Autumn Budget 2024

The first Labour budget since 2010 was much anticipated. It delivered some significant tax increases as promised. The changes to tax rules (rather than just rates) were concentrated around the abolition of the non-domiciled regime. Although these were mostly already announced, there are still important questions remaining about some parts of the new rules. The reduction of APR and BPR for inheritance tax purposes is a relatively simple change, but one that will be very significant to those affected.

Capital gains tax (CGT)

The main rates of capital gains tax will increase to 18% and 24% respectively for disposals made on or after 30 October 2024 (increased from 10% for basic rate taxpayers and 20% for higher rate taxpayers).

Capital gains tax rates for residential property will remain at 18% and 24% for basic and higher / additional rate taxpayers respectively.

The capital gains tax-free annual exempt amount will remain unchanged at £3,000 for individuals and £1,500 for trustees.

CGT - Business Asset Disposal Relief and Investors' Relief

The capital gains tax rate on disposals qualifying for BADR or Investors’ Relief will increase to 14% (from 10%) for disposals made on or after 6 April 2025. This will increase again to 18% for disposals made on or after 6 April 2026, matching the main lower CGT rate.

The lifetime limit of £1,000,000 for BADR has remained unchanged.

The lifetime limit for Investors’ Relief has been reduced from £10,000,000 to £1,000,00 for qualifying disposals made on or after 30 October 2024, matching the limit on assets qualifying for BADR.

The taxation of carried interest

For 2025/26, carried interest gains will be taxed at 32% (up from 28%).

From 6 April 2026, carried interest will fall within the income tax framework, such that carried interest receipts will be treated as trading profits. A 72.5% multiplier will be applied to qualifying carried interest to reduce the effective tax rate to 32.6% in most cases. Carry will also be liable to Class 4 NICs, most likely at the rate of 2% (effectively 1.45% after the multiplier).

Income tax thresholds

The government has confirmed that the freeze to income tax thresholds will end in April 2028 as originally planned. From 6 April 2028, the intention is that thresholds will be uplifted in line with inflation.

As was widely anticipated, from 6 April 2025, the government will abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a residence-based regime. We have summarised the changes in this update, and have given more detail in a separate update.

Foreign Income and Gains ("FIG") regime

From 6 April 2025, individuals will be able to elect to not pay UK tax on FIG if they are within their first four years of UK tax residence, provided they have not been UK resident in the preceding 10 tax years. They will be free to remit the FIG to the UK without any tax charge.

The FIG on which relief is claimed must still be reported on the individual’s tax return even though it is not taxed.

All other UK resident individuals will pay tax on their worldwide income and gains as they arise.

Temporary Repatriation Facility (“TRF”)

The TRF will allow individuals who have previously been subject to UK tax on the remittance basis to “designate” amounts derived from pre-6 April 2025 FIG, and pay a reduced tax rate on designated amounts for a period of three tax years starting from the 2025/26 tax year.

Amounts designated in 2025/26 and 2026/27 will give rise to a 12% effective tax charge, whereas amounts designated in 2027/28 will be taxed at 15%.

In an important change to the proposals as originally announced, the TRF will apply to pre-6 April 2025 income and gains arising within trust structures.

It will not be possible to set foreign tax paid against the TRF charge as designated amounts are deemed to be net of foreign tax.

CGT rebasing

For CGT purposes, individuals who are neither UK domiciled nor deemed domiciled on 5 April 2025, and have previously elected to pay UK tax on the remittance basis, will be able to rebase qualifying personally held foreign assets to their market value as at 5 April 2017.

Overseas Workday Relief (“OWR”)

Individuals who qualify for the four-year FIG regime will be able to claim OWR. This relief will exempt part of an individual’s employment income from UK tax to the extent that the income relates to non-UK duties subject to a maximum of 30%

In a change to current rules, OWR will be available regardless of whether the non-UK related earnings are paid to a UK or overseas bank account.

Non-UK trusts – income tax and CGT

From 6 April 2025, the protection from tax on FIG arising within settlor-interested trust structures will no longer be available for UK resident settlors who do not qualify for the four-year FIG regime. Instead, any FIG arising within the structure will be subject to UK income tax or CGT on the settlor as it arises.

Inheritance tax (IHT) – long-term residents

From 6 April 2025, non-UK assets will fall within the scope of UK IHT if the individual is a “long-term resident” at the date of the chargeable event – broadly, where they have been UK resident for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event arises (such as death).

Long-term residents who then leave the UK will remain within the scope of IHT on their worldwide assets for a number of years according to how long they were UK resident before leaving:

1. For those who were resident in the UK between 10 and 13 years, they will remain within the scope for IHT for 3 tax years.
2. This will then increase by one tax year for each additional year of tax residence. For example, if an individual was resident for 17 out of 20 tax years prior to departing the UK, they would remain in scope for UK IHT for 7 years.

The test will reset where an individual subsequently becomes non-UK resident for 10 consecutive years.

IHT – non-UK trusts

From 6 April 2025, assets held within a trust will be within the scope of UK IHT at all times when the settlor is a long-term resident (as described above). In these cases, the trust assets will be subject to decennial and exit IHT charges at a maximum rate of 6%.If the settlor ceases to be long-term resident, this will also give rise to an IHT exit charge.

For any new trusts created from 30 October 2024, assets comprised within a settlor-interested trust will fall within the settlor’s IHT death estate if they die whilst long-term resident. Transitional provisions will in most cases protect pre-30 October trusts from the death-estate charge to IHT.

IHT – pensions

Pensions currently pass IHT-free outside of the death estate.

From 6 April 2027, unused pension funds and death benefits will be brought into a person’s death estate and will therefore be fully subject to IHT.

IHT – APR & BPR

APR and BPR currently provide up to 100% relief on qualifying assets with no monetary limit on the amount of relief.

From 6 April 2026, the 100% rate of BPR and APR relief will apply only to the first £1m of combined business and agricultural property.Value in excess of £1m will be subject to 50% relief, giving an effective 20% IHT rate.

The £1m is a lifetime allowance for each individual.

Shares listed on AIM and other similar stock markets will receive IHT relief at 50% even if they fall within the first £1m, again giving rise to an effective 20% IHT rate.

From 6 April 2025, the scope of APR is to be expanded to include land managed under an environmental agreement.

Employers’ NICs

The rate of employer NICs will increase from 13.8% to 15% from 6 April 2025, whilst the Secondary Threshold, the point at which employers become liable to pay NICs on employees’ earnings, will reduce from £9,100 to £5,000 per year.

The Employment Allowance will increase from £5,000 to £10,500 from 6 April 2025, and the £100,000 threshold for eligibility will be removed, expanding this to all eligible employers with employer NIC bills.

Corporation Tax Roadmap

The Government has published a Corporation Tax Roadmap to help reassure corporate taxpayers, and has set out its plans for corporation tax over the course of this parliamentary term. The major commitments include:

• Capping the headline rate of corporation tax at 25% for the duration of the term
• Retaining the small profits rate at 19% and marginal relief at current rates and thresholds
• Maintaining the full expensing regime, the £1m Annual Investment Allowance, current writing down allowances, and the Structure and Buildings Allowance
• Making no changes to R&D tax reliefs available to companies

Energy Profits Levy

The EPL is a temporary levy on profits arising from the upstream production of oil and gas. From 1 November 2024, the Energy Profits Levy rate will rise by 3% to 38%. The levy will end on 31 March 2030. The investment allowance will be abolished, and the rate of the decarbonisation allowance will be set at 66% so its cash value is maintained.

National Living Wage

From April 2025, the NLW for over 21 year olds will increase to £12.21 per hour (from £11.44 per hour currently).

The higher rates of SDLT payable by purchasers of additional dwellings will increase, from 3% to 5% above the standard residential rates, applicable to transactions with an effective date on or after 31 October 2024. The single rate of SDLT payable by companies and non-natural persons acquiring dwellings from more than £500,000 will also increase from 15% to 17%, again from 31 October 2024.

The abolition of the FHL regime, proposed by the previous government, is confirmed to apply from 6 April 2025.

From 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools.

Any fees paid from 29 July 2024 relating to the term starting in January 2025 onwards will be subject to VAT.

Private schools in England will no longer be eligible for charitable business rate relief with effect from April 2025.

The annual chargeable amounts for ATED will be uplifted by CPI at 1.7% for the 2025-2026 ATED chargeable period.

The scope of ATED will be extended so that it applies to all clients of alternative finance arrangements, not just companies.