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Spring Budget 2024 Brief for Employers – what’s definitely happening in April 2024

By Charlie Goodman, Partner

Pension Lifetime Allowance going?

What’s happening?

Announced at the last Budget in April 2023 was the abolition of the Pension Lifetime Allowance from April 2024.

This allowance was based on the total value of pensions an individual had (including Defined Benefit pensions).

Above the allowance which was £1,073,100, individuals would have a tax charge on the excess of either 55% if they took it as a lump sum, or 25% if they took is as income.

The charge wasn’t applied the instant someone’s pension value went over the threshold, instead it was applied if a “benefit crystallisation event” occurred, commonly if a pension income was taken, if someone reached 75, or died.

It appears to be being replaced by several new tax charges that cover off what will happen now if those benefit crystallisation events have been reached.

The 25%” Tax free” Pension Commencement Lump Sum now has a cap, which has been set at £268,275 – 25% of the current Lifetime Allowance.

For death benefits, it’s being replaced by the Lump Sum Death Benefit Allowance (LSDBA) which will be set at the current Lifetime Allowance of £1,073,100.

The key difference is the excess was charged at a rate of 55% if taken as a lump sum, and this has been replaced by a tax charge at the recipient’s marginal income tax rate.

What does this mean?

In practice we’re not sure it changes an awful lot from an employer perspective.

The biggest issues for you when dealing with employees and the Lifetime Allowance is whether they were going to breach it or breach the protection they had against it, and it’s unclear with the replacement charges and the potential for a change of government, that this really changes the employer’s position.

These issues are matters of personal tax which the employee is ultimately responsible, but we’d continue to recommend providing them with financial education and literature so that they are aware of them.

We currently understand that employees can still be exempt from automatic enrolment, but only if they have official pension protection from HMRC for their Lifetime Allowance.

If they are close to or over the current Lifetime Allowance but don’t have protection, they should continue to be automatically enrolled, where they can opt out should they wish to do so.

Insurance industry group GRID suggest the Lump Sum Death Benefit Allowance seems to indicate maintaining or setting up an Excepted Group Life scheme still makes as much sense as it did before the change, despite there now being a lower charge applied, particularly with the potential for a Labour government to reverse the change.

Employees with issues or potential issues should be directed to seek personal independent financial or tax advice.

What do you need to do?

  • Check any internal documentation or processes that refer to the Lifetime Allowance.
  • Keep employees informed with communications.

Employee National Insurance Rate Cut

What’s happening?

Class 1 Employees National Insurance rate (the main employee national insurance rate) is being cut again, from 10% to 8% in April 2024.

What does this mean?

An employee earning £35,000 a year will save around £450 a year compared to now. Someone on £25,000 around £250 a year. Someone on £50,000 around £750 a year.

Because of the way the income banding works for the lower NIC rate the maximum saving will be £754 a year for those earning much more than £50,000.

And because of this banding being frozen those earning between £12,750 (where NIC becomes payable) and £26,000 will find there’s no real gain for them.

What do you need to do?

  • Check payroll and HR systems reflect this change from April 2024 (this should be something that is automatically updated).
  • Check payslip, pension, cycle to work, electric car scheme guides on platforms and in electronic / paper formats are updated and replaced.
  • Be aware that the employee take home pay rise benefit from salary sacrifice in reduced employee national insurance contributions will also be reduced.

High Income Child Benefit Charge Changes

What’s happening?

The tapering threshold at which point Child Benefit gets reduced is being raised from £50,000 to £60,000, and the point at which it is reduced to zero being raised from £60,000 to £80,000 of earnings a year.

What does this mean?

Previously if they earned £55,000 a year an employee with children would lose 50% of their child benefit and if they earned £60,000 a year they would lose all of it.

Now the taper begins at £60,000 a year and has been extended to a ceiling of £80,000 a year, that employee is no longer impacted at all, and the taper is “gentler”.

This means that the equivalent employee earning £65,000 a year will only see a 25% reduction, £70,000 a year will see the 50% reduction, and £75,000 a year a 75% one.

How much is the benefit worth?

One child is £1,248 per year, two children is £2,075 per year, and three children is £2,902 per year.

What do you need to do?

  • Probably nothing unless you have documented this state benefit anywhere.

Potential changes on the horizon

Automatic Enrolment changes not happening anytime soon

There was no mention of the automatic enrolment changes that became possible with the passing of the UK Automatic Enrolment Extension Bill in September 2023.

This allows for the age for automatic enrolment to drop from age 22 to 18 and for the lower limit of Qualifying Earnings to be removed.

It now seems unlikely that this will happen before the next parliament or next tax year.

Reforms to DC pensions was mentioned but still far off

The chancellor did announce that DC pension investment funds would need to disclose their levels of investment in British businesses, as well as their costs, and net investment returns, which will give you more information about your workplace pension default investment fund.

He also mentioned that the Value for Money framework may lead to underperforming pension schemes being denied new business.

The FCA will run a consultation this Spring, however we understand the reforms are targeted at 2027, which will be within the next parliament, so there’s no guarantee this will happen in the current format outlined.

Non-domiciled tax status changes

What’s happening?

The government is scrapping the “non-dom” status foreign residents in the UK can use which has been described as complex and potentially advantageous. It will be replaced by a “simpler” system.

From April 2025 onwards, new entrants to the UK will not have to pay UK tax on foreign income and gains for the first four years of UK residency, but then will do so under the normal UK system for UK domiciles.

What does this mean?

Hopefully a simpler system for foreigners residing in the UK, but one that will probably see them pay more UK tax.

What do you need to do?

  • Begin to plan for April 2025 when foreign assignees could face different tax conditions to those they do now. This is a policy change that seems to be supported by all major parties and likely to survive a change of government.

British ISA

There was an announcement that an additional £5,000 ISA allowance would be offered provided it went into British investments. The target date for this to be available is April 2025, which falls into the next parliament, so it’s unclear if this will happen.

It is unlikely we will get any information at this point as to whether this facility will be available on workplace savings platforms

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