Spring Budget 2024: Financial Services - KPMG UK (2024)

There were no “headliners” for banking in the Chancellor’s Spring Budget 2024. Below are some of the most relevant measures announced by the Chancellor today impacting banks:

Full expensing for leasing

The Chancellor announced plans to introduce full expensing for plant and machinery for leasing with draft legislation to be published for technical consultation. Previously such assets were excluded from the regime announced in the Autumn Statement 2023. If implemented this will bring forward tax relief for banks and other leasing businesses.

Automatic Exchange of Information consultation

A consultation has been launched on the adoption of new International Standards on Exchange of Information, adopting amendments to the Common Reporting Standard (CRS) and Crypto-Asset Reporting Framework (CARF) from 1 January 2026. The UK has already committed to adoption, so this consultation focuses on the practical implications. All financial institutions may want to engage with the consultation, which is far-reaching, including questions on whether an equivalent domestic regime that involves reporting on UK resident taxpayers by UK service providers should be adopted for both CRS and CARF, as well as changes to the penalty regime to move to a per account penalty as with the Digital Platforms information implementation.

Economic Crime Levy

The economic crime levy, paid by most organisations which are in scope for the Money Laundering Regulations, will see the top rate doubled from £250,000 to £500,000 with effect from 1 April 2024.

Consultation on Private Intermittent Securities and Capital Exchange System (PISCES)

The Government announced a consultation for a proposed new platform on which private companies could trade their securities on an intermittent basis, envisaging ‘trading windows’ at defined intervals such as quarterly or monthly. The aim appears to be to bridge the gap between private companies and UK public markets in order to support the pipeline for future UK IPOs, with a bespoke regulatory regime providing better protection to investors than unregulated bilateral trading arrangements. The consultation is open for responses until 17 April 2024.

See below for further comments on a proposed UK ISA consultation and the much-discussed changes to the “non dom” regime, both of which could have wide-ranging implications for operational processes within banks.

As with banking, there were no targeted measures in the Spring Budget in respect of the insurance sector.

Accordingly, there are no specific points to highlight which are not already covered under other sections. Of particular interest to the insurance sector is the abolition of non dom status, the UK ISA, the consultations in respect of the Automatic Exchange of Information and Reserved Investor Funds.

No announcements were made in respect of the Global Minimum Tax or the Consultation on Transfer Pricing, Permanent Establishment and DPT. We note that this will be relevant to the other sectors.

UK ISA

The Chancellor announced a new UK ISA, with an additional allowance of up to £5,000 for investment in UK assets. That will take the total number of ISAs being operated up to seven. A consultation document has been launched today which consults on the scope of assets to be included in the UK ISA – and whether it should include funds, bonds, gilts or other assets alongside UK equities. The consultation also reminds ISA managers of the commitment in the Autumn Statement to digitalise the ISA reporting system and asks how quickly managers could make a UK ISA available alongside those changes.

Institutional Investors – Pensions

The Chancellor has announced thatdefined contribution (DC) pension fundswill be required to disclose their level of investment in the UK. This is part of wider pension fund reforms which will be aimed at increasing transparency and encouraging investment in UK companies.

Reserved Investor Fund consultation

The Government has confirmed that it will proceed with the introduction of the Reserved Investor Fund (RIF), a new UK unauthorised contractual scheme fund aimed at professional and institutional investors. As part of the Summary of Responses document published today in follow up to the 2023 consultation, the Government confirmed its intention to legislate through the Spring 2024 Finance Bill with more detailed rules to follow in secondary legislation.

The RIF is expected to be a suitable vehicle to hold UK real property but the Government has confirmed that the fund will be able to invest in a wide range of asset classes beyond real estate, subject to the RIF being within one of three restricted regimes: where at least 75% of the value of the RIF’s assets is derived from UK property, where the RIF’s only investors are exempt from capital gains other than by reason of residence (eg. certain pension funds), or where the RIF does not directly invest in any UK property.

There will be flexibility for RIFs to invest into qualifying asset holding companies (QAHC) and Real estate investment trusts (REIT) for REITs to be able to invest in RIFs. The Government has confirmed that it will proceed with an SDLT seeding relief for a RIF. However, there is no proposed specific VAT exemption or zero rating for management of a RIF and therefore the VAT treatment of management services and deductibility of any VAT chargeable will need to be considered in relation to any RIFs.

‘Non dom’ regime abolished

The Chancellor announced the end of the ‘non dom’ regime as had been trailed in the run up to the Budget. The regime will be replaced with a residency-based system; from April 2025 new arrivals in the UK will have four years before being taxed on the arising basis on worldwide income and gains. Transitional arrangements will apply for two years for those currently claiming the remittance basis. The announcement predicts an additional £2.7bn tax receipts as a result of the change.

This may have particular impact for investment managers of private funds, given that returns from such funds are often long-term in nature and potentially beyond the four year period.

Reduction in Capital Gains Tax on Residential Property

An unexpected reduction in the higher rate of Capital Gains Tax effective on the sale of residential property on or after 6 April 2024, from 28% to 24%, based on expected higher tax revenues from an increased level of transactions.

Further cuts to National Insurance Contributions

As was widely publicised in advance of the Statement, The Chancellorannounced a further cut of 2% to Employee National Insurance (NI) contributions.The financial benefit of this to individuals is offset by no inflationary uplift to personal allowance bands.

Furnished Holiday Lettings regime abolished

The regime will be abolished with effect from 1 April 2025, removing special tax rules for landlords where their holiday home qualified as a Furnished Holiday Let - this was deemed to disadvantage those looking for longer term rentals. Draft legislation to follow but expect this may restrict tax relief on interest expense, certain deductible expenses and potentially may remove access to the lower 10% capital gains tax rate applying on business asset disposals (previously Entrepreneurs Relief), where certain conditions were met.

VAT Registration Threshold

The VAT Registration Threshold is increasing from £85,000 to £90,000 effective from 1 April 2024, which will benefit some small businesses. This is the first increase in the VAT registration threshold since 2017.

Bringing trades in Carbon Credits within the scope of the Terminal Markets Order (TMO)

The Finance Bill will include legislation that underpins the TMO for VAT. This will allow trades in carbon credits to be brought within the scope of the TMO at a future date. The TMO contains the rules for determining the VAT liability of trades in commodities traded on specified markets. This is part of the Government’s broader commitment to update the TMO legislation, which was announced at Tax Administration and Maintenance Day 2023. There was a joint HMRC and Treasury consultation undertaken in 2023 in relation to the reform of the TMO and the outcome of the consultation is expected in due course.

Interest Harmonisation

The Government will introduce legislation as part of the Finance Bill to make an administrative amendment to the operation of the interest harmonisation rules for VAT. This is to correct the narrow scope of the common period rules and will give HMRC the power to automatically collect overpaid VAT repayment interest. We are investigating the impact of these proposals further.

R&D Tax Reliefs

New incentives are covered in our main commentary. Note that HMRC will establish an expert advisory panel to support the administration of the R&D tax reliefs. The panel will provide insights into the cutting-edge R&D occurring across key sectors such as tech and life sciences, and work with HMRC to review relevant guidance, ensuring it remains up to date and provides clarity to claimants. This may be helpful for claims submitted by Financial Services businesses.

Tax Administration and Maintenance Day

The Government has announced a Tax Administration and Maintenance Day for 18 April 2024.

For more information on Spring Budget 2024 response here. If you would like to join our Spring Budget 2024 webinar on Friday 8 March 12:00 – 13:00 register here.