Introduction
Today’s Spring Statement was delivered by the Chancellor, Rachel Reeves, alongside revised forecasts from the Office for Budget Responsibility. These revised forecasts paint a less favourable outlook for short term economic growth (counterbalanced by an upgrade in economic growth in future periods) as well as an increase in borrowing as a proportion of GDP.
As a consequence, the Chancellor announced around £14 billion in spending cuts and savings to ensure that the Government’s fiscal headroom will remain unchanged from its Autumn Budget forecast of £9.9 billion by the 2029-2030 fiscal period.
As anticipated, there were limited tax changes announced today and there was no rolling back on the potentially significant changes to UK Inheritance Tax and National Insurance which were announced in the Autumn Budget.
Our KPMG in Northern Ireland team have prepared an overview of the changes which are to take effect in the forthcoming months. These changes may affect both individuals and businesses, all of which have application in Northern Ireland unless indicated otherwise.
Impacts for Northern Ireland
There is little doubt the Northern Ireland economy has been facing similar headwinds to other regions of the UK, with uncertainty around the global tariff regime in particular denting confidence for the future. With this scenario, combined with the Government’s focus on repairing the significant hole in public finances, many businesses are keen to explore all avenues to help boost economic growth in the future.
For Northern Ireland, at least, there is a potentially game changing measure which could do just that. By enacting the power to cut corporation tax setting powers – granted a decade ago in 2015 to a rate equivalent to that applying in the Republic of Ireland – Stormont has at its disposal a lever which could transform the region’s economic and social fortunes.
The arguments in favour of a low rate of corporation tax in NI are as strong today as they were back in 2015. It would help rebalance the local economy; improve the competitiveness of our investment proposition and ensure that our leading indigenous businesses are incentivised to continue investing and reinvesting in the region
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Personal taxes
Inheritance Tax: Agricultural Property Relief and Business Property Relief
The Autumn Budget 2024 announced proposed substantive changes to the current Agricultural and Business Property [APR and BPR] Inheritance Tax [IHT] regimes.
Currently relief of up to 100% is available on qualifying business and agricultural assets. With effect from 6 April 2026, the 100% rate relief will continue to apply to the first £1 million of combined value with 50% relief for value above this threshold. This means an effective IHT tax rate of 20% will apply from 6 April 2026 to the value of qualifying assets above £1 million.
While some modifications had been rumoured, the extent of the restrictions in relief took many by surprise.
The proposed APR changes have led to particular concerns from the farming community as many family-owned farms have marginal profitability and limited liquidity. The proposed BPR changes will also have a significant impact on shareholdings in family trading companies, including those held within a trust structure.
The IHT liability arising on assets which qualify for APR and BPR, can be settled by way of interest free instalments paid over 10 years but where the business is held within a corporate vehicle, there will be a significant tax cost incurred on extracting funds to settle IHT liabilities.
The proposed changes have become a significant factor for IHT planning considerations. This will include a review of current wills, taking advice on the quantum of current IHT exposure and considering affordability. Individuals may wish to consider reviewing or taking out life policy arrangements which may mitigate the impact of these IHT changes.
Family business owners may now wish to contemplate whether it is appropriate to make a lifetime gift of all or part of the business which could potentially result in the gift falling outside the scope of IHT.
Inheritance Tax: Pensions
From 6 April 2027, it is proposed that most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. The Government consultation on the implementation of these changes closed on 22 January 2025 and draft legislation has not yet been published.
We recommend that individuals review their pension forms which nominate beneficiaries on death. IHT spouse exemption remains available where a pension fund passes to a spouse on death. If a pension fund passes to someone other than their spouse, IHT at 40% may be due. It may also be worth considering prioritising meeting spending requirements from pension fund extraction.
Inheritance Tax: Territorial Scope
A new residence-based regime for IHT will be introduced from 6 April 2025. If an individual has been resident in the UK for at least 10 out of the last 20 years immediately preceding the tax year in which the chargeable IHT event occurs, their worldwide assets will be within the scope of UK IHT. If they have not been resident in the UK for at least 10 out of the last 20 years, then only UK situs assets will be within the scope of UK IHT.
It will be critical to establish an individual’s residence position for each relevant tax year.
Where an individual ceases to be UK resident after 6 April 2025, there will be an “IHT tail”, meaning an individual can remain within the scope of UK IHT on worldwide assets for up to 10 years after cessation of UK residence.
Capital Gains Tax
The main rates of CGT that apply to assets other than residential property and carried interest will increase from 10% and 20% to 18% and 24% respectively for disposals made on or after 30 October 2024.
The main rate of CGT that applies to trustees and personal representatives will increase from 20% to 24% for disposals made on or after 30 October 2024.
The rates of CGT that apply to residential property disposals (18% and 24%) will remain unchanged.
Under the current regime, a £1 million BADR allowance is available so that the first £1 million of gains are taxed at 10%. For disposals on or after 6 April 2025 the rate will increase to 14% and from 6 April 2026 the rate will be further increased to 18%.
Taxation of Non-Domiciles
With effect from 6 April 2025, the existing non-domicile regime with be replaced with a new relief on foreign income and gains [FIG]. The concept of domicile as a connecting factor for the UK tax system has been replaced by a system based on tax residence.
- To qualify for relief under the new regime the individual must not have been UK tax resident in any of the previous ten years prior to becoming UK resident
- The new regime allows FIG arising in the first four years of residence to be remitted to the UK with no additional UK taxes
- Individuals who on 6 April 2025 have been tax resident in the UK for less than four years (after ten years of non-UK tax residence) will be able to use the new regime for the remainder of those four years
- From 6 April 2025, individuals who have been previously taxed on the remittance basis will be able to elect to pay tax at a reduced rate on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility [TRF] that will be available for tax years 2025-26, 2026-27 and 2027-28 only. The reduced rate is 12% for the first two tax years and rises to 15% in 2027-28. The TRF will also be available for qualifying UK resident settlors or individuals who receive a benefit from an offshore trust structure during these three tax years
- From 6 April 2025, an individual who is not, or who later ceases to be, eligible for the new four-year FIG regime will be taxed on foreign gains in the same way as a UK resident individual
- Under transitional arrangements, individuals who have claimed the remittance basis will, on disposal of an asset held at 5 April 2017, be able to elect for UK CGT purposes to rebase that asset to its value as at that date.
Employment taxes
Chancellor Rachel Reeve’s Spring Statement emphasised fiscal stability, welfare reforms and public sector efficiencies. Whilst she confirmed no further employment tax rises are proposed at this time, new employment measures effective from 6 April 2025 are expected to significantly impact businesses, particularly within the hospitality, retail and care sectors. The impact is anticipated to be immediate in terms of cashflow and ultimately reflected in reduced profit margins unless businesses take remedial action.
As a reminder, the following recent announcements will take effect as planned:
- National Minimum Wage (NMW) will increase to £12.21 an hour from April 2025. Do you need to review your processes and controls? Where you have salary sacrifice benefits (e.g. pension sacrifice, ultra-low emission vehicles etc.) these should be rechecked for the increased NMW rate
- The main rate of employer National Insurance will increase by 1.2% which will be implemented from the start of the new tax year on 6 April 2025. As such, employer Class 1, 1A and 1B NIC will rise to 15%
- Employer Class 1 NIC Secondary threshold will drop from £9,500 to £5,000 per year. Earnings above £5,001 per year will be subject to Class 1 NIC
- Alongside these revenue raising measures, the increase in the Employment Allowance from £5,000 to £10,500 together with its extension to larger businesses should provide some mitigation to offset the other changes to the NIC regime
- From 6 April 2025, HMRC have announced changes to the interpretation of the terms “car” and “van” for tax purposes which, where applicable, may lead to increased benefits in kind
- Statutory pay increases with sick pay rising to £118.75 per week and family leave pay (maternity, paternity, adoption etc.) rising to £187.18 per week.
Although there has been significant commentary from various organisations such as UK Hospitality and the Chartered Institute of Personnel and Development as to the potential impact of the above changes, the Chancellor has consistently defended her Budget, acknowledging she had made "difficult decisions" but that they were "the right decisions in the national interest". Whilst the Government prioritises fiscal discipline, it appears businesses must grapple with rising costs and muted growth forecasts.
Business taxes
In the Autumn Budget 2024, as part of a commitment to providing the business community with much needed stability and certainty around business taxes, the Chancellor published a Corporate Tax Roadmap setting out the Government’s plans on Corporation Tax, including commitments to key features of the system and highlights several areas where the Government will be exploring change to ensure the tax system remains dynamic and up-to-date.
It is, therefore, unsurprising that the Spring Statement 2025 contained limited announcements in respect of UK Corporation Tax. In an attempt to find ways to continue to provide certainty in existing areas of taxation, simplify areas which are overly complex and crack down on the loss of tax revenue through tax avoidance schemes, the Government has launched a number of consultations, some of which were already earmarked in Autumn.
The consultations announced include:
- Research and Development tax relief advance clearances: This consultation is aimed at understanding whether a system of advance clearances would help to reduce error and fraud, increase certainty for customers, and improve customer experience. The consultation will run until 26 May 2025
- Advanced certainty for major projects: This consultation sets out, and welcomes comments on, the Government’s proposal to provide advance certainty for investments in major projects in the UK. The initial proposal outlined within the consultation document provides that such advance clearance will:
- at least initially, only be available to investors who do not currently have a UK tax presence;
- primarily focus on UK Corporation Tax, (although input is sought on what other areas of UK tax would most benefit from being part of the process); and
- involve a multi-step process to include written clearance and meetings with HMRC at various stages of the clearance process.
The Government is also seeking thoughts on whether such a clearance facility would be a service which taxpayers would be willing to pay for. The consultation will run until 17 June 2025.
- Behavioural penalty reform: The consultation comes off the back of previous consultations regarding the tax administration framework. The consultation welcomes thoughts on simplifying the UK’s behavioural penalty regime, either through a new regime or amendments to the existing regime, which ensure that tax penalties remain proportionate enough to encourage compliance and penalise the most serious failures. The consultation will run until 18 June 2025
- Enhancing HMRC’s ability to tackle tax advisers facilitating non-compliance: The Government is committed to cracking down on the loss of tax revenue through tax avoidance. As such, this consultation welcomes thoughts on expanding HMRC’s powers to gather information from tax advisers and publishing details of tax advisers both publicly and with professional bodies. This consultation will run until 7 May 2025
- Closing in on promoters of tax avoidance: Again, with a further view to cracking down on the loss of tax revenue through tax avoidance, the Government has opened a consultation regarding the expansion of the disclosure of tax avoidance schemes and tougher consequences for promoters of such schemes (including criminal prosecutions).
In addition to the above consultations, the Government has reiterated its focus on reducing the amount of tax revenue lost to tax avoidance, fraud and non-compliance by announcing the following specific actions:
- HMRC has expanded its counter-fraud capabilities
- A new scheme will be introduced later this year providing a reward scheme for “informants” with compensation linked to a percentage of any tax taken as a result of their actions
- HMRC, Companies House and the Insolvency Services will be delivering a joint plan to tackle tax evasion through contrived insolvencies through the use of upfront payment demands and increases in directors’ personal liabilities
- The Government will increase late payment penalties for VAT taxpayers and income tax self-assessment taxpayers as they join Making Tax Digital, from April 2025 onwards. The new rates will be 3% of the tax outstanding where tax is overdue by 15 days plus 3% where tax is overdue by 30 days, plus 10% per annum where tax is overdue by 31 days or more.
Stamp Duty Land Tax
As announced at Autumn Budget 2024, with effect from 1 April 2025 due to a change to the lower band being split into two separate bands (£0 to £125,000 and £125,000 to £250,000), companies purchasing a residential property with a value of at least £250,000 may suffer additional stamp duty land tax.
This will be a further burden for companies on top of the increase in rates also announced at Autumn Budget 2024 which were effective from 31 October 2024.
Indirect taxes
As the Chancellor set the context for her Spring Statement she referred to global uncertainty but there was no mention of tariffs, in particular the US Administration’s recent activity in this area. The first mention of tariffs was in the Shadow Chancellor’s response.
On 10 February, President Trump announced that tariffs would apply on the importation into the US of steel and aluminium products, including derivative products that may contain steel and aluminium. This essentially meant a 25% tariff for steel and a 10% tariff for aluminium. From 12 March the 10% tariff for aluminium products increased to 25% and agreements suspending the tariffs for certain countries, including with the UK and EU, which had applied since 10 February, were terminated. The tariffs affect a range of products including cookware, window frames, machinery, certain electrical appliances and furniture.
In response, the EU announced it would impose tariffs on US goods with effect from 1 April, alongside a new package of countermeasures scheduled for 13 April. However, on 20 March EU Trade Commissioner Maroš Šefčovič announced that the EU would delay imposing these tariffs on US products until mid-April. Among the reasons given was the ‘extra time’ for negotiations with Washington that this would provide. The EU countermeasures would result in the EU imposing tariffs on a range of imports into the EU, including Harley Davidson motorbikes, bourbon, orange juice, jeans, steel and aluminium, with other industrial and agricultural products being considered to be added to this list.
The US intends to impose further ‘reciprocal’ tariffs on 2 April, a step which the EU will take into account in ‘recalibrating’ its response to US tariffs if no agreement is reached. It remains to be seen whether the UK might be able to negotiate an exemption or beneficial arrangements with the US. It is also unclear what the scale of tariffs imposed by the US from 2 April will be. In perhaps an extreme example the original EU intention to introduce a 50% tariff for whisky from 1 April was met with a threat of a 200% alcohol tariff.
This is a fast-moving area, with updates on an almost daily basis, and it needs to be monitored carefully by those impacted. Of particular importance is accurate classification of goods as the tariffs are applied to long lists of specific commodity codes.
The detail of the EU response to tariffs imposed by the US, which they have currently delayed, and any UK response to the US tariffs, in particular their interaction, will have a specific impact on Northern Ireland due to the operation of the Windsor framework. This would be particularly relevant if the EU targets US goods, but the UK decides not to.
It is clear that tariffs will be a hot topic, far beyond the bounds of Indirect Tax, for some time to come.
The KPMG Indirect Tax Team is hosting an event on tariffs in our Belfast Office on 9 April, when we will be joined by our Head of Customs in Ireland and colleagues from our US team. If you would like to join us for the event please contact david.reaney@kpmg.ie or jennifer.upton@kpmg.ie.
Get in touch
If you have any queries on the UK Spring Statement and its impact for your business, please get in touch with Johnny Hanna or Paddy Doherty.
We’d be delighted to hear from you.
