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Categories: government and politics | tax
Jeremy Hunt announced the second Spring Budget of his tenure as Chancellor on Wednesday, and perhaps the last budget before the general election.
The Chancellor is cutting National Insurance by 2p, as well as increasing government spending for historically under-funded areas, extending support for cost of living, as well as support for the National Health Service.
He aims to raise this through a number of levies including an increase in duty for vape products, scrapping of ‘non-dom’ status, as well as changes to property tax including adjustments to how holiday-lets are taxed.
With a general election expected within the year, the Chancellor is eager to attract voters by lowering the tax burden for the wider population.
But this is at odds with the Treasury’s desire to meet their self-imposed ‘fiscal rules’.
These fiscal rules are put in place in order to lower the country’s debt and set up it up for growth in the long-term.
Jeremy Hunt cuts National Insurance by 2p
The Chancellor met expectations by announcing that National Insurance will be cut by 2p, saving workers an average of £450 per year. This is the second time in a row that the Chancellor has cut National Insurance, as he did so in the Autumn Budget last year, too.
In total, the back-to-back measures will put roughly £900 back into the pocket of workers.
However, since the Chancellor needs to follow the self-imposed ‘fiscal rules’ aimed at bringing down debt by a measure of Gross Domestic Product (GDP), he has to fund these cuts by raising tax revenue elsewhere.
Holiday lets amongst measures funding Hunt’s 2p cut to National Insurance
In order to appease both the Treasury and the voting public, Jeremy Hunt decided to fund headline cuts of 2p to National Insurance with a number of measures, including abolishing the furnished holiday let tax relief regime.
This regime allowed holiday let landlords to expense furnishing costs to off-set their tax bill, and enjoy a lower rate of Capital Gains Tax when they sell, among other measures.
This will all be abolished from April 2025. However, since a general election is set to be held this year, if Labour get into office, an entirely new budget may overwrite this.
It is estimated the scrapping of this regime by Hunt will increase the government tax revenue by £300 million.
When a similar measure was applied to standard buy to lets, the sector saw an increase in limited company incorporations.
Jeremy Hunt says the move will incentivise second-home owners to let out their additional property as a long-term let as oppose to a short-term let, aiding in the housing crisis.
The so-called ‘tax raid’ on holiday lets comes as recent changes to holiday let regulations require the owners to register the property with the local authority.
Along with this, the Chancellor has increased Value Added Tax (VAT) on vape products, hoping this will both increase revenue and discourage young people to participate in the habit.
The non-dom tax status will also be abolished, which affords individuals ‘domiciled’ elsewhere in the world, but working within the UK, the ability to offset their UK tax liability by foreign tax payable on income generated overseas.
The Chancellor says this will be replaced with another system.
Multiple-dwelling relief abolished
Hunt has also decided to scrap Stamp Duty relief given to those purchasing more than one property.
Effective from 1st June 2024, anyone purchasing more than one property in one go will have to pay the full Stamp Duty charge on each property.
It is estimated this will increase government tax revenue by £385 million.
Discount on higher rate Capital Gains Tax
In a positive for move for taxpayers and landlords, there is a change to the higher rate of Capital Gains Tax on the sale of residential property, which is currently 28 per cent.
The Chancellor announced that this will be reduced by 4 per cent to 24 per cent.
According to the Chancellor, government estimates predict this will in fact increase revenue, as it will incentivise more transactions.
What has been said on the Spring Budget?
In a statement on their website, the National Residential Landlords Association (NRLA) reacted critically to the announcement:
Overall, this Budget statement does nothing to address supply. There is no move to undo the messes created by s24 or the consequences of the SDLT levy. Nor is there any mention of committing to further uprating local housing allowance to keep up with inflation.
Frankly, it is little more than another missed opportunity.
A group led by ex-PM Liz Truss felt Sunak and Hunt should have instead abolished Stamp Duty, or at least should have raised its threshold.
MP Andrew Lewer, who supports a scrapping of Stamp Duty says:
Stamp Duty has become everyone’s least favourite tax, which has gummed up the housing market. Getting rid of it – or increasing the threshold radically – will do much to improve the market.
While not heard this time, perhaps these measures will be more appealing to the government at a later date.
