Among the measures announced by the Chancellor, changes to Child Benefit thresholds, VAT, CGT for residential property disposals and non-dom tax status also stood out.
The chancellor announced a sweeping change to Child Benefit thresholds, with a new system that would include testing of households, rather than application on individual income, through collection of data by HMRC, pencilled in for April 2026. In the meantime, there is an increase in Child Benefit thresholds, the first since 2013, when the benefit was created, which was welcomed.
This sees the £50,000 threshold after which child benefit starts to be tapered off, increased to £60,000, and the earnings point at which the benefit is lost completely raised to £80,000.
Shaun Moore, tax and financial planning expert at Quilter said: “The cost of living in the UK has surged notably since the high-income Child Benefit threshold was created in 2013, and the current ‘high income cap’ of £50,000 has ensnared even some basic-rate taxpayers. It is therefore positive that the Chancellor has announced the threshold will rise.
“Using the Bank of England’s inflation calculator this threshold should be £66,727 today, so though this increase is welcome, it still somewhat overlooks the impact of inflation over the past decade. Increasing the threshold is a step in the right direction, and we are pleased to hear that the government will fundamentally re-evaluate how household income is considered in the eligibility criteria for Child Benefit to reduce unfairness baked into the system.”
On the move to household-based assessment, Moore continued: “This would address the glaring inequity where a dual-income household with each partner earning just under the HICBC threshold can access full Child Benefit and do not face any reduction in benefits, while in stark contrast, a single parent earning slightly over the threshold faces a reduction or total loss of this support after they earn more than the taper level, despite managing on a significantly lower household income.
“While this would introduce more complexity for HMRC into the Child Benefit system, the benefits of rectifying the current system’s unfairness far outweigh these challenges. This approach would not only eliminate the ‘benefit cliff edge’ effect for single earners just above the current threshold but would also ensure the policy more accurately reflects the financial realities of modern families, including dual-income households and the rising costs of childcare.”
VAT threshold change
The Chancellor also announced that the annual turnover threshold at which businesses would have to start charging VAT will increase from £85,000 to £90,000. This still leaves question marks, said Tom Minnikin, partner at Forbes Dawson.
He said: “In broad terms, businesses only become liable to charge VAT when their annual turnover exceeds the VAT threshold. Analysts have increasingly pointed to evidence of the threshold distorting behaviour, by discouraging businesses at the margin to grow their output. This issue has become even more stark because the threshold has been frozen since 2021.
“Today’s increase may ease these concerns, although it is worth nothing that over the intervening period inflation has been more than 10 per cent. Today’s increase only partially deals with this issue.
“More fundamentally though, is now the time to have a more radical think on VAT? Some argue that a much lower threshold, balanced by a reduction in the headline VAT rate would lead to less market distortion, by exempting only the smallest businesses.”
CGT on residential property gains
Jeremy Hunt said that the Government had received advice that the current 28 per cent CGT rate on residential property gains was discouraging landlords and second home-owners from selling their properties.
The reduction of the higher rate of CGT for residential property disposals from 28% to 24% improves the position for people looking to sell properties that are not their main residence
But this served only to highlight the scheduled reduction in the CGT exempt amount from £6,000 to £3,000 from 6 April 2024.
This, commentators said, made it hard for investors to plan tax-efficient income and gains outside an ISA or pension, – a frustrating move that “flies in the face” of the Chancellor’s plans to encourage UK investment.
Non-dom tax status
The decision to abolish the non-domiciled tax status and replace it with a residency-based system, will see non-doms pay no UK tax for their first four years of residency but thereafter they will pay the same as UK taxpayers, the Chancellor said.
Under current rules, non-doms can avoid having to pay tax on their overseas income and gains, provided they do not remit the funds to the UK. A charge of £30,000 applies for those who have been resident in at least 7 of the last 9 tax years, rising to £60,000 for those who have been resident in 12 of the last 14 tax years. Once the individual has been resident for 15 out of the last 20 tax years, they no longer qualify for the remittance basis.
Antony Antoniou, CEO of central London real estate agents and investment specialists, Robert Irving Burns (RIB), said this will mean non-domiciled UK residents” face decisions about what to do now that the non-domiciled tax status is set to end in April 2025. What those nearly 70,000 non-doms decide could have wide repercussions for the UK’s tax revenue and international competitiveness.
“It is not only super-rich business owners and heirs that benefit from the status, non-doms also include City of London bankers, lawyers and consultants. Those living off unearned income are far outnumbered by non-doms who work.”
Tom Minnikin, partner at Forbes Dawson, commented: “Being entirely cynical, this looks like an attempt to undermine the Labour party’s election strategy than any strong affirmation of where the Conservative party stands on the issue of non-dom tax, as Mr Hunt had being saying for months that he no intention to make changes. With the revenue this change raises being put towards other tax cuts announced today, Labour will be forced to rethink their manifesto pledges, some of which were to be funded by abolishing the remittance basis regime.
“Some might call the Chancellor a hypocrite for on the one hand saying Keir Starmer’s party does not have a plan for government, whilst on the other hand stealing their signature policy. They will certainly need a new plan now though.”
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