Property companies don’t always turn a profit. We explore what you can and can’t do when it comes to using losses to reduce your tax bill and the intricate rules around this.
March Newsletter 2024 Budget Special
7 March 2024
Accounting & Compliance, Building & Construction, Building a Business, Property Investors & Developers, Property Owners, Reducing Tax, Structuring a Business
The high-income child benefit charge
In an effort to reduce unfairness, the thresholds for the high-income child benefit charge (HICBC) will be increased from 2024/25.
You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child.
If you are living with another person in a marriage, civil-partnership or long-term relationship, you will only be liable to HICBC if you are the higher earner of the two of you.
| 2024/25 | 2023/24 | |
| Child benefit ‘high-income’ threshold | £60,000 | £50,000 |
| Income level at which child benefit is fully clawed back | £80,000 | £60,000 |
From 2024/25, the HICBC will be calculated at 1% of the child benefit received for every £200 of income above the threshold.
This is a slower rate of claw back than in 2023/24 and now means that child benefit is only fully clawed back where income exceeds £80,000, rather than £60,000 in 2023/24.
The HICBC does not apply if the child benefit claimant opts out from receiving the payments.
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.
For example
Disregarding for this purpose the other changes announced in the Budget, if we take a couple claiming child benefit in respect of two children and the higher earner earns £70,000, the household will be £1,106 better off than if the threshold had not been increased.
If the higher earner instead earns £60,000, the household will be £2,212 better off in 2024/25 and the higher earner will not be required to submit a self-assessment tax return in respect of the HICBC.
New UK ISA
Interest received in an ISA continues to be exempt from tax.
The limit on how much you can save into ISAs (including cash and stocks and shares ISAs) in 2024/25 remains at £20,000 overall.
The Chancellor did announce that the government will introduce a new ‘UK ISA’ with an additional allowance of £5,000 a year but this is subject to consultation, and we do not yet have a start date.
National Insurance Reduction
For employees
As announced in 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%.
What does this mean?
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.
For 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.
For the 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.
What does this mean?
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.
Just 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.
The VAT threshold increases
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 Reduction
Annual exemption
The capital gains tax (CGT) annual exemption will drop to £3,000 in 2024/25, down from £6,000 in 2023/24.
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 falling outside of their basic rate band.
This measure is intended to generate more transactions in the property market, benefitting those looking to move home or get on the property ladder.
Remember, for property disposals that give rise to CGT, tax payment and reporting obligations can arise just 60 days after your completion date so make sure you take advice in good time.
The Furnished Holiday Let Regime – Abolished!
If you let out residential or commercial property, the profits are taxed as part of your ‘other income’.
If you sell property that has been rented out, capital gains tax is likely to apply. Generally, rental business activity attracts fewer tax reliefs than trading ventures.
However, if a residential property meets the strict definition of a ‘furnished holiday let’ (FHL), enhanced tax relief rules are currently available.
What is next?
It has been announced in the Budget that, from 6 April 2025, the concept of FHLs and their beneficial tax treatment will be abolished.
Going forward, profits from FHLs will be taxed in the same way as any other rental property profits.
Own a FHL?
If you own FHLs this will be disappointing, especially the loss of your possible claim to ‘Business Asset Disposal Relief’ on any future sale.
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 for a more detailed analysis of how the withdrawal of the FHL status will affect you.
Changes to domicile and residency
Significant tax changes have been announced for individuals resident in the UK but not permanently settled here (known as non-domiciled).
While individuals resident and domiciled in the UK must pay UK taxes on their worldwide income and capital gains, it is possible for UK resident but non-domiciled individuals to claim a ‘remittance basis’ of taxation for overseas income and capital gains.
In return for paying a remittance basis charge of up to £60,000 a year, non-domiciled individuals are able to shelter their overseas income and capital gains from UK taxation, as long as they do not bring (remit) those monies to the UK.
Changes
The remittance basis of taxation will be abolished from 6 April 2025.
It will be replaced with a simpler residence-based regime and new arrivals to the UK will not pay UK tax on their overseas income and gains for their first 4 years of UK residence.
Inheritance Tax
In addition, inheritance tax rules apply to the worldwide assets of a UK-domiciled individual but, broadly, just to the UK assets of a non UK-domiciled individual.
The non-domicile rules for inheritance tax are also likely to move to a residence-based regime from 6 April 2025 but the government plans to consult on options.
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.
Stamp Duty Multiple Dwellings Relief – Abolished!
Multiple Dwellings Relief (MDR) is a relief currently available when buying two or more dwellings in a single transaction or series of linked transactions.
MDR is to be abolished for purchases of residential property in England and Northern Ireland with an effective date on or after 1 June 2024.
Transitional rules apply to the abolition, so that MDR can still be claimed in some situations where contracts were exchanged on or before 6 March 2024, regardless of when completion takes place.
