Spring Budget 2024

Private Client – Chancellor sounds the death knell for the non-dom regime

Over the last week or so there has been increasing speculation that changes would be made to the “non-dom regime”. The announcements by the Chancellor were nonetheless a surprise, and a politically motivated tactic to outmanoeuvre Labour, who themselves had promised to make sweeping changes if they won the next election.

Non-doms currently living in the UK, and those thinking of moving to the UK, will need to consider how the changes may affect them, and keep a close eye on the impact a change in Government may have.

Otherwise, there were not many significant announcements in the personal tax arena which would usually be expected in the run up to an election – although speculation continues as to when that might be.

It is disappointing that the Government continues to ignore the impact of ‘fiscal drag, which could be solved by increasing the various tax thresholds, although perhaps this would prove too costly under a Conservative Government which remains keen to reduce debt. Despite the 2% cut to National Insurance Contributions for the working population, a greater percentage of people are being dragged into higher tax rates because of the freezing of thresholds. This has a real impact on people’s after-tax income. While the Chancellor maintains that he is cutting taxes, in real terms, they have actually increased for many people.

‘Non-doms’

The current regime allows non-domiciled individuals (non-doms) to claim the remittance basis for the first 15 years of UK residence. The remittance basis means that for the first 15 years of UK residence an individual is only taxed on UK income and capital gains – foreign income and capital gains (FIGs) are not subject to UK tax, to the extent they are not remitted to the UK. The remittance basis is essentially free for the first seven years of residence, following which there is an annual charge of £30,000 increasing to £60,000 after 12 years of UK residence.

From 6 April 2025, the concept of domicile will be scrapped, and a new residence-based system will be introduced. A more competitive alternative is welcomed, as are transitional arrangements to allow individuals to bring funds to the UK at preferential tax rates. The key takeaways of the new regime are as follows:

• Individuals who have been non-resident for the previous 10 years will not be taxable on their FIGs for the first four years of UK residence. Their FIGs can be brought to the UK with no UK tax charge.
• Anyone who has been UK-resident for more than four years will pay tax on their worldwide income and gains.
• Transitional rules should allow non-doms to remit FIGs that arose before 6 April 2025 at a preferential UK tax rate of 12%.
• Non-doms who lose access to the remittance basis from 6 April 2025 and are not eligible for the new four-year FIG exemption, will benefit from a 50% reduction in their personal foreign income subject to UK tax in 2025/26.
• UK resident non-doms who have claimed the remittance basis will be able to rebase assets to value at 5 April 2019, such that for disposals after 6 April 2025 only the increase in value from 2019 will be subject to UK capital gains tax.
• The current protections afforded to non-resident trusts will be removed for all FIGs arising after 6 April 2025. FIG that arise before 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than four years.

Inheritance tax (IHT)

Under the current regime, no IHT is due on non-UK assets until a non-dom has been UK resident for more than 15 out of the previous 20 years. While no immediate changes have been made in relation to IHT, there will be a consultation on moving IHT to a residence-based regime as well, with an initial indication that after 10 years of UK residence an individual will be subject to UK IHT on worldwide assets.

The Government have confirmed that non-UK assets settled into trust by a non-dom prior to 5 April 2025 should continue to be protected from UK IHT.

Overseas Workday Relief (OWR)

OWR, whereby eligible individuals are only taxed on their UK workdays for the first three years of UK residence, will be retained and simplified under the new regime.

High Income Child Benefit Charge (HIBC)

After several years of campaigning, the Government seems to have at last listened to feedback and is proposing changes to rectify the unfairness of the current system whereby child benefit is clawed-back where one partner’s income is more than £50,000 (and fully clawed back where income reaches £60,000). This means that both partners can earn £49,000 (or household income of £98,000) and still receive the full child benefit. Whereas if one partner earns £60,000, the full child benefit is clawed back.

A new household income system will be introduced from April 2026. In the meantime, from 6 April 2024 the threshold will be changed so that child benefit will not be clawed back until one partner’s income reaches £60,000 and not fully withdrawn until income reaches £80,000.

National Insurance Contributions (NIC)

Following on from the Autumn statement, a further cut to NIC was announced with effect from 6 April 2024 with Class 1 employees NIC being reduced from 10% to 8% and Class 4 NIC (paid by the self-employed) reducing from 8% to 6%. Employees earning £75,000 will save a further £754 a year. This news will be welcomed by the working population.

UK ISA

A new ISA, with a £5,000 allowance, will be introduced in addition to existing ISA arrangements. The Government will consult on the details so we should expect further developments in this area.

Corporate Tax

It’s no great surprise that there were more announcements relevant to individuals than companies – the Government is trying to influence voters at the next election, after all. Even so, it still comes as a disappointment that more wasn’t done to support British businesses.

The Chancellor repeatedly mentioned “lower taxes, higher growth” during his statement but UK corporates are still at the shallow end of the dream pool when it comes to seeing any sort of tax cut. The fiscal drag, so often mentioned in connection with individuals, also applies to corporates and there was no increase to the threshold at which UK corporates become subject to the 25% Corporation Tax rate (£250,000) or the small profits rate threshold (£50,000). This means as businesses grow, even if only in line with inflation, more and more corporates will be paying tax at 25%. In addition, the quarterly instalment payment regime applies to companies with taxable profits in excess of £1.5m (with complex rules where the company is part of a group) and this threshold has remained at the same level for decades.

The cut in Employee’s NIC will be welcomed by every worker in the UK, but again Employer’s NIC rates were left unchanged at 13.8%. The cost of employment in the UK, including Employer’s NIC, auto-enrolment pension contributions and the Apprenticeship Levy, continues to be a barrier to greater employment and growth for UK businesses.

To the extent that corporate measures were announced, the film industry is the clear winner. The introduction of a new Independent Film Tax Credit (IFTC) will allow qualifying British films with a production budget of £15 million or less to claim the Audio-Visual Expenditure Credit (AVEC) at an enhanced rate of 53%, rather than the standard 34%.

In addition, the AVEC rules will be amended to remove the current 80% cap on UK visual effects expenditure, the credit rate for UK visual effects costs in film and high-end TV will increase from 34% to 39% (although this increase will not be available to films where the new IFTC is claimed), and eligible UK film studios will be able to claim a 40% relief on their business rates until 2034. The first two of these measures will be introduced with effect from 1 April 2025; the third from 1 April 2024.

The existing tax reliefs for theatres, orchestras, museums and galleries will be extended beyond 1 April 2025 at permanent rates of 40% and 45%. It was previously expected that Theatre and Orchestra Tax Relief rates would be reduced after 1 April 2025, and that Museums and Galleries Exhibition Tax Relief would be phased out entirely from 1 April 2026.

Otherwise, there was little to nothing of interest for UK corporates – perhaps with the exception of the property tax measures noted below, and the fact that the Government will look to extend the ‘full expensing’ capital allowances regime to plant and machinery held for leasing, with draft legislation expected shortly.
On the other hand, stability in the UK Corporation Tax regime will be welcomed by business owners and advisors, not to mention Corporation Tax software developers.

VAT and Duties

The VAT registration threshold will increase from £85,000 to £90,000 with effect from 1 April 2024, and the deregistration threshold will rise from £83,000 to £88,000. This may be of minor benefit to some businesses that are disincentivised to grow their turnover above the registration threshold. However, it still doesn’t address the ‘cliff edge’ to VAT registration, which can have a huge impact on businesses that have a ’one off’ transaction that pushes them over the registration threshold, and arguably a £5,000 increase, the first for many years, is still woefully too little too late. It would be great to see the turnover for VAT registration purposes measured over a longer period of time, to ensure only businesses that have sustainably grown over a number of years are pulled into VAT registration.

Although the freeze on Alcohol Duty is welcome, the pricing pressure on retailers and wholesalers remains higher from other sources such as staffing, utilities and rent. All these factors cause alcohol prices to rise at the point of sale to the customer regardless of any duty freeze. Alcohol distillers and brewers will almost always pass on their excise cost to the customer and if they export their products the excise duty can be drawn back at the point of departure from the UK. Hence, little impact to the status quo and it simply holds back any Government-induced inflationary pressure.

As with alcohol, prices of fuel are fluctuating and retailers and wholesalers are still being criticised by consumer groups for not reflecting falls in wholesale prices quickly enough. Hence, a freeze is welcome as it does not cause inflationary pressure but, because prices are still relatively volatile, end use consumers likely do not see the benefit.

The introduction of an excise duty on vaping products follows the often-criticised practice with tobacco products: taxing things that are known to be harmful. Given the rise in younger people using vapes as fashion accessories, and their detrimental health effects, an excise duty seems an odd choice. Expectation was that more punitive action on the vaping industry would be taken. Instead, we take more money out of the pockets of the consumers that are least likely to be able to afford the products.

Property Tax

A reduction to the rate of Capital Gains Tax (CGT) on disposals of residential properties by individuals on or after 6 April 2024, from 28% to 24%, will come as welcome and unexpected news, even if it does now mean that we have five different rates of CGT. So much for the simplification of the tax system.

On the other hand, two measures introduced in the Budget will come as a significant disappointment to residential property investors.

First is the announcement that Multiple Dwellings Relief (MDR) from Stamp Duty Land Tax (SDLT) will be abolished for transactions with an effective date on or after 1 June 2024. MDR previously provided a lower rate of SDLT where two or more dwellings were acquired as part of a single transaction. Contracts that exchanged before 6 March 2024 but complete after that date may still qualify for MDR. This appears to be a response the use of this relief by buyers of large homes with annexes to reduce their SDLT bills. It is also potentially an effort to level the playing field between private buyers and ‘Buy to Let’ investors who were the other major beneficiaries of this relief. However, acquisitions of six or more dwellings will continue to enjoy the lower, non-residential rates of SDLT, meaning larger BTL investors will continue to benefit.

Second is the abolition of the Furnished Holiday Lets (FHL) regime with effect from 6 April 2025. The short-term letting of FHLs is currently classified as a trade for tax purposes, allowing beneficial tax reliefs to be claimed on disposals of such businesses. In addition, FHLs benefit from capital allowances (which are not otherwise available to residential properties) and an ability to deduct all interest paid on mortgages on the properties. Details of the transitional arrangements are not yet available, but it is clear that investors in FHLs will only have one year in which they can continue to claim all the deductions against their rental income. The Chancellor has closed the door immediately on the favourable tax treatment on the sale of a property sold – for sales on or after 6 April 2025, sellers will not be able to claim Business Asset Disposal Relief, which can reduce the tax rate to 10%, and will instead need to budget for a tax rate of 24%.

Would you like to know more?

If you have any questions about the Government’s Spring Budget and how it may impact you, please get in touch with your usual Blick Rothenberg contact Tom Goddard using the details on this page. For any media enquiries, please contact David Barzilay.

You can also visit our Budget Hub, where you can find our commentary and a range of insights to help you better understand how the Budget may affect you.