What can we expect in the Chancellor’s spring Budget?
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
21 February 2024
Ahead of Budget day on 6 March 2024, we consider what may be in Jeremy Hunt’s spring Budget.
The spring Budget on Wednesday 6 March may be Jeremy Hunt’s last fiscal event before a UK general election so it’s likely there will be new tax announcements, many of which could take effect from the new tax year on 6 April 2024.
Despite it being expected to be light on tax announcements, the autumn statement on 22 November 2023 saw the reduction in Class 1 employee’s National Insurance (NICs) and Class 4 NICs rates, the effective abolition of Class 2 NICs for the self-employed, the announcement on capital allowances full expensing for companies being permanent and confirmation of the new research and development (R&D) regime from April 2024. It seems unlikely that there will be any significant announcements in these areas.
Tax simplification
The Chancellor has an opportunity to achieve better tax simplification in his Budget. ICAS strongly supports simplifying the tax system, because we believe that complexity increases the costs and time spent, and hinders transparency.
Recent fiscal changes, including freezing of thresholds, reducing the dividend allowance and reducing the capital gains tax annual exemption have increased the number of taxpayers who need to register for income tax self-assessment. Taxpayers with rental income covered by the personal allowance still need to submit a tax return, even though they don’t have to pay income tax. To avoid similar issues in future, we want to see a regular review of exemptions for small amounts of income/gains and these should be increased/indexed so that they are not eroded over time.
Simplifying the tax system, and introducing long-term tax planning will create certainty for individuals and businesses, which is key to driving sustained economic growth.
Raising of tax thresholds
Another possibility could be to revisit the UK higher rate income tax threshold, which is currently £50,270. This would create disparity with the Scottish Budget as announced before Christmas 2023, which introduced a sixth tax band with effect from 6 April 2024 of 45% known as the advanced rate, applicable to “non-savings, non-dividend” income between £75,000 and £125,140. As well as the increase in the top rate to 48%, the Scottish higher rate income tax threshold remains frozen at £43,662, so any increase in the UK higher rate threshold will make the disparity between the Scottish and UK rates and thresholds potentially more punitive to the Scottish taxpayer, not only in terms of income tax but also marginal rates created by the NICs anomaly whereby primary and secondary NICs thresholds mirror UK basic and higher rate thresholds.
High income child benefit charge
We hope the Chancellor at least increases the high-income child benefit charge (HICBC) threshold, which has remained at £50,000 since it was introduced in January 2013, but would welcome much wider reform.
HICBC is often seen as an unfair tax charge, as it can put added strain on single parent households and households where one taxpayer has net income above £50,000 and the other adult in the household has a low income. A single parent with an income of £60,000 would have all their child benefit withdrawn via HICBC. However, a two-adult household with a higher overall household income would receive full child benefit, as long as neither taxpayer has an individual income of more than £50,000. An increase in the threshold would address what has been a stealth tax on middle income earners (as wage inflation since 2013 has brought more taxpayers into HICBC) could have a significant and positive impact on struggling families’ finances.
Reforms to inheritance tax
Given there were no changes to inheritance tax in the Chancellor’s autumn statement, this has raised speculation that there could be some increase in the inheritance tax threshold, particularly given the increasing property values in the South of England. Immediately before the autumn statement, there was talk of abolishing the tax completely, which the Institute for Fiscal Studies estimates would cost £7 billion.
Abolition of inheritance tax seems unlikely, given that most estates do not currently pay inheritance tax, so this would only affect the wealthiest of families in the UK. But there is certainly a possibility of an increase in threshold.
The Chancellor may also wish to consider simplification measures such as merging the nil rate band and residence nil rate band, so that it is no longer necessary for an estate to include a residence being left to a direct descendant in order to qualify for a combined nil rate band of £500,000 (£1 million per couple).
Clarity on the tax treatment of double cab pickups
Following the announcement on 12 February 2024 that the benefit in kind rules and capital allowances rules on double cab pickups were going to be changing in July 2024 so that most double cab pickups would be treated as cars, this provoked a strong reaction from the agricultural and automotive sectors as well as from professional bodies, including ICAS. The Financial Secretary to the Treasury, Nigel Huddleston, then announced an update on 19 February 2024 stating that the existing one tonne threshold would continue to apply for employment tax benefit in kind and capital allowances (consistent with the VAT position).
The updated announcement confirmed that only double cab pickups with a payload of less than one tonne will continue to be treated as cars. However there was a commitment to “change the law at the next available Finance Bill in order to avoid tax outcomes that could inadvertently harm farmers, van drivers and the UK’s economy.”
We therefore expect some form of announcement to be made at the spring Budget clarifying the precise treatment in the tax legislation instead of HMRC guidance.
Clarifying the tax treatment of land management schemes
ICAS is a member of the Natural Capital Working Group, which has been looking into the areas where greater clarity is needed on how environmental land management schemes are taxed. We believe that it is important that there's no tax disadvantage for businesses to participate in such schemes.
We responded to the government consultation on this back in summer 2023, but there were unfortunately no announcements on this in the autumn statement. Along with the Association of Taxation Technicians and the Law Society of Scotland, we wrote a joint letter to the Financial Secretary to the Treasury expressing concerns about the delay in progressing a consultation on the taxation of natural capital.
Ambiguity surrounding the tax treatment of environmental land management schemes including the woodland carbon code and peatland code is hindering the ability of land managers to engage with a range of environmentally beneficial schemes. This affects not only the UK’s ability to achieve its net zero goals by 2050, but also has direct impact on areas such as house building, where developers must meet obligations in respect of Biodiversity Net Gain (BNG) and nutrient neutrality before development can commence.
We are therefore anticipating that the Chancellor may announce the government’s response in the spring Budget, so that businesses considering investing in environmental land management schemes can have the clarity in tax treatment that they so desperately need.
Whatever the Chancellor announces, the ICAS tax team will be reviewing the details to identify the impact on our members and their clients.
Let us know your views
We welcome your views, which help inform our work on consultations or other tax-related matters. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
Please email tax@icas.com to share your insights and feedback.
