In a highly anticipated speech, and something of a last chance to shift the dial ahead of the election, the UK Chancellor, Jeremy Hunt, has delivered his ‘tax cutting’ budget. Peter Webb, our Head of Tax Advisory, reviews the announcements.
With the UK economy teetering on recession, and overall tax approaching a level not seen since the aftermath of World War 2, Jeremy Hunt was quick to begin his Spring Budget with a reminder of some of the momentous challenges which the Conservatives have faced including the pandemic, global financial crisis and energy shock.
After a nod to these challenging headwinds, Mr Hunt touched on the country’s direction of travel, noting that UK growth is building with predictions that inflation will drop below 2% by the summer.
Despite the optimism, it was clear there was a little room for manoeuvre, but an early reference that lower taxes create higher growth suggested some headline announcements were to come.
In what seemed something of a repeat of the Autumn Statement, the Chancellor shared a handful of tax raising measures – abolishing tax breaks for non-doms and those letting second homes as holiday properties, and increasing taxes on cigarettes and vapes – before announcing a range of tax cuts including another reduction in National Insurance.
The main announcements included:
- National Insurance – further cuts were announced with National Insurance dropping again by 2%, to 8% of earnings. There are also cuts for the self-employed.
- Non-doms – for UK residents whose permanent home is overseas there will be new rules governing tax, which will take effect from April 2025. Last year 68,800 non-doms were living in the UK, with around 37,000 claiming the special ‘remittance basis’ tax status. A consultation on the reform of Inheritance Tax (IHT) and the desire to move to a residence based regime was also announced which could bring further, significant changes for non-doms in the future.
- Child benefit – the thresholds are being uplifted from the current rates. Now, where the highest earning parent earns up to £80,000, there will be the opportunity to claim some of the benefit, with a consultation announced over how to ensure a fairer system based on total household income.
- ISAs – a new £5,000 British ISA tax allowance will be offered for those who invest in UK-listed companies.
- Capital Gains Tax – the highest rate of Capital Gains Tax will reduce from 28% to 24% for property sales.
- VAT – the threshold at which small businesses need to register for VAT will rise from £85,000 to £90,000 from April.
- Furnished holiday lettings – from April 2025, landlords who rent out their second homes will no longer be able to enjoy tax advantages such as lower Capital Gains Tax rates and being able to offset the full cost of mortgage interest against profits.
- Non-economy flights – air passenger duty on business and first-class flights will rise
Want more detail?
Download our Budget report.
Most of what was announced had been well trailed ahead of the speech, yet there were still some surprises offered by Mr Hunt. Despite the usual commotion which surrounds these announcements, what’s clear is that there’s very little wriggle room for the government ahead of this year’s election. The reality is that the vast majority of UK taxpayers will still pay more in tax, not least because of frozen allowances, despite Mr Hunt’s claims that rates for workers are the lowest since 1975.
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