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Chancellor targets FHL, VAT and HICBC in Budget

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Chancellor Jeremy Hunt today abolished the furnished holiday lettings regime and the non-dom tax status in his Spring Budget speech, allowing him to fund another 2% cut in national insurance and increase the VAT threshold.  He also announced plans to reform the high income child benefit charge. 

6th Mar 2024
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The Chancellor managed to find enough wiggle room in the deteriorating economic forecasts to announce a further 2% cut to national insurance as the government gears up for a general election later this year. 

Jeremy Hunt was able to scrape together the money to make the national insurance (NI) cuts by announcing revenue-raising initiatives such as abolishing the non-dom tax status, abolishing the furnished holiday lettings regime (FHL), abolished multiple dwellings relief on SDLT, introducing a duty on vapes and extending the windfall levy on oil and gas companies. 

While a lot of the contents of the Budget were leaked ahead of the speech, the one rabbit that the Chancellor saved to pull out of the hat in the House of Commons was his plans to reform the high-income child benefit charge (HICBC). 

And in the first increase in seven years, Hunt also increased the VAT threshold from £85,000 to £90,000 from 1 April. “That will bring tens of thousands of businesses out of paying VAT altogether, encouraging people to invest in growth.”

With the general election looming, the personal tax cuts will give the Conservative backbenchers something to take door-to-door, while abolishing the non-dom tax status pulls the rug out from underneath the Labour Party, who had planned on removing the tax status to fund public sector reforms.  

Tax measures

Among the tax measures announced in the Spring Budget were: 

  • 2% cut to the main rate of employee national insurance from 10% to 8%
  • Self-employed NI cut from 8% to 6%
  • Abolished multiple dwellings relief on SDLT
  • Reduced the higher rate of capital gains tax (CGT) on property sales from 28 to 24% 
  • VAT threshold increased to £90,000
  • Reformed the high-income child benefit charge
  • Introduced brand-new ISA which allows an additional £5,000 annual investment
  • Abolished furnished holiday lettings regime
  • Abolished the non-dom status
  • Introduced duty on vaping products from October 2026 plus one-off 
  • Frozen the fuel duty for the 14th year in a row for another 12 months, maintaining the 5p cut
  • Extended the alcohol duty freeze until February 2025
  • Made tax reliefs for orchestral productions permanent
  • £1bn in additional tax relief for creative industries over the next five years 
  • Extended the windfall tax on oil and gas.

Personal tax cuts

The 2% cut to the main rate of NI comes after rumours that, confronted with scarce resources, the Chancellor and the prime minister were deliberating whether to cut NI again or income tax.

The prime minister’s preferred option was to cut income tax, after pledging in his last Budget that he was going to cut the basic rate from 20% to 19% by 2024. However, they opted to repeat the same 2% NI cut that was announced in the Autumn Statement. 

The decision to go with national insurance rather than income tax may just come down to cost. A 1% cut in income tax comes at the price of £7bn while the same cut in national insurance is £4.5bn. 

The national insurance cut in the Autumn Statement came into force in January and going by today, Hunt wants more cuts to come. “Our long-term ambition [with national insurance] is to end this unfairness when it is responsible when it can be achieved without increasing worry when it can be delivered without compromising high-quality public services. We will continue to cut national insurance as we have done today.”

Hunt was able to afford this NI tax giveaway through a number of revenue-raising announcements, such as targeting short-term holiday lets and the non-dom tax status.

Furnished holiday lettings and property

The FHL announcement came as a shock when it was leaked over the weekend and also poses significant change for accountants to grapple with. As raised by Caroline Miskin from the Institute of Chartered Accountants in England and Wales (ICAEW) tax faculty, the change would make Making Tax Digital for income tax self assessment (MTD ITSA) easier to design but could lead to disputes over whether there is a property trade. 

Hunt reasoned this change, arguing that it would help alleviate the strain of housing in coastal areas where landlords are snapping up properties and converting them to holiday lets. 

“This tax regime is creating a distortion, meaning there are not enough properties available for long-term rental. So to make the tax system work better for local communities, I have abolished the relief.” 

In other property tax announcements, Hunt abolished the multiple dwellings relief on SDLT and in a swipe at Labour’s deputy leader, he reduced the higher rate of CGT on property sales from 28 to 24%. 

Non-dom status

The other revenue raiser was abolishing the non-dom tax regime. This had long been one of the Labour Party’s Ace cards. 

“After looking at the issue for many months, I can introduce a system that is fairer and competitive with other countries. The government will abolished the current system for non-doms and we will replace the non-regime with a modern, simpler and fairer residency.

New arrivals from April will not be required to pay tax on foreign income and gains for their first four years. Those that continue to live in the UK will pay the same tax.

The non-dom tax regime has long been a thorn in the side of the prime minister after it emerged in April 2022 that his wife, Akshata Murty, had this status. She has since relinquished this status, but for a while, Rishi Sunak was accused of having a conflict of interest as this particular tax regime remained untouched. 

High-income child benefit charge

The Chancellor has come under pressure from all directions to address some of the more unfair aspects of the charge, which has now become a regular feature in the first tier tax tribunals

Hunt said he was going to “end that unfairness” of the HICBC but warned that it requires “significant reforms to the tax system, including allowing HMRC to collect household-level information”.

He said the government will consult on moving the HICBC to a household-based system by April 2026. Because that is not quick enough, from April the HICBC will be raised from £50,000 to £60,000. Hunt said this will take 170,000 families out of the regime. 

Business investment

The Spring Budget didn’t have a tentpole announcement for businesses like the Autumn Statement had in making full expensing capital allowance scheme permanent. 

However, Hunt did extend the recovery loan scheme and renamed it as the growth guarantee scheme, which he said would help 11,000 small or medium-sized enterprises (SMEs) to access funding. 

“Small businesses being able to access the finance they need to grow and invest is crucial if we’re to grow our economy.”

Hunt also announced that he was going to “reduce the administrative and financial impact” for small businesses and increase the VAT threshold to £90,000. The VAT threshold had been frozen to April 2026.

As has been the case in the past fiscal statements, investment zones made an appearance. This time Hunt revealed that the first investment zones in the North of England and the Midlands will be launched in April. 

Economy

The Chancellor started his speech by focusing on the economy. “When the PM and I came to office inflation was 11%, but the latest figures now show it as 4%,” he said. 

He said the latest figures from the Office of Budget Responsibility (OBR) show inflation falling below the 2% target “in just a few months’ time – nearly a whole year earlier than forecast”. 

Hunt said the OBR expects the UK economy to grow by 0.8% this year, then 1.9% next year, which is 0.5% higher than the autumn forecasts. The OBR also forecasts debt to fall to 94.3% of GDP by 2028/29. 

“Growth has been higher than every European economy, unemployment has halved and there are 800 more people in jobs for every single day we’ve been in office. 

“Because we are delivering the prime minister’s economic priorities, we can now help families not just with temporary costs of living but with permanent cuts in taxation.” 

Pre-election Budget

After a more eventful Autumn Statement than expected, the Spring Budget was expected to be when the Chancellor was going to pull the rabbits from his hat that didn’t make it into his November speech.

However, the Chancellor’s plans for a pre-election Budget tax giveaway didn’t exactly go to plan. Scuppered by a limited fiscal headroom from the OBR, the Chancellor managed to squeeze personal tax cuts, but in the end, the speech was more restrained than expected.

There were a few surprises such as the changes to the HICBC, increasing the VAT threshold and a further 2% cut in national insurance. 

This may not have ended up being the pre-election Budget that the Chancellor and the prime minister had in mind, but the government may still be able to squeeze another fiscal event before the general election. So maybe, the rabbits may not have come out of hibernation just yet. But with increasing noises that a general election might be in May, today’s announcement could be one of the government’s last rolls of the dice. So did they do enough to win around the electorate at the ballot box? Time will tell.   

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Replies (70)

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By Ajtms
06th Mar 2024 17:31

I am struggling to find the detail on the abolition of the FHL regime. With FHL a husband / wife unequal ownership of say 90% / 10% would be be assessed 90 / 10 without the need to complete a Form 17. If as seems to be the case all lettings of any description will be lumped together on the same SA100 page then we are going to have a rush to complete and have signed Forms 17 by 5 April and then lodged with HMRC within 2 months for all FHL cases involving unequal ownership

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By Software Seeker
06th Mar 2024 20:31

Exactly what I was wondering, too. Also, what will happen to VAT registrations?

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By Nick Belton
06th Mar 2024 17:44

I'm going to give Hunt some credit in that he is the first Chancellor in living memory to take steps towards real tax simplification. His talk of abolishing NI as 'double taxation' is welcome, scrapping Non-Doms and FHL also simplifies things.

However...knocking 4% off CGT on second property disposals is giving a tax break to "those with the broadest shoulders", so counter-intuitive to his summing-up of his Budget.

Somebody making a £200K gain on the disposal of a let property will save £8,000, as compared with the £450 saving the 2% NI cut will have on the average work (no doubt to be swalled up by council tax increases and the inevitable garage repair bills resulting from potholes).

I am not a Tory but it is ironic that they appear to have their most able Chancellor since Ken Clarke just when it is all too little, too late.

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Replying to Nick Belton:
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By johnjenkins
07th Mar 2024 09:40

To me this is obviously a budget to minimise the loss at the next GE. I think he is appealing to the "hard core" Tories not to vote reform.

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Replying to johnjenkins:
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By C Graham
07th Mar 2024 12:05

This government doesn't appeal to anyone. Certainly not 'hardcore Tories' if there even are any left? The problems go far deeper than anything a budget can deliver but they're so fixated on appearing as the party of low tax while not rewarding the wealthy that they 're blinded to public opinion on the real social issues that matter.

What Hunt should have done is encourage investment and growth. Reduce Corp tax and reduce Employers NI. Ever since Osborne was chancellor, the government have retained an element of favour to austerity and failed to set the conditions to attract outside investment.

Hunt should have scrapped IR35 which has pushed many contractors to base remotely outside the UK and instead of punishing the FHL looked at reducing commercial business rates instead. Empty premises mean much of the UK is now no go areas - deserted streets and zero confidence in the policing and safety of town centres. Businesses cannot afford a high street presence when so much goes to paying business rates on top of commercial rents.

Changing the vat threshold by £5k will make absolutely no difference to the economic health of the country. It is a meaningless gesture. It was just padding out a lack lustre budget.

All Hunt and Sunak have done is ignore the massive social problems of the UK and I think those hard core tory voters are so sick to death with the pretend Tory party that they do not care if voting Reform lets Labour in - the Tories need to be punished for years of failure.

I thought this budget was pathetic in his selected targets - gesturing only to the pretence that they are taxing the wealthy and cutting tax (NI) .

A smoke and mirrors budget.

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Replying to C Graham:
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By johnjenkins
07th Mar 2024 12:18

I totally agree and the GE will be the same as when TB took office. I can never understand why politicians do what their party want not what the people want. Perhaps scrapping the House of Lords and having a House of representatives (proportional representation) might make Governments think more.

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Replying to C Graham:
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By rmillaree
07th Mar 2024 14:41

"Changing the vat threshold by £5k will make absolutely no difference to the economic health of the country. It is a meaningless gesture. It was just padding out a lack lustre budget."

raising the vat threshold most certainly helps at the coalface - its very traumatic for peeps in business to deal with vat if they arent financial savvy so this most certainly helps.

However its clearly electioneering at its finest - they have been happy to not raise the threshold every other year - so to only do it directly before and election really does smack of bribery.

Not sure if any of this clever stuff does anything but annoy most peeps

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Replying to rmillaree:
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By C Graham
07th Mar 2024 16:21

on a personal note, the word 'peeps' makes my flesh crawl - however aside of that, if a small business is turning over 90k, it's going to be reasonably financially aware and file accounts etc.

And just a £5k increase - ie extra £400 quid a month -ish is a tiny amount which those quivering around the 85k could easily fall into.

It is hardly traumatic given MTD software now does much of the calculation to running returns. Plus businesses hitting the threshold will still be able to recover input vat paid on applicable goods backdated 4 years plus 6 months of services so it really will not make any difference to the economy.

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Replying to C Graham:
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By rmillaree
07th Mar 2024 17:09

on a personal note, the word 'peeps' makes my flesh crawl

oh dear lol - not even sure where i got that one from if i am being honest - i kinda like it - but then again my tastes are odd.

"It is hardly traumatic given MTD software now does much of the calculation to running returns. "

tell that to a joiner or plumber who probably isnt the most it savy it person and who is likely to think its the end of the world when their first customer goes - i am not paying 20% vat .

ref software - its like you have never seen any of the horror stories on here where clients try and do it themselves it needs attention to detail to do it well. Just look at recent first return one where there was 20k difference between traders calcs and that of the vat office !

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Replying to rmillaree:
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By C Graham
07th Mar 2024 18:26

v gracious of you not to take too much offence - it is a taste thing.
On the incompetent trader - I think that as they're factoring the gross materials costs that it isn't the end of the world particularly as I think for professional trades people do expect to pay vat.

On the horror stories well yes indeed but then you wonder how some people function at all - paying bills, managing tax and keeping financial records. The 5k is not really going to magically change the numbers who have to register for vat. Hence why I think it was just padding for a pretty mundane package all in all.

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Replying to C Graham:
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By johnjenkins
08th Mar 2024 09:14

If the Government had any sense at all they would have reduced the vat threshold over the last few years so that MTD would already be operating for those over say £50k.

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Replying to johnjenkins:
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By C Graham
08th Mar 2024 11:47

yes that would not be a bad thing. The rules on being self employed should change though so that all freelancer/self employed have to have a separate bank account for their business. But scrap IR35!

If everything runs through a personal account it is impossible to track the income stream and I have to wonder how those with all their personal finance mixed with invoice payments/receipts actually are able to produce viable returns.

The flat scheme also used to be a simple and easy approach until HMRC messed with the allowances.

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Replying to C Graham:
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By johnjenkins
08th Mar 2024 13:00

The one man band self-employed are inclined to not have a business account because of bank charges.

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By C Graham
08th Mar 2024 15:04

business bank charges are pretty tiny - . I have a second business account and it's £8 per month.

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Replying to C Graham:
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By johnjenkins
08th Mar 2024 16:21

Why should we pay for an institution (who use our money) £96 for the privilege and before you ask, no, I don't pay bank charges, and yes I use our joint account for our joint business. All income and expenses are recorded through VT and yes HMRC don't like it. All CIS refunds go through a treasury account so again no charges.

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Replying to johnjenkins:
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By C Graham
08th Mar 2024 17:56

so you don't operate as Ltd then?

TBH if I was so concerned about £8 month charges (which I expense) I would consider my business a failure.

As for the privilege of using 'your money' -presumably your bank app, your online account, processing your transactions and your security devices cost the bank nothing??

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Replying to C Graham:
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By johnjenkins
11th Mar 2024 08:45

Yer but your not me. I have major issues with the financial institutions. When they can destroy business and peoples confidence like they did in the late eighties early nineties then go on to make mega profits out of that, is just daylight robbery.
Anyway, I don't want apps, I don't want all of that other rubbish banks try and peddle as "you must have". Information comes from them to attract the biggest scammers, so please don't try and tell me I should pay them for the privilege. I'm quite happy with cash.

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By moneymanager
06th Mar 2024 20:43

Seems a bit unimaginative. Stop subsidies to 'green' anything, put gun boats in The Channel, repatriate those illegals 'facillitated' by the 2018 UN programme, stop hurling money at Ukraine, demand our money back for failed vaccines, initiate a cheap energy stance including coal if we have to as are India and China, give me a mo and I'll think of some more

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Replying to moneymanager:
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By C Graham
07th Mar 2024 12:10

absolutely! I vote you for PM.

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By Carl London
06th Mar 2024 22:08

I wonder what will happen to FHL losses and unused CA pools?!

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