Autumn Finance Bill completes Committee stage

On 23 January 2025, prior to the commencement of the Public Bill Committee stage for Finance Bill 2024-25, a second tranche of government amendments were tabled (the first tranche, which mainly focused on Pillar Two, were published on 19 December 2024 and were discussed in an earlier edition of Tax Matters Digest). The Public Bill Committee sat on 28 and 30 January and has now concluded its proceedings. All government amendments were passed but no other changes to the Bill were made. The amended Finance Bill will now return to the main chamber of the House of Commons for report stage and third reading but, at the time of writing, no date for this had been confirmed.

The second tranche of government amendments made changes to four different areas of the draft legislation and these are discussed briefly below.

Pillar Two (Schedule 4 of the Finance Bill)

Further changes were made to the legislation on the UK's Multinational and Domestic Top-up Taxes including the correction of various drafting errors and:

• An amendment to secure that eligible payroll costs and eligible tangible asset amounts are allocated from flow-through entities in a manner that is consistent with the Pillar Two model rules;
• An amendment to ensure the correct allocation of tax of an entity with a permanent establishment; and
• Amendments to clarify how the retrospection election is to be made and that consent may be required of former group members where they could have a liability to Domestic Top-up Tax, and to make sure that it is only members of a group actually liable to tax that must give consent for the retrospection election.

We also discuss supplementary draft guidance on UK Pillar Two published by HMRC in our separate article in today’s edition.

Employee Ownership Trusts (EOTs) (Schedule 6 of the Finance Bill)

The Finance Bill contains draft legislation to introduce a targeted tax relief for EOT trustees that will prevent certain payments from companies they control being treated as distributions subject to income tax. This new relief is discussed in a separate article in today’s edition. The government amendments that were passed include provisions that:

• Expand the list of specified ‘acquisition costs’ that qualify for relief (e.g. to include the costs of any relevant share valuation incurred by the trustees); and
• Ensure the distribution in question was actually made for the purposes of meeting the trustees’ ‘acquisition costs’.

Change in scope of inheritance tax to a residence based IHT system and replacement of the non-dom regime (Clause 37 and Schedules 9, 10, 12 and 13 of the Finance Bill)

The Finance Bill contains draft legislation on a fundamental change in scope of inheritance tax (IHT) to a residence based IHT system and equally fundamental reform of the taxation of non-domiciled individuals (non-doms). Last month there was widescale reporting in the media of the Chancellor’s comments at Davos that changes to the Finance Bill would be made to expand the Temporary Repatriation Facility (TRF) that forms part of the replacement for the non-dom regime. However, the government amendments tabled on 23 January and passed by the Public Bill Committee did not include such changes and instead consisted of largely minor technical amendments.

At the time of writing, the promised amendments to the TRF had not been tabled. However the Exchequer Secretary (James Murray MP) has confirmed that they will be forthcoming at the Report Stage of the Bill in the coming weeks. It is notable, however, that the Financial Secretary to the Treasury provided the following context in the House of Lords on 28 January, implying that fundamental changes are unlikely:

“…the Government are making elements of the non-dom reforms simpler and more attractive to use while retaining the structure announced in the Budget. We do not expect these changes to impact the £33.8 billion of tax revenue which the OBR forecasts will be raised over five years from this Government’s and the previous Government’s changes to the non-dom tax regime. These changes reflect continued engagement with stakeholders to ensure that these reforms operate as intended.”

For more information on the forthcoming changes generally and contact names if you would like to discuss the implications further, please see our dedicated page on non-dom regime reform.

Relief on foreign employment income (Schedule 8 of the Finance Bill)

Following the removal of non-domicile status and the remittance basis of taxation, ‘Overseas Workday Relief’ will apply to qualifying new residents for their first four years of residence. The Finance Bill contains draft legislation setting out how this will apply and the consequential amendments that are needed to the current rules.

Most of the government amendments tabled on 23 January and passed by the Public Bill Committee were minor and technical in nature. However, one amendment that will have a real practical impact is an addition to the legislation covering ‘Section 690 directions’ – the process by which employers obtain permission to operate PAYE on internationally mobile employees’ earnings for work in the UK on a best estimate basis. The amendment confirmed that all current Section 690 directions will no longer be effective from 6 April 2025. This will mean that many employers will have to reapply / notify HMRC to obtain new directions ahead of the start of the new tax year. At the time of writing, HMRC have not publicly shared any details of how the new notification process is going to work so impacted employers should keep an eye on any updates.

For further information please contact:

• Tim Sarson
• Sharon Baynham