Budget Reaction
With a 2024 election looming, the budget presented by Jeremy Hunt today, was seen as the last chance for the Conservatives to turn their polling around. We dive into the changes that have been announced and what effect they will have on you.
VAT
The VAT threshold has been increased from £85,000 to £90,000. This is the first increase to the threshold in seven years. The speculation that this would be raised to £100,000, to reflect the higher rates of inflation for the last few years.
As dentists are outside of the scope for VAT, this will not affect your business. Provision of private facial aesthetic treatments are seen as VATable supplies, so this is slightly good news for any aesthetic practitioners who are nearing the top rate.
Furnished Holiday Lets
The chancellor announced that he would be abolishing the furnished holiday lets regime. The furnished holiday let regime allows you to treat the holiday let as a business rather than an investment as is currently the case for residential properties.
There are tax advantages of a furnished holiday let as you can:
- Claim 100% of mortgage interest against profits. This is only a 20% tax credit for residential rentals.
- Capital allowances can be claimed on the purchase of assets for the properties. For residential properties you can only claim the expense when an asset is replaced in the property.
- As a furnished holiday let is a trading business you could claim capital gains tax relief on the sale. This let you take advantage of business asset disposal relief, rollover relief and gift hold-over relief. These reliefs either delay the payment of capital gains tax or reduce the rate you pay to 10%. As the holiday let will now be viewed as an investment, these reliefs will not be available.
Non-Dom Status
The non domiciliary status is a fairly niche part of tax law which allows people who live in the UK, but keep their permanent address abroad to only pay tax on their UK income. If you were deemed resident in the UK you would have to pay tax on your worldwide income, with relief for any taxes paid in other countries.
The chancellor has pledged to abolish this system from April 2025. New arrivals in the UK wont be required to pay tax on worldwide income for the first 4 years they live in the UK. If they are still in the UK after this point, they will pay the same taxes as UK residents.
Capital Gains Tax
The chancellor has announced that the highest rate of capital gains tax for the sale of residential properties will be cut from 28% to 24%. The tax is levied against second homes as your primary residence is covered by principal private residence relief, which means you will in general not pay any capital gains tax, if you have lived continuously in the property you have sold.
For the sale of second homes or rental properties, you are charged according to your other income for the year. For any of your gain that falls into the basic rate band, current threshold of £50,270 (unchanged from prior years), you are taxed at 18%. For any gain above this you are now taxed at 24%.
As the annual exempt amount for capital gains tax has been reduced from £12,300 in 2022/23 to £6,000 in the 2023/24 tax year, more of your gain will be taxable. Along with the freeze in thresholds for the higher rate, this will result in more of the gain being taxed at the higher threshold, which is now 24%.
National Insurance
Despite the national insurance being increased in November 2022 by 1.25%, Jeremy Hunt has aimed his tax cutting at the national insurance, first decreasing it by 2% for employees in January 2024. With an additional 2% reduction being announced in the budget to bring the threshold to 8% for employees.
Class 4 national insurance, that is paid by the self employed has been decreased from 9% to 6% from April 2024.
Child Benefit
Despite speculation there would be changes to the rules regarding the high income child benefit charge in the Autumn Statement, we did not see any changes. The chancellor has looked at this policy again and has raised the threshold that you start repaying the benefit from £50,000 to £60,000. He has also announced that instead of repaying 1% of the benefit for every £100 you are over the threshold, you now only repay 0.5%. This means that child benefit will be fully repayable if your income is above £80,000.
The chancellor has also pledged to look at reevaluating the child benefit system, so that it is based on household income rather than the highest earner. Under the current system with the updated thresholds, if you earn £80,000 and you partner earns nil, you would have to repay 100% of the child benefit received. A couple where they both earnt £60,000 each and had a combined household income of £120,000 would not have to repay the benefits.
Threshold Freezes
There were some notable exceptions from the budget, including the freezing of the income tax thresholds. The personal allowance has been kept as follows:
- Personal Allowance up to £12,570 – 0% tax rate
- Basic Rate £12,571 to £50,270 – 20% tax rate
- Higher Rate £50,271 to £125,140 – 40% tax rate
- Additional Rate Over £125,140 – 45% tax rate
Due to the high inflation seen in the UK over the last few years, this has pushed earnings into higher rates of tax. A phenomenon that is known as ‘Fiscal Drag’.
There was also no mention of changes to the pension annual allowance, and so we are assuming this is remaining at £60,000 for the 2024/25 tax year.
