Chancellor Jeremy Hunt used his Budget speech last Wednesday 6 March 2024 to abolish furnished holiday lettings relief and the non-dom tax status, allowing him to fund another 2% cut in National Insurance and increase the VAT threshold. He also announced plans to reform the High Income Child Benefit Charge.
We have detailed some of the main changes below.
Furnished holiday lettings
The changes from 6 April 2025 aim to increase long-term rental options for locals and raise tax receipts to help fund National Insurance cuts. It is estimated to raise around £300m from landlords who benefited from the furnished holiday lettings (FHL) scheme.
Properties meeting the qualifying tests for FHLs are taxed under special rules and owners of such properties can access specific tax advantages not available for other lettings, including entitlement to capital allowances, CGT reliefs, and no finance or interest restrictions on loans and mortgages.
The new measures will have far-reaching consequences for owners who have let their properties for holiday rental income and met the criteria set out in the FHL regime. It includes those who might own a single holiday home made available for letting or those who let their properties through Airbnb or similar agencies.
The FHL tax reliefs have only been available for properties which meet a number of conditions including:
- Being let on a commercial basis with the view to the realisation of profit;
- being in the UK or the European Economic Area;
- being furnished for normal occupation with visitors entitled to use the furniture; and
- passing three occupancy conditions relating to the pattern of occupation, how many days it is available for letting in the year and how many days it is actually let for.
While the abolition won’t happen until 6 April 2025, it should be noted that there will be measures in place from Budget Day (6 March 2024) to prevent tax planning steps that artificially accelerate the disposal date of an FHL to a date before 6 April 2025.
Please get in touch if you would like a more detailed analysis of how the withdrawal of the FHL status will affect you.
Non-domiciled status
The government have said that they will abolish the current system for “non-doms”, and replace the regime with a modern, simpler and fairer set of rules.
The remittance basis of taxation will be abolished from 6 April 2025 and new arrivals to the UK will not be required to pay UK tax on foreign income and gains for their first four years of UK residence.
If you are not domiciled in the UK, please talk to us about how the new rules and the transition to them will affect you.
High Income Child Benefit charge
The High Income Child Benefit Charge (HICBC) threshold will rise to £60,000 from 6 April 2024, with full clawback of child benefit only occurring for those with annual income of £80,000 or more.
This is a slower rate of clawback than in 2023/24 and now means that Child Benefit is only fully repayable where income exceeds £80,000, rather than £60,000 in 2023/24.
The Chancellor also announced plans to administer the HICBC on the basis of total household income, rather than the income of the highest earner in the household by April 2026.
If you have previously opted-out then you may wish to consider opting back to receiving Child Benefit from 6 April 2024 if the highest earner in your household has income of less than £80,000.
National Insurance
Jeremy Hunt announced another 2% cut to National Insurance Contributions for employees and the self-employed. However there is no relief for struggling businesses as, once again, the rate of employer’s National Insurance remains unchanged.
Employees
As announced in the Autumn Statement 2023 and in effect since 6 January 2024, the main rate of Class 1 National Insurance Contributions (NICs) has already reduced from 12% to 10%.
In the Budget, the Chancellor cut this by a further 2 percentage points to 8%, taking effect from 6 April 2024.
For 2024/25, this combined 4% reduction will apply to your annual earnings between £12,570 and £50,270. The NIC rate on your earnings above £50,270 a year remains at 2%.
This combined NIC reduction means that someone with employment income of, say, £50,000 will pay £1,497 less NICs in 2024/25 than if the rate had remained at 12%.
Or, to look at it another way, their monthly pay packet will increase by almost £125.
Employers
There have been no changes to the rate or thresholds for employer’s Class 1 NICs, which remains at 13.8% for wages paid in excess of £9,100 a year (£175 per week).
For eligible employers, the employment allowance remains at £5,000 per year, reducing their total employer’s NIC liability by this sum.
Self-employed
Self-employed individuals with profits of more than £12,570 a year pay two types of NIC: Class 2 and Class 4.
Two key changes come into effect from 6 April 2024, as previously announced in Autumn Statement 2023 and further extended in this Budget:
- The main rate of Class 4 NICs will be cut from 9% to 6% in 2024/25. Class 4 NICs will continue to be calculated at 2% on profits over £50,270.
- Class 2 NICs will “effectively” be abolished, saving £179.40 per annum.
This NIC reduction means that a sole trader with, say, trade profits of £50,000 will pay £1,302 less NICs in 2024/25 than will be due for the 2023/24 tax year.
Although Jeremy Hunt describes the Class 2 NIC change as an abolition, the situation is a little more complicated, since those with profits of less than £6,725 may still choose to pay voluntary contributions to ensure contributory benefits including a state pension. Anyone whose profits exceed £6,725 will automatically receive access to contributory benefits.
Be aware that this saving may not be felt until the 2024/25 Self Assessment Balancing Payment is made on or before 31 January 2026.
VAT
From 1 April 2024 the VAT registration threshold and deregistration thresholds will each increase by £5,000 to £90,000 and £88,000 respectively.
The thresholds had previously been frozen at £85,000 and £83,000 since 1 April 2017.
There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.
Capital Gains Tax
Annual Exemption
The capital gains tax (CGT) Annual Exemption will drop to £3,000 from 6 April 2024, down from £6,000 in 2023/24. This was announced prior to the Budget.
This change will mean that those selling capital assets such as property or shares will pay more tax.
Rates
The main rates of CGT remain at 10% for basic rate taxpayers (or those disposing of a business that qualifies for Business Asset Disposal Relief) and then 20% in most other cases.
However, increased rates apply when the asset being sold is a residential property that is not your private residence.
From 6 April 2024, the residential property CGT rate will remain at 18% for basic rate taxpayers but will reduce from 28% to 24% for those with residential property gains which exceed any remainder of their basic rate band.
Remember, for property disposals that give rise to a CGT charge, tax payment and reporting obligations can arise just 60 days after your completion date so make sure you seek relevant advice in good time.
Other changes
The following additional changes were announced, please do contact us if you require further information on these:
- Abolition of multiple dwellings relief on SDLT
- Introduction of brand-new UK ISA which allows an additional £5,000 annual investment
- Fuel duty frozen for the 14th year in a row for another 12 months, maintaining the 5p cut
- Alcohol duty freeze extended until February 2025
- £1bn in additional tax relief for creative industries over the next five years
Whilst we take care to ensure the accuracy of this document, no responsibility for loss incurred by any person acting or refraining from action as a result of this information can be accepted by the firm.
