UK Autumn Budget 2024: a private client perspective
In her first Budget, UK Chancellor Rachel Reeves confirmed the abolition of the remittance basis of taxation for non-domiciled UK residents (non-doms) from 6 April 2025, as well as substantially curtailing the current protections for non-UK assets held by non-doms from UK inheritance tax (IHT).
New ‘FIG’ Regime
Under the current remittance basis, UK resident non-doms are subject to UK tax on their foreign income and gains (FIG) only to the extent that they are remitted to the UK. With the abolition of the non-dom regime, this benefit will be removed.
Instead, ‘new arrivers’ – referred to in the draft legislation as ‘Qualifying New Residents’ – to the UK will benefit from 100% relief from UK taxation on their FIG for their first four years of UK residence, providing they have been non-UK resident for at least 10 consecutive tax years prior to becoming UK resident. This new FIG regime will apply whether or not the sums are brought into the UK, removing the current disincentive to resettle overseas assets in the UK. The exemption must be claimed each year on the individual’s self-assessment tax return.
Temporary Repatriation Facility
A Temporary Repatriation Facility (TRF) will allow previous remittance basis users to remit previous years’ foreign income and gains to the UK at reduced tax rates. This will apply for three years, with the rate set at 12% for the 2025/26 and 2026/27 tax years and increasing to 15% in 2027/28. This facility will also apply to certain benefits received from offshore trusts.
Rebasing of Assets
Non-UK assets held by individuals who have previously claimed the remittance basis, and who have never previously been UK domiciled or deemed UK domiciled, may be eligible for automatic re-basing to their 5 April 2017 market value for disposals made on or after 6 April 2025, subject to certain conditions.
Overseas Workday Relief
Overseas Workday Relief (OWR), which currently provides income tax relief to non-dom employees in relation to earnings that are paid and kept outside the UK and relate to days working outside the UK, will be retained. But, as of 6 April 2025, eligibility for OWF will be based primarily on whether the employee is eligible for the four-year FIG regime.
New Residence-Based IHT System
From 6 April 2025, IHT will also move to a residence-based system and domicile will no longer be a relevant connecting factor. Instead, if an individual has been resident in the UK for at least 10 of the last 20 tax years immediately before the chargeable event, he / she will be deemed a ‘long-term resident’ (LTR) and his / her worldwide assets will fall within the scope of IHT. This is a reduction from the current ‘deemed-domiciled’ regime, which applies worldwide IHT exposure after 15 years of UK tax residence.
It had previously been announced that a ’10-year tail’ would apply to anyone ceasing UK residence after 10 years of UK residence, such that they would continue to face worldwide IHT exposure for 10 years after leaving the UK. Under transitional rules, this has been relaxed for individuals who were non-UK domiciled under general law on 30 October 2024 and who become non-UK resident from 6 April 2025. Such persons will potentially be able to lose their exposure to UK IHT on their foreign assets after three complete tax years of non-residence (reflecting the pre-6 April 2025 position).
Protected Settlements Regime
The income tax and CGT protections currently available to trusts settled by a person while non-UK domiciled will cease to apply unless the settlor qualifies for the four-year FIG regime. FIG arising in the settlement before 6 April 2025 will be taxed to the extent that distributions or benefits are made to UK residents who are not eligible for the FIG regime.
The TRF will be available for distributions – or deemed distributions – from ‘qualifying overseas trust structures’ for UK resident settlors or individuals who receive benefit from an offshore trust structure during the three-year TRF period provided that the individual is a former remittance basis user, and the benefit is matched to FIG arising within the settlement before 6 April 2025.
IHT Treatment of Trusts
For IHT purposes, the excluded property status of non-UK assets settled into a trust will be determined by reference to the settlor’s status at the time of the charge, rather than at the time the trust was settled.
Non-UK assets will only be excluded property where the settlor is not LTR at the relevant time.
As a result, the assets within the trust will be subject to the ten-year IHT charges at up to 6% under the relevant property regime, as well as potential IHT at up to 40% on the settlor’s death if, at the relevant time after 6 April 2025, the settlor is classified as LTR.
The ‘Gift with Reservation of Benefit’ (GWR) provisions, which prevent individuals gifting assets or settling them in trust but reserving a benefit in the property they have gifted or settled, will not be applied to excluded property comprised in a settlement immediately before 30 October 2024. But, where applicable, such property will be subject to relevant property charges from 6 April 2025.
Capital Gains Tax
With immediate effect from 30 October 2024, the maximum rate of CGT has been increased from 20% to 24%, aligning the rates with those currently imposed on the disposal of UK residential property. The basic rate will increase from 10% to 18%.
The CGT rate for Business Asset Disposal Relief (BADR) is to remain at 10% rate for the rest of the 2024/25 tax year but will increase to 14% for disposals made on or after 6 April 2025 and gain to 18% for disposals made on or after 6 April 2026.
The CGT rate for Investors’ Relief, where the investor is unconnected with the business, will increase in parallel with the BADR rates. The lifetime limit for the relief will also reduce from £10 million to £1 million for disposals made on or after 30 October 2024, in line with the BADR limit.
Inheritance Tax reliefs
The current IHT thresholds have been frozen until 2030. This means that the nil-rate band remains at £325,000, the residence nil-rate band at £175,000, and the residence nil-rate band taper starting at £2 million.
A lifetime limit of £1 million is also to be introduced for Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. This means that 100% relief will be limited to the first £1 million of combined qualifying agricultural and business assets. The relief will be reduced to 50% for any qualifying agricultural and business assets exceeding the combined £1 million threshold, giving an effective IHT rate of 20%.
BPR for shares that are not listed on a recognised stock exchange, such as those on the Alternative Investment Market (AIM), will also be reduced to 50%.
Pensions
As of 6 April 2027, residual funds held within a registered pension scheme will become subject to IHT on the holder’s death. The new IHT charge will fall both on defined contribution and defined benefit schemes and will apply irrespective of whether the scheme is a UK-registered pension scheme or a qualifying non-UK scheme.
At present, funds accumulated within a pension scheme and not used to provide a pension to the holder during lifetime generally pass free of IHT on death – although pension benefits are subject to income tax at the recipient’s marginal rate (unless the member dies aged under 75, in which case benefits can be paid tax free up to a certain threshold).
The proposal is to make the pension scheme administrators responsible for reporting and paying the tax due, with a residual liability for the beneficiaries of the holder’s estate if the tax is not paid within 12 months of death. A consultation will run until 22 January 2025.
Stamp Duty Land Tax
With effect from 31 October 2024, the government has increased rates of Stamp Duty Land Tax (SDLT) rates for certain property purchases by second-home owners and companies in England and Northern Ireland.
The current Higher Rates for Additional Dwellings (HRAD) surcharge of 3% is increased to 5%, and the flat rate of SDLT paid by companies and non-natural persons acquiring residential properties worth more than £500,000, where they are not intended to be let out on a commercial basis, is increased from 15% to 17%.
Transactions that exchanged contracts before midnight on 30 October 2024 and which complete before 1 April 2025 will continue to benefit from the old rates of SDLT.
The Annual Tax on Enveloped Dwellings (ATED) will be increased by 1.7% from 1 April 2025, in line with the September 2024 Consumer Price Index (CPI).
Personal income tax
Income tax rates thresholds are to remain ‘frozen’ and will not begin to rise in line with inflation from April 2028.
In the March 2021 Budget, it was announced that the income tax Personal Allowance (PA) and higher rate threshold (HRT) were to be frozen until April 2026. Previously, they had usually risen in line with the Consumer Prices Index.
The Chancellor announced that these thresholds will remain frozen for a further two years. Currently the PA is £12,570 and the HRT is £50,270.
Corporate tax
The government committed to maintain the main rate of corporation tax at 25% and the small profits rate at 19% for the duration of this Parliament, together with the current thresholds for marginal relief.
It will also maintain the existing core capital allowances regimes, the existing R&D, patent box and intangible assets tax regimes, and the existing cross-border tax regimes relating to matters such as transfer pricing, diverted profits and OECD Pillar 1 and 2 initiatives.
Employer National Insurance contributions (NICs) will be increased from the current 13.8% to 15% with effect from 24 April 2025.
With effect from the same date, the individual salary threshold beneath which no employer NICs are chargeable will be cut by 45%, from £9,100 to £5,000 per year.
