United Kingdom | Employment Tax | Spring Budget 2024

Employment Tax

United Kingdom | Spring Budget 2024

Key tax announcements impacting employers and employees

Summary
The Chancellor of the Exchequer delivered his Spring Budget on 6 March 2024 setting out the UK government’s tax and spending plans. Ahead of a general election looming (this Parliament can only run until 17 December 2024), the theme of this Budget was to boost growth and productivity, reward work and unlock investment.

The biggest announcements were the reform of the tax rules for non-UK domiciled individuals, a further cut to National Insurance rates for employees and self-employed earners across the UK, and changes to the High Income Child Benefit Charge.

Our UK Spring Budget summary for UK employers and employees, including global mobility considerations, is outlined below and includes:

• Key announcements
• Other announcements
• Quick recap: key previous announcements
• What we did not see

A further set of tax administration and maintenance announcements will be brought on 18 April 2024 at a Tax Administration and Maintenance Day.

Key announcements

Non-domiciled taxpayers: abolition of the remittance basis of taxation and the introduction of a new residence based regime
The Chancellor announced his intention to abolish the current remittance basis regime for non-domiciled individuals in the UK from 6 April 2025.

It will be replaced by a simpler residence based regime operating as follows:

• Eligible individuals (yet to be fully defined) will not be subject to UK tax on foreign income and gains (“FIG”) for their first 4 tax years of UK tax residence, provided they have been non-resident for at least 10 tax years prior to their arrival. They will also be able to bring these FIG funds to the UK free from additional charges.
• Overseas workdays relief will remain available for eligible individuals in their first 3 years of UK tax residence. There will no longer be a requirement to retain their overseas earnings outside of the UK.
• Eligible individuals will need to opt into the new FIG regime on an annual basis. Like the current regime, they will continue to lose their UK personal allowance and UK capital gains tax exemption. There is no mention of a de-minimus (currently those with under £2,000 of foreign income and gains are automatically entitled to the existing remittance basis without loss of the personal allowance or capital gains tax exemption).
• Although eligible individuals are yet to be fully defined, if an individual is UK domiciled at 5 April 2025 or deemed UK domiciled at 5 April 2025, they are not eligible for the new regime or transitional arrangements.
• If an individual leaves the UK temporarily and becomes non-resident during the 4 year period, they will be able to continue their claim on return to the UK. For example, if someone becomes non-UK resident in year 2 and 3 but is UK resident again for year 4, they will be able to use the new 4-year FIG regime for year 4 (but not afterwards).

Transitional arrangements

• Individuals who, at 6 April 2025, have been tax resident in the UK for fewer than 4 years, and were previously non-resident for 10 tax years before their arrival, will be eligible for the new regime for the remainder of those 4 years; i.e. If an individual first became a UK tax resident in the 2022/23, 2023/24 or 2024/25 UK tax years, they may be eligible for 1, 2 or 3 years of the new regime but only if they were non-resident for 10 years before their original arrival.
• Individuals eligible for overseas workday relief in 2023/24, will be able to continue to claim overseas workday relief in 2025/26 (the position is not clearly confirmed in the supporting documents for those arriving in 2024/25).
• For the 2025/26 UK tax year, individuals who are not eligible for the new regime, will be subject to tax on 50% of foreign income but 100% of foreign chargeable gains. From the 2026/27 UK tax year, they will be taxed on worldwide income and gains.
• There is a two year (2025/26 and 2026/27) Temporary Repatriation Facility for individuals to remit (bring in) funds to the UK of pre-6 April 2025 foreign income and gains (i.e. previously exempted from UK tax under the remittance basis) at a reduced 12% tax rate. There is an indication of relaxation of the mixed fund ordering rules to make it easier to remit these funds. There is a specific exclusion for FIG generated within trusts and trust structures. It isn’t yet clear whether amounts which qualified for overseas workday relief prior to 6 April 2025 would qualify for the reduced 12% rate if remitted in 2025/26 or 2026/27.
• From 2027/28, future remittances of foreign income and gains will be taxed at normal tax rates.
• If an individual sells a foreign asset from 6 April 2025 that they held on 5 April 2019, there is the ability to elect to rebase the asset to the value at 5 April 2019.

Inheritance Tax and Trusts
Under the current regime, no inheritance tax (“IHT”) is due on non-UK assets of non-domiciled individuals until they have been UK resident for 15 out of the past 20 tax years. The Chancellor announced the intention to move to a residence-based regime for IHT and will consult in due course on the best way to achieve this, including consulting on a 10-year exemption period for new arrivals and a 10-year ‘tail-provision’ for those who leave the UK and become non-resident. No changes to IHT will take effect before 6 April 2025 and to provide certainty to affected taxpayers, the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change.

From 6 April 2025, the protection from taxation on future income and gains as it arises within trust structures (whenever established) will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the new 4-year FIG regime. FIG arising in non-resident trust structures from 6 April 2025 will be taxed on the settlor or transferor (if they have been UK resident for more than 4 tax years) on the arising basis.

While the government is removing protections on non-resident trusts for all new FIG that arises within them after 6 April 2025, FIG that arose in protected non-resident trusts before 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than 4 years.

Vialto View
The remittance basis regime for non-domiciled individuals in the UK has been in existence since 1914, surviving various reviews and consultations. The current remittance basis is incredibly complex, hard for taxpayers to understand and administer, time consuming for HMRC to police and incompatible with HMRC’s “Making Tax Digital” push. Therefore, we welcome the proposed changes to a simpler residence based regime: it is time to modernise and reform but the devil as always is in the detail. Notably:

• Non-domiciled individuals have the ability currently to spend up to 15 years of tax residence in the UK, without paying UK tax on, or declaring, foreign income and gains. The change to a 4 year regime from 6 April 2025 will have a significant impact and will lead to individuals reassessing their affairs.
• The new regime is simpler to understand and administer: it is a simple election to not be taxed on foreign income and gains for up to 4 years of UK tax residence. There is no longer the complex requirement to retain foreign income or gains offshore to benefit from relief.
• Overseas workday relief has been simplified to allow relief for three tax years regardless of a taxpayer’s bank account set up and spending patterns. This will save taxpayers, HMRC and tax advisors time in analysing individuals’ affairs and is a much welcome simplification. It also removes the barrier which acted as a tax disincentive to non-domiciled individuals bringing and spending money in the UK. Employees will still need to keep careful records of their working patterns.
• The government is still looking to tax remittances to the UK of foreign income, gains that arose pre 6 April 2025, albeit with certain transitional arrangements. The details are complicated and impacted taxpayers will need to carefully assess the overall tax position and understand what is pre and post April 2025 FIG. This will still act as a disincentive to individuals seeking to bring money into the UK. As ever, consideration will be needed for any double taxation reliefs if income or gains are also taxed in another location.
• There is a new requirement to be non-resident for 10 UK tax years prior to arrival in the UK to be eligible for relief for foreign income and gains. Currently it can be as little as 3 tax years for non-domiciled, non-deemed UK domiciled individuals, so this is a significant change.
• Lack of definition of “eligible” individuals for the new regime. Would this include returning UK domiciled expatriates who have been non-resident for 10 years prior to their return to the UK?
• The introduction of this regime is post the next General Election and therefore, of course potentially subject to change.

For employers, the changes will have a significant impact on globally mobile employees in the UK. Assignment policies and tax equalisation policies will need review in light of the potential changes. Employees on assignment to the UK or permanent transfer for over 4 years, may have concerns over the impact and be reconsidering their position. On the other hand, for prospective moves to the UK for up to 4 years, the simplifications will be welcomed.

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National Insurance
A further cut to National Insurance Contributions (“NIC”) was confirmed for all UK employees (Class 1 Primary NIC from 10% to 8%) from 6 April 2024. This follows the previous reduction (from 12% to 10%) announced in the Autumn Statement effective from 6 January 2024.

A further cut was announced in respect of NIC for the self-employed, such that from 6 April 2024 Class 4 NIC will be reduced to 6%. This is in addition to the cut announced in the Autumn Statement, bringing Class 4 rates down from 9% in 2023/24 to 6% in 2024/25 on profits between £12,570 and £50,270. Amounts above £50,270 continue to be subject to NIC at 2% for both employees and the self-employed.

By way of reminder, the government had previously announced the NIC thresholds would be frozen until 5 April 2028 and no announcements were made in this regard. There was also no change to the existing employer NIC rate of 13.8% for earnings above the Secondary Threshold.

For those paying voluntary Class 2 (£3.45 per week) or Class 3 NIC (£17.45 per week), it was previously announced the rates will remain at this level until 2024/25. The government will consult on how it will deliver the abolition of Class 2 NIC for the self-employed later this year.

Vialto View
Employers need to ensure that payroll systems are updated to reflect this change ahead of any April 2024 payroll runs. With payroll teams dealing with the impact of another in-year payroll change from 6 January 2024, this is an additional administrative burden for both employers and payroll software developers, who don’t have much time to affect the change.

Employers also need to be cognisant of other potential considerations as regards the change, including communicating with employees who may query net pay fluctuations, any impact when correcting errors and when preparing cost projections for mobile employees.

As a reminder, NIC applies to the UK as a whole, unlike income tax where Scotland and Wales can set rates for their respective taxpayers. As a result, all UK workers in the scope of NIC will benefit, irrespective of where in the UK they live. Further, this cut will only benefit workers as there is no NIC on pensions or other income such as rental income.

Whilst the reduction in NIC rates will be welcome, it is worth noting the impact of “fiscal drag”. The government has still frozen NIC thresholds (as well as income tax thresholds and personal allowances) from April 2023 until April 2028 rather than annual indexing.

The change may affect inbound and outbound assignees to or from the UK differently from typical UK employees. For UK employees, the additional income tax suffered because the allowances and tax bands are frozen (while prices and salaries increase) is partially offset by the reductions in NIC. However, the effects on inbound and outbound expatriate workers may depend on whether they are in UK or foreign social security and whether the individual is tax equalised back to their home country, or back to the UK respectively.

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High Income Child Benefit Charge
High Income Child Benefit Charge (“HICBC”) is a tax charge that claws back child benefit from higher earners where a person living alone or one of a couple living together has income of more than £50,000. This will be changed from 6 April 2024 so that the clawback only starts once the higher-income partner’s income exceeds £60,000 pa (irrespective of the income of the other partner), and the full phase out of child benefit will apply once their income exceeds £80,000 pa (currently £60,000).

Currently, the HICBC is based entirely on the income of the higher-income partner, such that a household where both partners each earn £49,000 pa keeps the full child benefit whereas another household where one partner earns over £50,000 but the other partner is not earning will suffer a HICBC to claw back the benefit. The government plans to change this by administering the HICBC on a household basis, rather than an individual basis, by April 2026 and will consult on this in due course.

Vialto View
Increasing the threshold moves the earnings point where the pain of paying back the child benefit occurs, but it does not entirely solve the underlying problem of high marginal tax rates. Neither does it improve taxpayers’ understanding of the charge and when and what obligations may arise. The regularity of cases being heard at Tax Tribunals suggests this is an area where more thought is needed.

Moving to a system where the clawback of child benefit is based on household income rather than just the income of the higher-earning person will address a long-standing criticism of the current regime, and many people will think this will be fairer. However, it is not yet clear whether, when testing against household income, the thresholds will be further increased or whether the intention is to keep these static, which will likely bring more households into the regime.

Further, using combined household income will move away from independent taxation of individuals, which has been part of UK tax law since 1990. Even if you are married, HMRC should not disclose your income details to your spouse. Under the proposed HICBC regime, it is not clear which taxpayer would pay a HICBC that was based on the combined household income, and the amount of the charge might indirectly give that taxpayer some insight into the other person’s level of income.

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Other announcements

• UK Individual Savings Account: The government is consulting on a new type of individual savings account (“ISA”), the UK Individual Savings Account (“UK ISA”), which would invest in UK companies incorporated in the UK and listed or trading on a UK recognised stock exchange. This will have a new ISA allowance of £5,000, which is in addition to the existing £20,000 ISA allowance. A person might invest in a UK ISA for up to £5,000 and then in a general ISA for the normal £20,000 limit.
• Furnished Holiday Lettings: From 6 April 2025 the government will remove the current incentive for landlords to offer short‑term holiday lets rather than longer-term homes by abolishing the Furnished Holiday Lettings tax regime.
• Capital Gains Tax (“CGT”) for residential property disposals: From 6 April 2024 the higher rate of CGT for residential property disposals will be cut from 28% to 24%. The lower rate of CGT will remain at 18% for any gains that fall within an individual’s basic rate band. Private Residence Relief will continue to apply. Carried interest gains currently remain taxable at 28% (or 18% for gains within the basic rate band).
• HMRC funding: The Chancellor announced a further £140 million to improve HMRC’s ability to manage tax debts and collect tax that is due. These measures are forecast to raise over £4.5 billion of tax revenue by 2028/29.
• Pension triple lock: The government confirmed its commitments to supporting pensioner incomes by maintaining the triple lock.
• Transfer of Assets Abroad (“ToAA”): The government will introduce legislation to ensure individuals cannot use a company to bypass the ToAA provisions in order to avoid UK income tax. The changes will take effect for income arising to a person abroad from 6 April 2024.
• Consultations: The government will consult on:
  • Administering the High Income Child Benefit Charge (HICBC) on a household (rather than individual basis) by April 2026
  • How to design and implement the new UK ISA
  • How to deliver its commitment to fully abolish Class 2 National Insurance
  • Options to strengthen the regulatory framework in the tax advice market
  • Requiring tax advisers to register with HMRC if they wish to interact with HMRC on a client’s behalf
    Further consultations are likely to be announced on 18 April 2024 at Tax Administration and Maintenance Day.
• Following consultation in 2023, the government will set out next steps for tackling non-compliance in the umbrella company market on 18 April 2024 at Tax Administration and Maintenance Day. The government will also publish new guidance to support workers and other businesses who use umbrella companies in the summer.

Quick recap: key previous announcements
Here is a reminder of some of the measures previously announced.

• Mandatory payrolling of benefits: The government previously confirmed it would mandate the reporting and paying of income tax and Class 1A (employer only) NIC on benefits in kind via payroll software from April 2026. Whilst there is little detail provided to date, there are a number of details and complexities employers and payroll software developers will need to consider in advance of April 2026, particularly how the regime will impact globally mobile workers.
• Tax thresholds frozen: The thresholds, bands and allowances for Income Tax and IHT are currently frozen until April 2028.
• Off-payroll working offset: From 6 April 2024, HMRC will be able to offset taxes paid by an individual and/or their intermediary on payments received against any liabilities for the fee payer/end client where an error has been made in applying the off-payroll working rules.
• Abolition of the Lifetime Allowance (“LTA”): The LTA will be abolished from 6 April 2024.
• Reforming who needs to file a self-assessment tax return: From the 2024/25 tax year, individuals whose income is taxed entirely via PAYE will no longer have to file a self-assessment tax return, irrespective of income level.
• National Living Wage (“NLW”): The NLW will increase from 1 April 2024 from £10.42 an hour to £11.44 an hour (an increase of 9.8%). In addition, the age threshold will now include 21 and 22 year olds for the first time (representing an increase of 12.4%).
• Dividend allowance: The tax-free allowance for dividend income reduces from £1,000 to £500 from 6 April 2024.
• CGT annual exemption amount: The annual exemption amount of allowable gains before CGT becomes payable reduces from £6,000 to £3,000 from 6 April 2024 for individuals, and from £3,000 to £1,500 for most trustees. The CGT reporting limit remains at £50,000.
• Enterprise Management Incentives (“EMI”): The government will introduce legislation to extend the time limit to notify HMRC of a grant of EMI options to 6 July following the end of the tax year (previously was 92 days) in which the grant was made. This will be in effect for EMI options granted on or after 6 April 2024.

What we did not see
As well as the announcements made in the Spring Budget, there were other possible announcements that were noticeable by their absence. Some of the possible tax changes that had been discussed before the day, but which were not mentioned include:

• Inheritance tax: It was rumoured that there would be changes to the IHT regime for all taxpayers but this did not materialise.
• Income tax: Although changes to the Personal Allowance/thresholds and/or an income tax cut were rumoured, there was no announcement in the Spring Budget.
• Apprenticeship Levy changes: Despite many employers actively seeking reform, no changes were announced in respect of the use of Apprenticeship Levy funds.

Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners’ point of contact, or alternatively one of our technical experts:

Ash Majithia
Partner

Sarah Hewson
Employment Tax

Jenny Adams
Global Mobility

Gemma Ludwig
Global Equity and Reward

Tim Sexton
Pensions

Ian Robinson
Immigration

Further information on Vialto Partners can be found on our website: www.vialtopartners.com

For additional alerts, please visit www.vialtopartners.com/regional-alerts

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Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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