Budget 2024: How does it affect me?

Chancellor Jeremy Hunt announced numerous tax cuts across various sectors today in order to “help families not just with cost of living support but with permanent cuts in taxation”, as well as “budget for long-term growth”.

The announcement brought about a number of changes to personal tax affairs, as well as other changes to legislation elsewhere. We have highlighted some of the key aspects that impact our clients.

National insurance rates cut by 2% for employees and self-employed individuals.

Employees

From April 2024, employees will see their Class 1 national insurance rate cut from 10% down to 8%. This means that an employee with a salary of £30,000 can expect to save around £349 in national insurance contributions each year.

Back in January 2024, the Class 1 national insurance rate for employees had already dropped from 12% to 10%. If we combine both of these national insurance cuts, an employee earning £30,000 will have an additional £697 take-home pay on an annual basis. Higher earners will have up to an additional £1,508 take-home pay.

Self-employed

Self-employed individuals are not subject to Class 1 and Class 1a national insurance. Instead, self-employed individuals may be liable to Class 2 and Class 4 national insurance.

At the moment, Class 4 national insurance is due on trade profits where income is over £12,570 at 8%. This then drops to 2% once income exceeds £50,270. However, from April 2024, Class 4 national insurance will drop from 8% to 6% This is very similar to Class 1 national insurance for employees where the rates from April 2024 will be 8% and 2% respectively.

Reduced the higher rate of Capital Gains Tax on property sales from 28% to 24%

The higher rate of Capital Gains Tax (CGT) on residential property is set to reduce from 28% to 24% from April 2024. The basic rate of CGT on residential properties remains at 18%.

CGT rates on non-residential properties also remain at 10% (basic rate) and 20% (higher rate).

Abolishment of Furnished Holiday Lettings relief

It was decided that because there were certain tax advantages to properties being let out as furnished holiday lets (FHL), property owners were more incentivised to let properties out as holiday lets, as opposed to long-term rental properties. It is claimed that this had a detrimental impact on some of the housing issues for individuals, as well as a negative impact on the economy of local communities, especially coastal areas.

As such, the FHL relief has now been abolished from April 2025.

VAT threshold increased to £90,000

The VAT threshold has remained at £85,000 since the 2017-18 tax year. It was set to be frozen until March 2026. However, it was announced in the budget that the VAT threshold will increase to £90,000 from 1 April 2024.

Reformed the high-income child benefit charge

As it stands, the high-income child benefit charge applies where an individual earns over £50,000. For every £100 earned over £50,000, they will be required to pay back 1% of their child benefit entitlement. This means that once that individual earns £60,000, 100% of the child benefit entitlement will be “charged” back i.e. the child benefit entitlement is lost.

The pitfall to this approach is that you could have a couple that both earn £49,000. They would both be below the £50,000 threshold and as such would not be charged at all on the child benefit entitlement, despite having a household income of £98,000. Whereas a single parent living alone may earn £60,000, but is not entitled to any of their child benefit.

In an effort to even the playing field, the government will look to introduce a system based on household income instead by April 2026. However, as this will take some time to implement, they have increased the current threshold effective 6 April 2024:

• High-income child benefit charged threshold increased to £60,000.

• Taper of the charge increased to £80,000 (£10,000 more than in the previous regime).

This means that individuals will not lose any of their child benefit entitlement until their earnings are over £60,000, and will not lose it completely until earnings exceed £80,000.

Hire companies and full expensing: Progress made but uncertainty still looms

What is full expensing?

Full expensing allows companies to write off 100% of the cost of buying plant and machinery, equivalent to up to 25% tax saving for capital expenditure.

However, this only applies to companies investing in machinery for their own use. It does not apply to hire companies that lease their machinery to end-users, which is the model for most of the construction industry.

So what now for hire companies?

Jeremy Hunt promised to produce draft legislation within the next few weeks that will extend full expensing to assets for leasing. In simple terms, he expressed that he would like to extend full expensing to leasing companies. However, this will be later announced when it becomes affordable to do so.

N.B.

Businesses are entitled to claim the Annual Investment Allowance (AIA) which offers the same benefits as full expensing for the investments it covers (up to £1 million per year). There is no restriction on whether hire companies lease their machinery to end users when using AIA.

Other announcements included

• Abolished multiple dwellings relief on SDLT

• Introduced brand-new ISA which allows an additional £5,000 annual investment

• Abolished the non-dom status

• Introduced duty on vaping products from October 2026 plus one-off increase in tobacco duty to ensure vaping remains cheaper

• Frozen the fuel duty for the 14th year in a row for another 12 months, maintaining the 5p cut

• Extended the alcohol duty freeze until February 2025

• Made tax reliefs for orchestral productions permanent

• £1bn in additional tax relief for creative industries over the next five years 

• Extended the windfall tax on oil and gas