Wednesday’s Spring Budget included a number of tax and benefits features that will impact divorcing couples. Whether it was a last chance saloon Budget for the Government, with tax reductions in an attempt to woo voters, or a prudent long-term strategy with a view to demonstrating careful management of public finances, we shall see what the Great British Public make of it when they go to the ballot box at some point in 2024.

The main points from a Family Lawyer’s perspective were as follows:

National Insurance Contribution (NIC) rates

The widely anticipated further reduction by 2% in Employee’s NIC was the final announcement in Jeremy Hunt’s Budget. He announced the following:

• The main rate of Class 1 employee NICs will be reduced by 2p from 10% to 8% from 6 April 2024. This is in addition to the 2p cut announced at Autumn Statement 2023 with effect from 6 January 2024.
• The main rate of Class 4 NICs, paid by self-employed earners, will be reduced by 3p from 9% to 6% from 6 April 2024. This replaces the cut to 8% announced at Autumn Statement 2023.
• The government will launch a consultation later this year to deliver its commitment to fully abolish Class 2 National Insurance. This follows the announcement at Autumn Statement 2023 that from April 2024 no self-employed person will be required to pay Class 2, whilst those who pay voluntarily will continue to be able to do so to build entitlement to contributory benefits.

These NIC rate changes will need to be factored in when calculating a party’s net income in family proceedings. It will only impact the employed and self-employed. It has no impact on business owners who supplement modest salaries with dividend income, as dividends do not attract NIC.

High income Child Benefit charge

Jeremy Hunt was taken to task recently by Martin Lewis over the anomaly surrounding a family’s Child Benefit entitlements, whereby a household with one parent working with income in excess of £50,000 per annum, would be subject to a tax charge on their Child Benefit, whereas if both parents worked and each earned £49,000, totalling £98,000, they would not be captured by the tax charge.

As a result, the Chancellor announced that the government will raise the threshold for the High Income Child Benefit Charge from £50,000 to £60,000 from 6 April 2024, and there will be a tapered tax charge between £60,000 and £80,000. The government will also consult on moving to a household based system rather than one based on individual incomes from April 2026.

That is good news for those single worker families who suffered a tax charge as a result of this anomaly.

Capital gains tax

Many divorcing couples have residential buy-to-let properties and I am often instructed to calculate the latent CGT in relation to these.

The Chancellor announced a reduction to the higher rate of CGT on residential properties from 28% to 24% from 6 April 2024. The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band.

It was anticipated that the rate reduction will increase the number of transactions and thereby the overall CGT take. An interesting theory, whether it delivers in practice will no doubt be monitored by HMRC – I’m not so sure.

Non-domiciled individuals

The government will abolish the current tax regime for non-UK domiciled individuals and replace it with a residence-based regime:

• From 6 April 2025 the government will introduce a new residence-based regime.
• Under the new regime, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains, regardless of their domicile status, with a four-year relief for new arrivals (provided they have been non-tax resident for the last ten years).
• There are also transitional arrangements being put in place.
• The government also intends to move to a residence-based regime for Inheritance Tax and will consult in due course on the best way to achieve this. No changes to IHT will take effect before 6 April 2025.

Furnished holiday lettings

The Chancellor abolished the Furnished Holiday Lettings tax regime from 6 April 2025. It is aimed at raising £300 million from landlords who benefitted from the FHL scheme. This removes tax benefits for landlords who qualify for the FHL scheme such as capital allowances, rollover reliefs for CGT and deductions of loan interest from rental income.

Childcare

The hourly rate childcare providers are paid to deliver the “free” hours offered for children aged nine months to four years will increase in line with the metric used at the Spring Budget for the next two years.

Stamp duty land tax – multiple dwellings relief

Multiple Dwellings Relief is to be abolished from 1 June 2024. This applied when a purchaser bought multiple dwellings in a single transaction and allowed them to calculate the Stamp Duty Land Tax on the average value of the dwellings purchased as opposed to their aggregate value.