How the Budget will affect you

The Chancellor announced his Spring 2024 Budget, no doubt with one eye on the upcoming General Election. He did not announce any major policy changes, leading to speculation that there may be a further mini-Budget before voting day. 

Time will tell if any significant tax changes are announced in the coming months, but Alec James meanwhile provides a summary of the key points from Jeremy Hunt’s latest address at the dispatch box.

Tax rates and bands

As in in the last few Budgets, income tax rates and lower tax brackets remain unchanged for 2024-25. 

The exception, of course, being that, from 6 April 2024, the additional rate of income tax now takes effect with earnings over £125,140 – previously £150,000. 

It had already been announced in the January 2024 Scottish Budget that the additional rate of tax would be increased from 45% to 48%. 

The personal allowance, which was last increased from 6 April 2021, remains unchanged. 

Many have seen that while there has been no increase in the tax rates, the freezing of the bands and personal allowances at a time when inflation has been running far higher than it has in the past means taxpayers are subsequently worse off.

National Insurance

Nearly all doctors will see a further 2% reduction in National Insurance contributions from 6 April 2024. Many of you will recall that a 2% reduction was announced at the end of last year and took effect from 6 January 2024. 

For those whose primary source of income is from employments, from 6 April 2024 the main rate
of Employee National Insurance contributions will be 8%. 

For those whose primary source of income is from self-employed income, from 6 April 2024 the main rate of Class 4 National Insurance contributions will be 6%.

You may recall that changes to the Class 2 National Insurance limits had already been announced prior to the Budget. 

With effect from 6 April 2024, while Class 2 National Insurance contributions exist, they will primarily be used to allow those with modest self-employed income to make voluntary contributions. 

Therefore, most self-employed doctors will not need to make any Class 2 National Insurance contributions going forwards.

As with the tax brackets, the National Insurance brackets remain unchanged from 6 April 2024.

For most higher-rate taxpayers, the changes in National Insurance will result in an extra £1,300 in your ‘take home pay’ for 2024-25 compared to 2023-24. 

VAT

Many doctors will have a form of income which is considered a taxable supply for VAT purposes. This includes sources such as medico- legal work. 

In the Budget, it was announced that the VAT registration threshold would be increased from £85,000 to £90,000 with effect from 1 April 2024. The deregistration threshold has also been increased but to £88,000. 

This marks the first increase in the VAT thresholds since April 2017. 

Many doctors choose to limit their ‘VATable’ income sources to below the threshold to avoid the administrative burdens of being VAT-registered. The increase may allow for a little growth in this regard.

For those that do exceed the threshold for registering for VAT, there are various VAT schemes available that help reduce the administrative burdens.

These include ‘Flat rate’, ‘Cash basis’ and ‘Annual’ accounting. Discussions with a medical specialist accountant can help you identify if one of these schemes would work well for your business if you were required to register for VAT.

Properties

There were a number of changes announced in the Budget in relation to residential property ownership. These were announced in an attempt to alleviate the housing shortage, by making available more homes and increasing the terms of lets.

The sale of a residential property that is not your main place of residence is subject to capital gains tax (CGT). 

In the Budget, it was announced that higher rate CGT on these gains will be reduced from 28% to 24% from 6 April 2024. 

The other CGT rates remain unchanged. With mortgage interest rates rising, this may present an opportunity to sell buy-to-let properties, locking in lower rates of CGT and avoiding rising interest costs. 

If you do choose to sell a buy-to-let property, it is important to remember HM Revenue and Custom’s (HMRC’s) strict reporting rules. Within 60 days of completion on the property sale, you must calculate and pay any CGT. 

The Chancellor has abolished the reliefs and preferential treatment relating to furnished holiday lets with effect from April 2025 and Multiple Dwelling Relief for Stamp Duty Land Tax (SDLT) will be abolished from 1 June 2024, although, the relief may still be available for contracts exchanged before 6 March 2024. 

These changes primarily relates to property that can be shown to be separate units. This applies to flats but also to high-value properties with two or more main entrances and separate living areas, such as annexes or ‘granny flats’.

Child Benefit

While not applicable to most senior doctors, those who are part-time or are registrars with children, the High Income Child Benefit Charge (HICBC) threshold has been increased. 

Previously if the parent or highest-earning cohabiting parent had ‘adjusted income’ in excess of £50,000 and if either cohabiting parent was claiming Child Benefit, the higher earner was subject to HICBC. 

This results in the individual paying a proportion of the claimed benefits back. Those whose threshold income was £60,000 or more were fully tapered, meaning all child benefits claimed had to be repaid with their self-assessment tax liability. 

Thresholds will be increased from 6 April 2024 to £60,000 and £80,000 meaning many more taxpayers will be eligible to retain the benefit and those falling in between the two rates will taper at a slower rate. 

Non-domiciled taxpayers

The rules for those considered as non-domiciled will change in April 2025 with new residence basis rules. 

New non-domiciled taxpayers arriving in the UK will still benefit for the first four years of 100% tax relief on foreign income and those existing non-domiciled tax payers will be transitioned to the new rules. 

HMRC has described the new rules as a ‘modernised regime that is simpler and fairer’.

Annual allowance and lifetime allowance

While not announced in the Budget, various changes were announced last year in relation to pension savings annual allowance, increasing the annual allowance threshold from £40,000 to £60,000 and the aligning of the Consumer Price Index rates applied by NHS Pensions with those allowed by HMRC.

This will hopefully alleviate annual allowance tax charges for many doctors and allows for additional pension planning, particularly for those who work primarily in the private sector.

It was also announced that the lifetime allowance would be abolished by 5 April 2024 and replaced by the lump sum allowance. The lump sum allowance is currently £268,275 or 25% of any lifetime allowance protections you have in place.

With that in mind, within some of the publications that were published after the Budget was a deadline for claiming individual protection 2016 (IP2016). The deadline has been set as 5 April 2025. 

The Budget can present some excellent planning opportunities, depending on your circumstances, and discussing your affairs with a specialist medical accountant could reap rewards.

Alec James (right) is a partner at Sandison Easson & Co, specialist medical accountants