'Key Budget takeaway was many people will end up paying more tax'

As with the Autumn Statement, the key takeaway was that despite tax cuts in certain areas, many people will end up paying more tax overall next year.

The Institute for Fiscal Studies estimates that by 2028, the UK’s tax burden will hit its highest levels since the second world war.

The main reason for this is the ongoing process of fiscal drag, whereby the current freeze on income tax thresholds and allowances pushes people into higher tax brackets.

As a result, the number of people paying tax at 40 per cent has increased by 40 per cent in the past three years.

For employed and self-employed workers 

Following a similar move in the Autumn Statement, the headline tax cut was a further 2 per cent reduction in the main rate of national insurance.

This latest cut represents a saving of £448.60 next year for a worker earning £35,000. However, the benefit of this tax cut is capped at £754 per year, which is the amount that will be saved by earners on more than £50,270 a year.

Targeting national insurance was a more affordable option for the chancellor than cutting income tax because it is only paid by workers.

It is reported that he had limited headroom for major tax cuts and could be holding back for further pre-election giveaways.

The rate of employer’s national insurance remains unchanged at 13.8 per cent, which is bad news for employers struggling with wage inflation.

Meanwhile for investors, the chancellor announced a new British Isa allowance of £5,000 per year for investment in Britain – pending a consultation on its implementation – in an attempt to boost the UK’s stock markets.

For property owners

On the property taxes front, some owners will benefit from a reduction in the higher capital gains tax rate on residential property, which is set to fall from 28 per cent to 24 per cent.

However, the lower rate of CGT on residential property remains unchanged at 18 per cent.

Landlords who qualify for certain tax breaks on their furnished holiday lets will see these end on April 6 2025.

Furnished holiday lets are properties rented out on a short-term basis. The chancellor noted the need for longer-term rentals in certain areas, particularly for those living in popular UK holiday destinations.

For property purchasers, another tax break – multiple dwellings relief – was abolished in the Budget, impacting transactions that complete from June 1 2024 (except where contracts were exchanged on or before March 6 2024).

The IFS estimates that by 2028, the UK’s tax burden will hit its highest levels since the second world war.

The relief was aimed at purchases of more than one dwelling in a single transaction, but while it did provide a stamp duty land tax saving for some, it also led to several more spurious claims. 

Awareness of the relief was not that high, and the chancellor stated that it had not brought the intended benefits to the rental market, making it a relatively easy revenue-raising adjustment for the government.  

For the non-doms

Finally, one of the most significant and complex changes announced at the Spring Budget was the abolition of the non-domiciled regime from April 6 2025.

The proposed policy is a move away from the long-standing convention of attracting overseas individuals to the UK by allowing them access to the remittance basis of taxation, which will enables them to shelter their non-UK income and capital gains from UK tax, provided those funds were not brought into the UK.

Instead, the chancellor intends the UK to move to a residence-based approach, whereby overseas individuals can come to the UK and not pay tax on their non-UK income and capital gains for the first four tax years of residence.

In that time they can also bring their overseas income and capital gains without paying UK tax. However, if they remain resident in the UK after those four tax years, they will be subject to UK tax on their worldwide income and capital gains.

It is well known that there were political reasons for changing the non-dom regime; however, the proposed changes will also simplify the rules for those coming to and from the UK.

It remains to be seen whether four years is enough of a grace period to attract high-net-worth individuals, particularly for those who want to come to the UK for their children’s schooling.

The other big unknown is how many of the existing non-doms will look to leave the UK before the new rules kick in.

Associated rule changes relating to inheritance tax and trusts have also been suggested, which have the potential for considerable tax implications for those involved.

In the coming months, the movements of wealthy individuals in the UK and the precise wording of the new rules, when published, will be examined closely.

Sam Dewes is private client partner at HW Fisher