PBATS Budget Analysis – March 2024

“As we predicted, for individual taxpayers, the budget was very encouraging.”

National Insurance

The further reductions in National Insurance following those already announced in the Autumn Statement will make a noticeable difference to the net pay of individuals, especially those who will also benefit from the increase in the National Living Wage from April 2024.

High Income Child Benefit Charge

The increase in the High Income Child Benefit Charge (HICBC) threshold to £60,000 will ensure hardworking parents already paying higher rates of tax are not further penalised for earning more than £50,000 (the previous threshold) and having to pay some or all of the Child Benefit back. 

Under the previous system, a parent earning £60,000 with three children would pay £4,000 tax on wages between £50,000 and £60,000 and have to repay £2,900 child benefit claimed, resulting in a total payment to HMRC of £6,900 and an effective tax rate of 69%. Under the new system in the above scenario, the effective rate of tax is 40%.

With these factors, it seems to be a well-thought-out budget to motivate individuals to work harder without the fear of being highly taxed both directly and indirectly and not making their hard work worthwhile. It should also further motivate individuals to fill the reported 932,000 job vacancies available in the UK at the end of January 2024.

Businesses

VAT threshold

We also predicted the increase in the VAT threshold. The VAT threshold has been increased from £85,000 to £90,000. This should inspire businesses and stimulate growth. I often work with sole traders and small limited companies who are discouraged from taking their businesses to the next level due to concerns over having to register for VAT, which brings with it administrative and commercial burdens. 

Although a £5,000 adjustment to the threshold doesn’t appear much, this will keep an estimated additional 28,000 businesses outside the VAT threshold, which should encourage businesses to spend more, employ more, and stimulate growth.

So, how will these tax cuts be funded?

Furnished Holiday Lets

The furnished holiday lets preferential tax regime will be abolished from April 2025. This will remove the current tax advantage for landlords who let short-term furnished holiday properties over those who let out residential properties to longer-term tenants.

Capital Gains Tax

It is thought that the reduction in the Capital Gains Tax on residential properties from 28% to 24% will generate more tax as it will encourage those property owners who may have been reluctant to sell previously (at a 28% tax rate) to sell at the reduced rate. Personally, I am not convinced that a 4% reduction is such a significant incentive to sell.

So, what might we see in the future?

This budget definitely had a strong political spin on it and favoured individuals over businesses. Perhaps this is just the start of heavier taxation for Non-domiciled residents? Could we be heading towards single taxation for individuals and moving away from the current tax and national insurance regime? 

As always, much depends on the Bank of England’s decision on interest rates, which affects mortgages and lending rates, so we will watch with interest the impact of this budget on interest rates.

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