UK Autumn Budget 2024

The first ever female Chancellor, Rachel Reeves, delivered her highly anticipated Autumn Budget yesterday which included some fundamental changes to the UK tax landscape particularly from a personal tax perspective.

The Chancellor made it clear throughout her speech that the aim of this Budget is to restore economic stability, protect working people, fix the NHS and rebuild Britain, largely funded by raising taxes by £40 billion. It later became evident that the bulk of this funding will come from an increase in employer’s National Insurance Contributions (“NIC”) which is expected to raise £25 billion per year by the end of the forecast period.

Following months of speculation and uncertainty, an increase in UK capital gains tax (“CGT”) rates was confirmed as well as various UK inheritance tax (“IHT”) reforms. However, in a surprise move the Chancellor said the freeze on income tax and NIC thresholds will not be extended beyond 2028, which she said will avoid hurting "working people".

Thankfully, there was no mention of an exit charge for those considering leaving the UK but the detailed technical note on the reform to the taxation of non-UK domiciled individuals considers in depth a number of fundamental changes that will impact individuals coming to and leaving the UK as well as how the new rules are likely to impact offshore structures.

Some of the key measures announced are outlined below.

Individuals

• The freeze on income tax and NIC thresholds will not continue past 2028/29 and will instead be uprated in line with inflation at that point.
• There will be increases to the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24% for disposals made on or after 30 October 2024.  For trustees and personal representatives, the CGT rate increases from 20% to 24%. The 18% and 24% rates applicable to gains on the disposal of residential property will remain unchanged.
• The rate of CGT for Business Asset Disposal Relief and Investors’ Relief will increase to 14% from 6 April 2025 and will increase again to match the lower main rate of 18% from 6 April 2026. The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief.
• The IHT nil rate band threshold of £325,000 will remain frozen for a further 2 years until 2030 and from April 2027, inherited pensions will be brought within the scope of IHT.
• From April 2026, the IHT relief on business and agricultural property will change. The first £1m of combined business and agricultural assets will continue to qualify for 100% IHT relief, but for assets over £1m, IHT will apply with only 50% relief, resulting in an effective IHT rate of 20%.
• From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. As an interim step, the CGT rate for carried interest will increase to 32% from 6 April 2025.
• From 31 October 2024 the Higher Rates for Additional Dwellings surcharge on Stamp Duty Land Tax (“SDLT”) will be increased from 3% to 5%.
• The single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by companies and non-natural bodies will also be increased from 15% to 17%.
• The introduction of VAT at a rate of 20% on private school fees from January 2025 was confirmed.

Reform to the taxation of non-UK domiciled individuals

• The remittance basis of taxation for non-UK domiciled individuals will be abolished and replaced with a residence-based regime, which will take effect from 6 April 2025. The new regime will provide 100% relief on foreign income and gains (“FIG”) for the first 4 years of tax residence, provided the individual has not been UK tax resident in any of the 10 consecutive tax years prior to their arrival.
• The protection from tax on FIG arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the 4-year FIG regime.
• A new residence-based system will also be introduced for IHT potentially ending the use of offshore trusts to shelter assets from IHT.
• A new Temporary Repatriation Facility (“TRF”) will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit at a reduced rate FIG that arose prior to the changes. This includes unattributed FIG held within trust structures. The TRF will be available for a limited period of 3 tax years, from 2025/26. The TRF rate will be 12% for the first 2 years and 15% in the final tax year of operation.
• For CGT purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them.
• The planned 50% reduction for foreign income in the first year of the new regime will be removed.
• Overseas Workday Relief will be retained and reformed, with the relief extended to a 4-year period and the need to keep the income offshore removed.  The amount claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income.
• The UK Government has published a Call for Evidence to better understand and identify areas where there is ambiguity and uncertainty within the personal offshore anti-avoidance rules, which includes the transfer of assets abroad and settlements legislation, with the aim to modernise and simplify them.

Employers

• The employer NIC rate will be increased from 13.8% to 15% from 6 April 2025.
• The secondary threshold (the point at which employers become liable to pay NICs on employees’ earnings) will be reduced from £9,100 to £5,000 a year from 6 April 2025 until 6 April 2028.
• The employment allowance will be increased from £5,000 to £10,500, and the £100,000 threshold will be removed from 6 April 2025.
• A package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts will be introduced. These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees. The changes will take effect from 30 October 2024.

Businesses

• The UK Government has also published its Corporate Tax Roadmap alongside the Budget which includes commitments:
  • to cap the headline rate of UK corporation tax at 25%;
  • to retain the core features of the capital allowances regime (including permanent full expensing and the £1 million Annual Investment Allowance);
  • to preserve research & development reliefs;
  • to develop a new process for increasing the tax certainty available in advance for major investments; and
  • to continue to invest in HMRC’s dedicated Pillar 2 compliance team, who are engaging relevant taxpayers and developing extensive guidance.
• The other main change for large corporates with global income in excess of €750 million was the expected confirmation that the third element of the pillar two OECD multinational tax changes, the undertaxed profits rule, will apply to accounting periods beginning on or after 31 December 2024. At the same time, the income tax charge on offshore receipts in respect of intangible property which was introduced 5 years ago will be abolished with respect to income arising from 31 December 2024.

Other matters

Other key measures worth noting include:

• The UK Government will publish a consultation in early 2025 on a package of measures to tackle promoters of marketed tax avoidance.
• To tackle the significant levels of tax avoidance and fraud in the “umbrella company” market, the UK Government will make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end client business. This will take effect from April 2026.
• The UK Government is committed to tackling offshore non-compliance as part of the ambition to close the tax gap and is committing additional resources, including the scaling up of compliance activity to tackle serious offshore non-compliance including fraud by wealthy customers and intermediaries, corporates they control and other connected entities.

KPMG comment

This was a very interesting UK fiscal event from a Crown Dependencies tax perspective. Speculation over the potential changes resulted in an increase in relocation queries from the UK to our Islands; with the confirmation of increases in CGT rates (including carried interest rates), the introduction of a residence-based regime for IHT and the abolition of the long-established non-dom regime, it will be unsurprising if those queries now turn into action.

In addition, offshore trusts will no longer be able to be used to shelter assets from IHT, and there will be transitional arrangements in place for people who have made plans based on current rules. More time will be needed to analyse the detailed technical aspects of the non-dom changes to fully appreciate the practical impact of these on non-dom individuals and their existing offshore trust and company structures. However, what is clear is that these changes will have a significant impact, requiring a full assessment and detailed planning to ensure that the right amount of tax continues to be paid.

We will be examining the Budget changes in detail over the upcoming weeks and will be issuing more commentary regarding those affected, including the impact on those individuals with offshore structures and those responsible for administering such structures. In the meantime, if you are concerned about how the changes will impact you and/or your clients, please contact us.