The Spring Budget delivered a mixture of previously announced changes – and some new ones. But what are the key takeaways, and what impact will the Budget have on your finances?
Although the Spring Budget was slightly less spectacular than forecast, a number of important changes were announced. Tax rates relating to individuals and property were of particular interest, and there were also proposed extensions to ISA investments. Most significant were the announcements about how non-doms will be taxed in the UK, and the likely reform of the Inheritance Tax system.
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With the UK economy sluggish, and inflation high, this Budget’s intention was to offer something to everyone, and do enough to help the Conservatives make up ground with voters. Here are the main announcements, and the effect they are likely to have:
Personal tax changes
With personal allowances and tax bands frozen the tax burden remains high, and will continue to increase with the OBR reporting that this combination will be the equivalent of raising the basic rate of Income Tax by 4p in the pound. Nevertheless there were some concessions. Firstly reduced National Insurance rates will be a bonus if you’re working, but don’t forget to check your contributions to ensure you’re on track to receive the full UK State Pension at retirement. Changes to Child Benefit were also introduced with a hike in the individual earnings threshold, to help create a fairer system.
Property
For residential property the higher rate of Capital Gains Tax will drop from 28% to 24% from April. However, if you own a property which qualified for the Furnished Holiday Let regime, this will be abolished and any profit dealt with just as it would be for a normal lettings property. The aim of abolishing the regime is to simplify the system and boost property stock in high demand areas and holiday hotspots. If you do own a property which you let as a holiday home these changes may prompt you to consider whether it’s sensible to sell. As with any decision on property there are likely to be lots of factors at play and it makes sense to work with a tax adviser to understand the impact of the new rules.
Investments
Although a simplification of ISA rules was expected, instead a new ISA allowance was proposed, with a consultation now in progress. These proposals would mean a new type of ISA will be introduced – a British ISA – to encourage investment. This means an additional £5,000 could be invested each year, boosting ISA limits to £50,000 a year for couples. ISAs can be very tax advantageous tools, and useful when estate planning; generally spouses can pass ISAs between them on death free from Inheritance Tax – it’s only on the death of the second spouse that the investment will be counted as part of an estate.
‘Non-doms’
There was some expectation that non-doms would be targeted, particularly given Labour’s focus on this area. This favourable tax regime, used by many non-doms, currently allows tax to be paid on UK income and gains only, sheltering worldwide income and gains that are not remitted or enjoyed in the UK. The proposed reform removes this preferential treatment, although there will be a new regime available for the first four years of UK residence, if you opt for scheme. Although there’s no real detail yet, these are significant changes and likely to affect you if you’re domiciled outside of the UK, with global interests.
Inheritance Tax
A consultation has been announced over the current Inheritance Tax (IHT) system, and whether reform should be introduced to switch it to a residence based scheme. Under the proposals IHT would be charged on worldwide assets once you’ve been resident in UK for 10 tax years, regardless of your domicile. You’ll only lose this exposure once you’ve been non-resident from the UK for 10 years. Currently the scheme is very different, and if you’re domiciled in the UK but live overseas, you cant escape IHT on your worldwide assets. For non-doms moving to the UK, and then heading back, the IHT net could then extend for up to 10 years. These are major changes, and more detail will emerge quickly given the consultation closes in a matter of months.
On the whole the Spring Budget delivered better news for those who are still working, than for those living primarily from their asset base. Although it could have gone further it seems unlikely that the Government will extend its reach to, for example, taxing British expats on worldwide assets. Yet the switch to a residence based Inheritance Tax regime would be a significant change, especially for British expats.
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