March 2024 Budget – Planning Considerations
The good news is that the value of gilts and pound sterling haven’t crashed in the hours following the budget, so the first bar for recent budgets has been cleared (in fact there has been little response at all from markets).
Rather than simply rehash all the points from the budget, we’ll focus on a few items that may have potential planning implications for our clients to consider.
National Insurance Cut
The headline announcement from the budget was a 2% reduction – from 10% to 8% - in the main rate of National Insurance Contributions. Whilst this is a welcome reduction for employees, it is unlikely to change business owners’ remuneration plans.
This is because the reduction in National Insurance impacts earnings at the basic rate (between £12,570 and £50,270) where dividends will remain more attractive than salary, although the 2% rate cut does narrow the gap further.
This is a topic discussed at length in our blog, Salary vs Dividends for Business Owners in 2023/24. Below we’ve updated the table showing the effective rates of tax on a business owner drawing £1 of trading profit personally for 2024/25.
The rates are at the margin, on each additional £1 drawn within the respective tax bands. It includes the impact of Income Tax, NICs (personal and employer) and Corporation Tax. The rates are those applicable above the primary threshold and dividend allowance (assuming these are drawn first). Dividends are considered for the three potential rates of Corporation Tax (19% small profits, 26.5% marginal and 25% main).
Important note: the above table considers the three listed taxes only and is based on drawing current year trading profits. It doesn’t consider any other sources of personal income, benefits or allowances.
British ISA
This is a new type of ISA for investing in UK equities. The ISA will have an allowance of £5,000 per tax year, which will be in addition to the standard £20,000 ISA allowance, allowing a total of £25,000 p.a. to be placed into ISAs. The aim of the new ISA is to increase investment into UK shares.
We will have to wait for full details as the government is now going to consult with industry over how to implement the plans. Once products are available, we will likely begin utilizing this additional allowance for the majority of our clients.
An important point is we will not need to increase allocations to UK shares – this investment decision should not be driven by tax considerations – as we will simply be able to reorganise where UK assets are held, diverting them from other accounts to the new British ISAs where appropriate – sorry Mr Hunt.
Of course, if the chancellor was serious about driving increased investment into UK shares he would have scrapped the absurd 0.5% Stamp Duty Reserve Tax (SDRT) on UK share purchases – an international anomaly – rather than this political stunt.
Child Benefit
Currently Child Benefit is clawed back via a tax charge for those earning between £50,000 and £60,000 per tax year (with 1% of Child Benefit due back in tax for each £100 of income over £50k). The tax charge applies at an individual level, rather than household, with the tax charge based on the higher earner.
The thresholds are being increased, so the Child Benefit tax charge will apply to those earning between £60,000 and £80,000 (with 1% due back for each £200 of income over £60,000).
This could see parents earning £50,000 to £80,000 benefit. Those earning £60,000 - £80,000 may have cancelled claiming Child Benefit to avoid having to pay it all back in tax every January. They may now wish to claim Child Benefit once again.
A possible area of planning comes from the definition of ‘Adjusted Income’ used for calculating whether the tax charge applies; pension contributions reduce adjusted income. This may make pension contributions particularly attractive for those earning £60k - £80k, as they will regain Child Benefit on top of the higher rate (40%) tax relief.
This could also impact legacy plans for parents of adult children, who may consider gifts to fund pension contributions for their children’s retirements, who would also allow their children to reclaim Child Benefit.
Furnished Holiday Lettings
The current regime for short-term lets will be abolished from the 6th April 2025. This may lead those owning second properties using the regime to review their plans ahead of this date.
Firstly, owners may wish to review their expenses on such a property, to make sure all capital allowances have been claimed before April 2025.
Some owners with properties on large gains may give thought to selling their properties over the next year, whilst able to benefit from the potential 10% Capital Gains Tax (CGT) rate whilst possible.
Non-Domiciled Status
As trailed prior to the budget, non-domicile status has been abolished (at least for income tax purposes). We currently don’t have any clients who will be impacted by this, so have not considered it in great detail, but those with non-domicile status (certainly those claiming the “remittance basis” for foreign income) will more than likely want to review their plans.
Inheritance Tax (IHT) and Pensions
Despite all the rumours over the past 6 months, no changes were made to IHT. This was also a rare budget where no changes were made to pensions legislation. We will await Labour’s first budget for that, when the Lifetime Allowance is expected to be reintroduced following its surprise axing a year ago.
Summary
This was not a particularly dramatic budget, with few people significantly impacted one way or another (non-doms and owners of multiple Furnished Holiday Lettings being the most obvious exceptions). The most common action arising for our clients will likely be to make use of the British ISA allowance, once that’s finalised and available.
If you would like to discuss any of the issues raised or need any help reviewing your wider financial picture, please don’t hesitate to get in touch and we’d be happy to see if we can help.
Disclaimer:
The above is provided for general information only. No action should be taken without seeking advice for your specific circumstances. Collingbourne Wealth Management does not provide tax advice. All information is based on our understanding of current tax rules as at the time of writing, which can is subject to change. Care has been taken to ensure the accuracy of content, but no responsibility is accepted for any errors or omissions.
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