Wealth Managers React To UK Spring Budget, Controversy Flies Over Non-Dom Abolition

Amanda Cheesley Deputy Editor 7 March 2024

Wealth Managers React To UK Spring Budget, Controversy Flies Over Non-Dom Abolition

After the UK Chancellor of the Exchequer Jeremy Hunt delivered the Spring Budget to the House of Commons on Wednesday, wealth managers discuss the impact, notably the abolition of the resident non-domiciled status.

UK Chancellor of the Exchequer Jeremy Hunt announced on Wednesday that he will abolish the non-domicile ("non-dom") status – estimated to generate £2.7 billion ($3.4 billion) – to help pay for personal tax cuts.

The regime, which will have to transition arrangements in place for current non-doms, will be replaced by a new one. From 25 April, new arrivals to the UK will not have to pay tax on foreign income and gains for the first four years of their UK residency. After that, they will pay the same tax as other [UK] individuals. While changes to the regime - which dates back more than 200 years - had been expected - the reality of a centre-right government scrapping the system still came across as something of a shock. This news service has commented on the non-dom system here.

The oil and gas windfall tax will also be extended. Stamp duty relief for those who purchase more than one dwelling in a single transaction, known as Multiple Dwellings Relief, has been axed too.

Hunt also confirmed a 2p cut in National Insurance contributions from 6 April, to help workers and households, as well as a freeze in fuel and alcohol duties, in an attempt to shore up the Conservative party’s popularity ahead of the general election later this year.

The higher rate of capital gains tax on residential property will also be reduced from 28 per cent to 24 per cent. New British individual savings accounts (ISAs) will provide an extra £5,000 tax-free allowance for savings invested in UK firms. ISA savers currently have an annual allowance of £20,000.

Despite pressure to reduce or even cut the controversial inheritance tax (IHT), it was not included in the package. Inheritance tax is typically paid at a rate of 40 per cent over certain thresholds; money can be passed on IHT-free to a spouse or civil partner, who will then also inherit the allowance when they die.

Here are views from wealth managers on the budget.

Antony Antoniou, CEO of central London real estate agents and investment specialists, Robert Irving Burns

“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 who 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.”

GSB wealth partner Mauro De Santis Bo
“The abolishment of the non-domicile status will directly impact some of GSB's clients, as we work with international families moving around the globe. Some of our clients are UK non-domiciled and are currently living in the UK. We personally have some non-doms living in the UK who will likely reconsider whether to remain residents after the recent changes. Wealthy non-doms who have the right level of advice will most likely find different ways to mitigate the impact of the new residency-based system and remain UK residents, but some families will prefer to leave the country and seek a new home that offers better tax treatment. It will be interesting to see how this new residency system will play with the current rules for inheritance tax. If no further clarity is given, this change could potentially lead to some inheritance tax headaches for those non-doms (who will now fall under the new ‘modern, simple and fairer residency-based system’) living in the UK."

Sophie Warren, tax manager at Pinsent Masons
“Even with what little we know about the new residence-based regime, it’s already shaping up to be remarkably radical. A lot of people who are currently non-doms are going to see 50 per cent of their overseas income subject to UK tax as soon as April 2025. That is going to surprise many non-doms who were probably hoping for a more gradual transition.”

“The upcoming consultation on implementing the new system needs to make sure the steps the government is taking are not too much, too soon. There’s a risk of chasing people who have been non-doms out of the country if the implementation is too aggressive. We’re likely to see a lot of non-doms getting income and capital into the UK over the next three years to make sure they benefit from the temporary 12 per cent tax rate on doing so. If they don’t, they will end up paying the full UK tax rate on it – that’s up to 45 per cent on some of their income.”

Jeremy Croysdill, director – wealth planning, Brown Shipley
“We wait to see how the widely-trailed abolition of the non-dom regime will be replaced in a year’s time. The proposals will hopefully not encourage current non-doms to move away from the UK. We don’t want the transitional provisions to be onerous. Simplicity and transparency is key – it should also be easy to implement and understand.”  

National insurance
Alastair Black, head of savings policy at abrdn

”It’s good to see more headroom being given to households. The government certainly focused on working people in the budget and NI cuts are targeted there. Going forward, we’d like the government to consider linking tax bands to inflation. While it might not be the most headline-grabbing move, it would provide the most value to consumers and their advisors when it comes to long-term financial planning. This creates a stealth tax in particular on the retired. It’s hard to plan for future income needs when you don’t know how much tax you will be paying, and leaving allowances flat can have a massive impact over time.

“This is particularly true on the personal allowance and higher rate income tax bands, which have the biggest effect on most people in retirement – a time when there are limited choices on how to adapt their financial plans.”

Claire Trott, divisional director for retirement and holistic planning at St James’s Place
“The reduction in National Insurance will clearly only make a difference to those working and of working age. People over state pension age do not pay National Insurance and as such won’t benefit from this measure which is a real shame when they are often the hardest hit by inflation on their fixed income. The 2 per cent cut in January didn’t make a massive difference to people’s take-home pay – at least not noticeably – and it also did not help those most in need, with the lowest earners not paying any National Insurance in the first place. Once again, there has been no cut for employers, despite the upcoming increases in the cost of employment, with the national living wage rise coming in and it being extended to lower age workers. This disparity could see job cuts and therefore less tax take available on those earnings.”

James Norton, head of financial planners, Vanguard Europe
“For the average UK worker earning £35,400, today’s reduction in National Insurance (NI) will bring an additional tax cut of over £450 in the 2024-25 tax year. When you factor in the previous NI reduction, this makes for a total tax saving of £799 in 2024-25. For higher-rate taxpayers, this increases to £1,320. This may seem small, but those who are able to put this money towards long-term goals could boost this amount to £998.75 and £1,650 respectively by adding it to their pension. Personal pension contributions benefit from tax relief so, for basic rate taxpayers, every £80 saved into a pension is topped up by the government by £20. Over time, adding additional take-home pay to a pension could make a big difference to the size of an individual’s retirement pot, particularly if the money is invested over a long (five or more years) time period.”

Faye Church, senior chartered financial planner, Investec Wealth & Investment (UK)
“This is a good result for everyone who pays National Insurance. National Insurance and income tax rate cuts have been widely speculated on the run up to the budget. Cutting National Insurance to a starting rate of 8 per cent is a cheaper alternative to cutting income tax for the government, around £4 billion less, yet a much larger saving to the individual. A 2p cut in income tax could potentially save someone earning £50,270 the sum of £377 per annum, whereas a 2p cut in National Insurance would save a much larger £785 per annum. This is part of the Chancellor’s promise; to reduce the tax burden on working families.

“A 2p cut in income tax would have cost the exchequer in the region of £14 billion, whereas a 2 per cent cut in National Insurance will cost a slightly lesser £10 billion and satisfies the Chancellor's promise to reduce the tax burden on working families. This cut incentivises people to work and continues to narrow the gap between earned and unearned income."

Jeremy Croysdill, director – wealth planning, Brown Shipley
“The Chancellor is building on the announcement from the Autumn Statement to reduce National Insurance contributions by a further 2 per cent to encourage the working population. We think this is to provide economic stimulus and growth rather than targeting a reduction in income tax rates.”

Claire Trott, divisional director of retirement and holistic planning at St James’s Place

“We welcome all opportunities for tax-free investment with the ‘British ISA’ increasing the overall ISA allowance. However, it comes with restrictions on where you can invest which may be a turn off for some. It also adds to the complexity of something that used to be simple, we now have multiple ISAs with various restrictions, which will probably mean more need for financial advice.”

Charles Incledon, client director at Bowmore Asset Management
“More options for tax-free investment are always welcome, but the British ISA is only likely to attract a relatively small amount of extra investment. The number of people who reach their existing £20,000 ISA allowance is already very limited. To get the volume of investment in UK equities, the UK market really needs the pension fund industry to move towards more domestic equity investment. Retail investment will only ever be a small part of the market in comparison. This is not a “Sid” moment, it is very unlikely to trigger a renaissance in the ownership of UK shares.”

Alastair Black, head of savings policy at abrdn
“We are glad to see that the government has not removed any existing ISA flexibility in offering this new top-up ISA. We need to maintain stability to encourage consumers to save for the long term. The government could go further here and combine this with raising the standard ISA allowance from the £20,000 where it has been stuck for a number of years.This would not require any systems' development or change in advice processes and could bring additional benefits in terms of investment in UK assets as a result of a general increase in inflows. The UK ISA is an interesting concept, but it remains to be seen how attractive this will be to savers and whether there will be enough consumer demand to warrant the delivery costs in bringing it to market.”

Jeremy Croysdill, director – wealth planning, Brown Shipley
“This aims specifically to boost the UK equity market. It’s quite an incentive to invest in UK plc which has been flat for so long as people have been investing elsewhere, in particular the US.”

Inheritance tax
Jeremy Croysdill, director – wealth planning, Brown Shipley

“Inheritance tax continues to be overlooked. This remains a tax which is largely untouched but still collects increasing amounts year-on-year due to frozen allowances, thresholds and increasing asset values. It should be something for a future government to address.”

VAT registration threshold to increase to £90,000
Owen Burn, VAT director at professional services firm Evelyn Partners 

"The Chancellor has confirmed that the VAT registration threshold will increase from £85,000 to £90,000 with effect from 1 April 2024. The increase is a welcomed one, with the current threshold having been in place since 1 April 2017. With many small businesses facing challenging trading conditions in an environment of rising supplier costs and a dent in consumer confidence, increasing the VAT registration threshold to £90,000 will help many entrepreneurs across the UK. This tax cut means that many existing businesses will not only be able to carry on trading but it will also help encourage a new generation of entrepreneurs to set up businesses. It is in the early stages of setting up a business where entrepreneurs need all the support they can get.

“However, we also need to err on the side of caution in that some businesses may opt to manage turnover to remain under the threshold to avoid a potential 20 per cent rise in prices and the additional administrative and financial burden of filing Making Tax Digital compliant VAT returns. It is therefore unclear what level of growth this marginal rise will deliver for small businesses as a whole at or around the threshold."

In the Autumn Statement, Hunt announced plans to launch a consultation on ‘pot for life’ reforms which would give workers the right to nominate the pension scheme they want their employer to pay contributions into.

Andrew Marker, head of retail pensions, Vanguard, Europe
“We are encouraged by the UK Government’s commitment to give workers the choice to select their own pension provider. With the average worker in the UK expected to have 11 jobs in their working lifetime, it is likely they will accumulate several pension ‘pots’ with different providers. Keeping track of multiple pensions is not easy and, in fact, 2.8 million pensions worth an average of £9,500 each are estimated to be lost or forgotten in the UK. The move would therefore be a step in the right direction which would give people greater clarity about their retirement savings. A ‘pot for life’ would allow individuals the opportunity to take control of their pension, making it easier to plan for the future and to ensure their savings are being invested with their future goals in mind."

Alastair Black, head of savings policy at abrdn
“The Chancellor committed to continuing to explore the idea of a ‘pot for life’. It’s fundamentally a good idea. Giving members choice on their provider reframes a pension as “theirs” and not their “employer's.” This has the potential to be one of the most seismic shifts in policy, encouraging consumers to engage with long-term financial planning."

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