Key announcements from UK Chancellor’s Spring Budget

Friday 15th March, 2024

On Wednesday, 6 March 2024, the Chancellor delivered the Spring Budget in the House of Commons. A surprising announcement that inflation is 4% and will fall to 2% in two months appears to signal the end of the post-COVID inflationary period and seems to have given the Government the confidence to return to a more conventional policy of cutting taxes and lowering debt. 

Whilst there were no big reveals on the day, this was clearly a Budget focused heavily on growth, encouraging UK businesses to start here, stay here and potentially IPO here. We expect businesses to respond positively to the VAT and National Insurance Contributions announcements, and the many non-tax business and innovation announcements in relation to life sciences, creative industries, pension funds and clean energy. Some taxpayers will be negatively affected by the latest changes, though, including non-domiciled individuals and furnished holiday letters. 

Here are some of the top takeaways that affect our clients, followed by summary of the top tax announcements:  

Regional and industry investment hubs 

There was a great deal of focus given to the individual regions across the UK, with notable funding to Cambridge, to help it reach its potential as a leading scientific powerhouse. Cambridge will see £10.2 million invested to support the development of the Cambridge Biomedical Campus, Europe’s leading centre for medical research and health science. 

AI, Space, Automotive and Greentech hubs were all given further backing by the Chancellor in a bid to help turn the UK into the world’s next Silicon Valley. £2 billion will be invested into advanced manufacturing in the automotive industry as well as £975 million for aerospace – building on established auto and aero programmes, part of which the Government recently announced over £270 million of investment into cutting edge R&D projects. 

The UK is the first major economy to have halved its emissions – cutting them by 50% between 1990 and 2022 – meaning the UK’s green industry is a key area of growth with a further £120 million for the Green Industries Growth Accelerator (GIGA). 

The UK has Europe’s leading tech ecosystem, valued at over $1 trillion. One interesting pledge from the Government is a new £7.4 million upskilling pilot to help SMEs develop AI skills of the future and unlock new AI opportunities. This will tie in with the SME Digital Adoption Taskforce that the Government is planning to launch soon.

The Life Sciences Vision set out the Government’s commitment to grow the UK’s life sciences sector and establish the UK as a leading global hub. As well as this, further support from big business continues to flow into the UK, with AstraZeneca investing a further £650 million into UK life sciences. 

Funding in these hotspots is welcomed as the UK continues on the journey to becoming a science and technology superpower. 

Creation of new secondary markets 

Beyond the Chancellor’s speech but still part of the Budget, the new regime to allow UK private companies to have their shares bought and sold on exchanges through the Private Intermittent Securities and Capital Exchange System (Pisces) is a welcomed change. This follows similar markets created in the US about a decade ago. For high growth and venture backed companies, many will see this as an opportunity given the dip in valuations over the last two years. 

This also follows the trend of increasing secondary possibilities, with many crowdfunding platforms opening up secondary markets and a number of prominent VCs raising secondary only funds. However, the recent furore over Carta’s secondary platform shows that most private companies still want to tightly control secondaries, which we expect means they will take a cautious approach to Pisces. 

High net worth individuals – reversal of angel investment changes 

Also, part of the Budget, but not mentioned in the Chancellor’s speech, was his decision to reverse the changes introduced in January 2024 to angel investment rules. The backtracking on the new £170,000 qualifying threshold to its previous £100,000 level will be broadly celebrated by the UK’s high-growth sector. This puts to rest a change that sat at odds with the Government’s otherwise steadfast support for the UK’s entrepreneur and startup community. 

However, it could be said that the Government is simply backtracking on an error in judgement that could have been avoided with the right consultation process. It could be said that the Government failed to consider how the changes created more barriers to entry for under-represented investors and founders, in an ecosystem that was already struggling with and trying to tackle issues around lack of diversity.  

To avoid this challenge, the Government might have been wise to consult just a few founders and investors in this space. In doing so, it would have been clear that the willingness of, and ability for, people to invest in early-stage start-ups is both nuanced and relatively predictable. 

As such, the related rules and restrictions need to be set appropriately to allow people who can to take proportionate risks.  People tend to invest in companies that align with their interests and values and in founders who are similar to them. This means that women tend to invest in other women and therefore a restriction on a female angel investor puts in place more barriers for female founders. 

Top tax announcements 

1 VAT: The Government has announced that the taxable turnover threshold for VAT (at which a person must register for VAT) will increase from £85,000 to £90,000 which will be welcomed by businesses from an administrative and financial perspective. Meanwhile, the threshold for applying for deregistration will increase from £83,000 to £88,000. These changes will take effect from 1 April 2024 and are expected to affect 28,000 businesses.

The announcement pushes the UK’s VAT threshold even further above comparable jurisdictions and therefore could make UK small businesses more competitive. However, there is evidence of a concentration of businesses just below the threshold, which suggests some small businesses intentionally restrict their revenues to avoid having to register for VAT. This threshold increase does not address that problem, which arguably hinders small business growth, although there are no simple solutions available.  

2 National Insurance Contributions (“NICs”): With 900,000 job vacancies and 10 million adults not in employment, the Chancellor was focused on incentivising a return to work. The Chancellor’s 2% cut to the main rate of primary Class 1 National Insurance (i.e. employee NICs) – plus the 2% cut announced in the Autumn Statement 2023 – is expected to draw 94,000 people into employment, which should help businesses struggling to hire. This tax cut will also make UK tax policy more globally competitive in the labour market: the average single UK salary-earner will be expected to have a lower effective tax rate than in the US, France and Germany. 

The new 8% employee NICs rate will be introduced with effect from 6 April 2024. The Government also announced changes for the NICs rate for self-employed individuals.  

3 Non-domiciled individuals: The Government has announced that the remittance basis of taxation for non-UK domiciled individuals will be abolished from 6 April 2025. This regime allowed UK resident but non-UK domiciled individuals claiming remittance basis taxation to only pay UK tax on foreign gains or income brought into the UK. This regime could be available to an individual for up to 14 years in some cases, subject to the payment of an annual charge. 

Concerns about the abolition of the non-domicile regime will be allayed by the promise of a new transitional residency regime, which will offer four years of income and capital tax exemptions for globally mobile individuals. While likely to be less generous overall, the new regime will maintain the UK’s attractiveness to such individuals at least temporarily, which is important given several other jurisdictions have transitional residency regimes.  

4 Capital expensing:  In the Autumn Statement last year, the Government announced that capital expensing rules would become permanent, so that businesses can claim a tax deduction for 100% of investments in qualifying plant and machinery (e.g. IT equipment) and 50% on certain special rate assets (which includes certain long life assets). Now, the Government has announced that it will consult on full expensing for leased assets. Draft legislation will be published and the policy enacted “as soon as it is affordable”. We look forward to seeing the Government’s specific proposals.  

5 Crypto-assets: The Government will consult on the implementation of the OECD’s Crypto-Asset Reporting Framework which would govern the cross-border exchange of information on crypto-assets, including reporting requirements for UK service providers. The consultation will close on 29 May 2024. This represents further regulation of the crypto space following the introduction of a new requirement from the 2024/25 tax year for individuals to make specific disclosures for crypto assets in their self-assessment tax returns for the first time. 

6 Capital gains tax: The higher capital gains tax rate on residential property gains for individuals, trustees and personal representatives will be cut from 28% to 24%, with effect from 6 April 2024. For individuals, the higher rate applies where chargeable gains exceed the unused part of their basic rate band. Overall, the Chancellor noted that this cut is expected to increase tax revenue by incentivising earlier disposals of second homes, buy-to-let property and other residential property where gains are not eligible for private residence relief.  

7 Transfer of assets abroad: The Government has announced measures to ensure UK resident individuals cannot use a company to circumvent the “transfer of assets abroad” provisions when transferring assets to non-resident persons or non-domiciled individuals. This change will take effect for income arising from 6 April 2024. This measure appears to respond to the decision in HMRC v Fisher [2023] UKSC 44, in which minority shareholders were held not to be transferors of a business and therefore not caught by the transfer of assets abroad charge.   

If you have any questions about any of the developments announced in the Spring Budget, please contact your usual Marriott Harrison advisor.  

 

Articles by Katerina Heal