On Wednesday 6 March 2024, the Chancellor delivered the UK Spring Budget 2024. We have listed some important tax changes below and commented on the Scottish perspective where appropriate.

1. National Insurance Contributions (NICs)

As previously trailed, the Chancellor announced a reduction in NICs which will apply throughout the UK (including Scotland). No changes were announced to income tax rates. In any event, income tax rates for Scottish taxpayers are set by the Scottish Parliament and therefore any changes to them would not have impacted Scottish taxpayers.

In the Autumn Statement 2023, the Chancellor announced a cut in employee NICs from 12% to 10%, which came into effect from 6 January 2024. Under this Spring Budget, employee NICs will be further reduced from 10% to 8%. Payroll teams will have to focus on this, as this change comes into effect from 6 April 2024. The current 2% rate and the 13.8% employer NICs will remain the same.

There are NIC cuts for the self-employed, which will also come into effect from 6 April 2024. As previously announced, compulsory Class 2 NICs which are paid by self-employed persons will be abolished. Class 4 NICs are also paid by self-employed persons and the highest rate applicable on profits between £12,570 and £50,270 is currently 9%. In the Autumn Statement 2023, the Chancellor announced that, from April 2024, Class 4 NICs would be reduced to 8%. This Spring Budget takes these plans further, announcing an additional reduction in the rate of Class 4 NICs from 8% to 6%. This change will also take effect from 6 April 2024.

2. Replacing non-UK domicile tax rules with a residence-based regime

In one of the more headline-grabbing announcements, the Chancellor will abolish the remittance basis of taxation for non-UK domiciled individuals (non-doms) and replace it with a simpler residence-based regime, which will take effect from 6 April 2025.

Individuals who opt into the regime will not pay UK tax on foreign income and gains for the first four years of tax residence. We would note that this proposed change is consistent with the regime in New Zealand.

The following transitional arrangements were also announced for existing non-doms claiming the remittance basis:

• an option to rebase the value of capital assets to 5 April 2019;
• a temporary 50% reduction for the taxation of foreign income for the first year of the new regime (2025-26); and
• a two-year Temporary Repatriation Facility to bring previously accrued foreign income and gains into the UK at a 12% rate of tax.

The Chancellor also announced reforms to Overseas Workday Relief (OWR) with eligibility for the relief based on the new regime. OWR will continue to provide income tax relief for earnings from duties carried out overseas for the first three years of tax residence with restrictions on remitting these earnings removed.

Finally, the Chancellor announced an intention to move to a residence-based regime for inheritance tax, with plans to publish a policy consultation on these changes, followed by draft legislation, later in the year.

The changes to the non-dom regime apply equally in Scotland.

3. VAT

From 1 April 2024, the threshold for compulsory registration of businesses for VAT will increase to an annual taxable turnover of £90,000 per annum (from the previous threshold of £85,000). This takes some account of recent general price inflation. Voluntary VAT registration below that threshold will continue to be possible for a business that qualifies and that wishes to do so.

This change applies equally in Scotland.

4. Independent Film Tax Credit

To further incentivise the UK independent film industry, the government will provide additional support through a new tax credit: the Independent Film Tax Credit (IFTC). The IFTC will be targeted towards lower budget films i.e. productions with up to £15 million in total core expenditure.

Eligible independent film productions will be able to claim a 53% credit on qualifying expenditure, capped at a maximum of 80% of a film's total core expenditure; accordingly, the maximum credit a film can receive will be £6.36 million. Films that do not qualify as independent films can continue to claim Audio-Visual Expenditure Credit (AVEC) under the current rules, at the basic rate of 34% (or the uplifted rate of 39% for animated films). However, companies will not be able to claim both the IFTC and AVEC in respect of the same film.

The changes will take effect for films commencing from 1 April 2024 and could be a boon to Scotland-based production companies. Companies wishing to benefit from this credit may wish to start thinking about claim submissions (which may be made from 1 April 2025 at the earliest) in relation to expenditure incurred from 1 April 2024.

5. Capital allowances

As announced in the Autumn Statement 2023, full expensing and the 50% first-year allowance for special rate assets were made permanent. Previously, expenditure on plant or machinery for leasing was excluded from these allowances.

The Chancellor announced draft legislation will be published proposing an extension of full expensing to assets for leasing. Under current proposals, full expensing will be extended to assets for leasing when fiscal conditions allow.

The proposed extension would apply equally in Scotland.

6. Multiple Dwellings Relief (MDR) for Stamp Duty Land Tax (SDLT)

SDLT applies to transactions in real property located in England and Northern Ireland, irrespective of where the property owner is resident or based. It does not apply to real property located in Scotland, to which Land and Buildings Transaction Tax (LBTT) applies.

MDR is a relief from SDLT, which may apply to the purchase of two or more dwellings and reduce the SDLT otherwise payable.

MDR will be abolished for transactions which are completed (or, if earlier, substantially performed before completion) on or after 1 June 2024.

Purchasers who have exchanged contracts by 6 March 2024 remain eligible for MDR regardless of when the transaction completes, provided there is no variation of the contract after that date.

There is an equivalent MDR relief under LBTT for Scottish properties. It remains to be seen if the Scottish Government will consider how MDR applies in future under LBTT for Scotland.

7. Residential property – Capital Gains Tax (CGT)

There are higher rates of CGT chargeable on gains made by individuals and trustees on disposals of residential properties than are chargeable on most other assets.

Currently, the higher CGT rate for a residential property gain is 28% (this compares to a higher CGT rate of 20% for other assets).

For disposals made from 6 April 2024, this higher CGT rate of 28% for residential properties will reduce to 24%.

Although it will be of limited application in most cases, the lower CGT rate of 18% for residential properties is unaffected by this change and will continue to apply.

This change applies equally in Scotland.

8. Furnished holiday letting

The furnished holiday lettings regime (FHL) will be abolished from 6 April 2024.

There are certain tax advantages under FHL which include capital gains tax reliefs, availability of capital allowances on purchases of equipment and fittings, and the treatment of income as earnings for pension contribution purposes. These changes will no longer apply as from abolition and standard property-letting tax treatment will apply.

Certain Airbnb properties currently qualify for FHL treatment.

This change applies equally in Scotland.

9. UK Individual Savings Account (UK ISA)

A consultation document was published today seeking views on how to design and implement a new UK ISA. This is to be a new £5,000 annual allowance, in addition to the existing £20,000 ISA allowance, to provide for a new tax-free savings opportunity for people to invest in the UK and support UK companies. The consultation runs from 6 March 2024 to 6 June 2024.

If implemented, this will apply equally to Scottish taxpayers.

10. Child benefit

From April 2024, the threshold for the high income child benefit charge (HICBC) will rise to £60,000 (currently £50,000). The charge will apply at 1% of the full child benefit awards for each £200 of adjusted net income between £60,000 and £80,000, halving the rate at which HICBC is charged. So, this will raise the level at which child benefit is fully repaid to £80,000.

It is further proposed that the HICBC will be administered on a household rather than an individual basis by April 2026, with a consultation to be expected in due course.

This measure will apply equally in Scotland.

11. Energy Profits Levy

The Chancellor announced that the sunset clause on the Energy Profits Levy will be extended by a year to March 2029, as the oil and gas sector's windfall profits from higher prices are expected to last longer than previously forecast. The Chancellor also announced the intention to legislate in the Finance Bill to abolish the Energy Profits Levy should market prices fall to their historic norm for a sustained period of time.

These measures will apply equally in Scotland.

12. Fuel Duty

The Chancellor will introduce legislation by statutory instrument to extend the cut in the rates of Fuel Duty for a further 12 months.

This will maintain the cut in the rates for heavy oil (diesel and kerosene), unleaded petrol and light oil by 5p per litre, and the proportionate percentage cut (equivalent to 5p per litre from the main Fuel Duty rate of 57.95p per litre) in other lower rates and the rates for rebated fuels, where practical.

The changes will take effect from 23 March 2024 and apply equally in Scotland.

13. Alcohol Duty

The last Alcohol Duty increase took place on 1 August 2023 and the Chancellor had previously committed to freezing Alcohol Duty until 1 August 2024. It was then due to rise by 3%. However, in this Spring Budget the Chancellor announced a further extension to freeze Alcohol Duty until February 2025.

This applies equally in Scotland.

14. Vaping Excise Duty and Tobacco Duty

A new duty on vaping products was announced. This proposal is currently at the stage of consultation which is expected to close on 29 May 2024. It is intended this new duty will take effect from 1 October 2026.

To ensure vapes continue to play a role in helping smokers give up cigarettes, there will also be a proportionate increase in Tobacco Duties from October 2026, alongside the Vaping Excise Duty, to maintain the current financial incentive to choose vaping over smoking.

15. Transfers of assets abroad regime

This is a long-standing and complex anti-avoidance regime. It seeks to tackle avoidance by individuals of UK tax by means of a transfer of assets outside the UK tax net. A recent court case decided that the regime applied only when the person making the transfer was the individual taxpayer, not a connected company. This change applies from 6 April 2024 and seeks to reverse the effect of the court decision. It means that transfers by closely-held companies will be caught where an individual has a relevant interest in the company.

This measure will apply equally in Scotland.

16. Reserved Investor Funds (RIF)

Following consultation, a new tax regime for RIFs is to be introduced under a future statutory instrument. An RIF is a new type of fund constituted as an unauthorised contractual scheme and is intended to have more flexibility than existing fund structures. RIFs are expected to be of interest for commercial real estate investments and will be aimed at professional and institutional investors.

This regime will apply equally in Scotland.