Personal Finance | 7 March 2024

Budget 2024 – what does it mean for you?

Major reforms for those with ‘non-dom’ status, a new UK ISA, more National Insurance cuts and residential property tax tweaks. Here’s how Chancellor Jeremy Hunt’s Spring Budget might impact our clients.

Chancellor Jeremy Hunt announced he’s changing current tax rules for people who live in the UK but consider their permanent home to be abroad – known as ‘non-doms’ – in his Spring Budget this week.

Broadly, people with non-dom status pay UK tax on the money they earn in this country, but not on money they earn overseas unless they bring it into the UK.

The new system means that, from 6 April, 2025, new UK residents won’t have to pay UK tax on the money they make abroad during their first four years here – even if they bring it into the country. This includes anything they make from foreign trusts. But after those four years, they will need to pay UK tax on their worldwide income.

The scope of UK inheritance tax could also change, subject to a government consultation. Currently, non-doms don’t have to pay inheritance tax in Britain on their assets abroad. But in future, they may have to if they’ve lived in the UK for 10 years or longer. Even if they leave the UK, they could still pay inheritance tax here until they’ve been out of the country for at least a decade.

Should non-doms be worried about the new rules?

Coutts Wealth Planning Specialist Irene Wolstenholme said the changes represented “something of a mixed bag” for non-doms because, while they could create challenges, they could bring opportunities too.

“These are major reforms for people with non-dom status but there’s no need for any immediate action at this stage, especially as they’re not coming into effect until next April,” she said.

“The changes could actually be beneficial for some. For example, there will be a window between 6 April, 2025 and 5 April, 2027 for people who have previously sheltered income and gains elsewhere and want to bring them into the UK. During that period they will be able to do so and pay 12% tax, whereas they could have paid up to 45% under current rules.”

A brand new UK ISA

Mr Hunt also announced a brand new UK ISA on Wednesday – one designed to encourage more people to invest in the country.

The new ISA will allow people to invest an extra £5,000 a year in UK investments and enjoy all the usual tax benefits – with no UK income or capital gains tax paid on any money it makes. This is on top of the £20,000 people can already currently put into their ISAs each tax year.

Irene said this could be seen as good news for anyone putting their money to one side for the future.

“It’s effectively a brand new tax allowance,” she said. “It means more of the money you invest could be eligible for the tax advantages of an ISA.”

 

Lower National Insurance

Other changes announced in the Budget included further National Insurance cuts – the government first reduced the tax in last November’s Autumn Statement. From 6 April:

  • the main National Insurance rate for employees will be cut by a further two percentage points, to 8%
  • self-employed, ’Class 4’ National Insurance, paid on profits between £12,570 and £50,270, will also be cut by another two percentage points, to 6%

As previously announced, ‘Class 2’ National Insurance, which is also paid by the self-employed earning over a certain amount, will be abolished. That change, again, will come next month.

The Chancellor also signalled that the government wants to make further reductions when it can.

New property rules – good for sellers, bad for holiday homeowners

There was good news for people selling residential property, although some might say it was offset slightly by a couple of specific tax reliefs being scrapped.

The Chancellor said the government would reduce the higher rate of property capital gains tax – the amount you’re taxed on the profit you make from selling a residential property that isn’t your main home – from 28% to 24%.

But he also removed a couple of tax breaks that benefit those who rent out holiday homes – the Furnished Holiday Lettings regime and Multiple Dwellings Relief, a stamp duty relief for those who buy more than one place at once.

What was the Budget’s impact on investment markets?

…minimal, in a word. Markets were largely unmoved immediately afterwards, although there was a small share price bump among smaller UK firms in light of the new ISA aimed at British business. Sterling also rose slightly against the dollar, but not by much.

Lilian Chovin, Head of Asset Allocation at Coutts, said, “Most of the announcements were well sign-posted, there was no ‘rabbit in the hat’, there were no surprises, so we didn’t see a major market reaction.”

More generally, compared to other developed markets, UK stocks have shown lacklustre performance since the start of 2023. The FTSE 100 tends to perform better in higher interest and higher inflationary environments, and interest rates are expected to be cut this year as inflation settles down.

A more specific factor is that the UK stock market has a large number of mining and oil companies which have been underperforming, possibly due to sluggish manufacturing growth and reduced demand from China.

 

Green shoots for the UK economy

The UK slipped into recession in the last three months of 2023, but Lilian said there were signs conditions could be improving.

“We expect the recession to be short-lived and shallow,” he said. “We’re seeing improving trends and signs of green shoots in the economic data coming through – property market data released last week was stronger than expected, for example.

“There is growing confidence in markets that the worst is behind us in the UK.”

 

When will UK interest rates come down?

Lilian said, “With inflation falling, markets now expect the Bank of England to cut interest rates some time between June and August. And we may see two more cuts by the end of the year.”

As for Coutts’ positioning, we currently hold fewer UK stocks than our benchmark, preferring equities in the US where the economy and company earnings are far more robust.

For help and guidance with your own financial plans for the future, please contact your private banker.

 

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We're here to help, but please be aware that we cannot offer any tax advice. We recommend you contact an independent tax advisor to discuss your personal tax situation.

Tax reliefs referred to are those applying under current legislation which may change. The availability and value of any tax reliefs will depend on your individual circumstances.

The value of investments and the income from them can fall as well as rise and you may not get back what you put in. Past performance should not be seen as an indication of future performance. You should continue to hold cash for your short-term needs.

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The above article has been written and published by Coutts Crown Dependencies investment provider, Coutts.

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