contrast, the recently reviewed SDLT rules concerning mixed-use property purchases (ie containing residential and non-residential property) will remain as they are with no change. These transactions will continue to be subject to (usually lower) non-residential SDLT rates.

Other property tax announcements

The higher rate of Capital Gains Tax (CGT) payable by individuals disposing of residential property will be cut from 28% to 24% from 6 April 2024. Given that the majority of residential property disposals by individuals will continue to benefit from Private Residence Relief (meaning that no CGT is payable) the impact of this change will be felt by a narrow section of the population. 

The Furnished Holiday Lettings tax regime will be abolished from 6 April 2025. This means that landlords will no longer be able to gain a tax advantage from letting short-term furnished holiday properties, bringing the rules in line with other types of property lettings.

Tax Advice and Compliance

Regulating Tax Advice

The Government is consulting on options to strengthen the regulatory framework in the tax advice market and on requiring tax advisers to register with HMRC if they wish to interact with HMRC on a client’s behalf.

Penalties and interest reform

A policy paper on reforming the tax penalty and interest regime was published to align on a common approach across the VAT and income tax self-assessment regimes. The paper outlined: (i) a points based system that will apply to late submission penalties; (ii) two late payment penalty rules that will consist of a percentage based charge for payments up to 31 days late and daily penalties accruing after that point; and (iii) updates to the interest payment rules for late payment of VAT to mirror the income tax late payment interest rules. 

If you would like further information in relation to any of these measures, please contact a member of our tax team.