After months of speculation, Rachel Reeves delivered her first UK Budget to a heated reception. Individuals and businesses alike will welcome some certainty on fiscal matters now that the Government’s key tax policies have been clarified, but the additional tax liabilities are likely to cause real economic difficulties for some.
In the coming days we will be publishing more detailed reflections on the announcements, particularly those relating to Inheritance Tax and the measures affecting non-domiciled individuals. In this briefing we provide a summary of the main personal and business tax measures, some of which will have immediate effect while others will come into force in the near future.
CGT
From today (30 October 2024), the lower main rate of CGT will be increased from 10 per cent to 18 per cent and the higher main rate from 20 per cent to 24 per cent.
This rise is not as steep as some had speculated and may well mean that people do not significantly hold back on making disposals of assets that give rise to CGT. It will mean that the supplementary charge applicable to benefits received from non-UK trusts will increase, resulting in a maximum CGT rate of 38.4 per cent (up from 32 per cent) when benefits are matched to historic gains.
Anti-forestalling rules have also been introduced with immediate effect which can apply to unconditional contracts entered into before 30 October 2024 which were not completed by then. The rules are complex but, at a very high-level, such contracts can be subject to the new higher rates of CGT if:
- The parties entered into the contract with a purpose of obtaining a tax advantage by triggering a disposal early under CGT rules.
- If the parties to the contract are connected, they did not enter into it for wholly commercial reasons.
Carried interest gains made by investment managers from 6 April 2025 will be subject to CGT at a new flat rate of 32 per cent (rather than at 18 per cent or 28 per cent under the previous system). The current carried interest tax regime is also expected to be reformed further from April 2026.
The CGT rate for Business Asset Disposal Relief (BADR), which can apply to certain disposals by employees and directors in their unlisted businesses, will increase from 10 per cent to 14 per cent for disposals made on or after 6 April 2025 and from 14 per cent to 18 per cent for disposals made on or after 6 April 2026.
The CGT rate for Investors’ Relief, which applies in similar circumstances to BADR but 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, significantly limiting its financial benefit going forward.
Similar anti-forestalling rules to the changes in CGT rates can apply to counteract potential BADR and IR advantages in certain circumstances.
Stamp Duty Land Tax
From midnight tonight (30 October 2024), the additional rates of SDLT which, very broadly, can apply to certain property purchases in England and Northern Ireland where a buyer is an individual and already owns another residential property, are being increased by 2 per cent as follows:
|
Amount of the purchase price |
Old SDLT additional rate |
New SDLT additional rate |
|
Up to £250,000 |
3% |
5% |
|
£250,001 – £925,000 |
8% |
10% |
|
£925,001 – £1.5m |
13% |
15% |
|
More than £1.5m |
15% |
17% |
The higher rate of SDLT which, very broadly, can apply to purchases of residential properties worth more than £500,000 by companies for non-commercial purposes, is to be similarly increased from a flat rate of 15 per cent to a flat rate of 17 per cent.
In both cases, the new rates of SDLT will apply to all purchases where contracts were exchanged after midnight on 30 October 2024. However, transactions which 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 provided that, after 30 October 2024:
- The contract is not varied or assigned;
- The property is not acquired by exercising of any option or pre-emption right; and
- There is no assignment, sub-sale, or other situation which allows someone other than the named buyer in the contract to acquire the property.
It is worth noting that these SDLT rates can be higher still if a buyer is a non-UK resident for SDLT purposes. In that case, the rates listed increase by a further 2 per cent, meaning the top rate of SDLT for a non-resident buying a residential property in England or Northern Ireland can now be as high as 19 per cent.
However, there has been no change (yet) to the SDLT rules around “mixed-use” properties (ie those which include non-residential land – see our briefing here), nor has there been any change to the purchases of companies that own properties (see our briefing here). These purchases are likely to become increasingly attractive, as “mixed use” transactions are subject to a much lower top rate of SDLT of just 5 per cent and purchases of companies that own properties can be outside the scope of SDLT altogether. It is therefore increasingly important that buyers secure expert advice on whether properties may qualify as “mixed use” for SDLT purposes and, where relevant, on the possibility of acquiring a property-owning company.
Inheritance tax
Agricultural Property Relief (APR) and Business Property Relief (BPR) are set to change from 6 April 2026. From then, full relief from IHT will be capped at the first £1 million worth of combined business and agricultural property. Assets above this threshold will only benefit from a 50 per cent rate of relief, representing a major shift for many estates and trusts which will now have to plan for IHT liabilities on business and agricultural property.
It is not clear how the £1 million allowance will apply to qualifying assets held in trusts and a technical consultation is due to be published in early 2025. For now, it appears that separate trusts settled before the Budget would each have a £1 million allowance and IHT on qualifying property valued above this at the relevant date will be due at half the usual rates.
From 6 April 2026, AIM shares will only benefit from BPR at 50 per cent, meaning IHT will be payable at 20 per cent instead of 40 per cent. AIM shares will not come within the new £1 million BPR allowance.
The current thresholds above which IHT is payable will remain frozen until 5 April 2030. This means the nil-rate band for IHT will remain at £325,000 (and the additional “residence nil-rate band” will remain at £175,000 for estates below £2 million where a main residence is passed to direct descendants). This continues a long-established trend to make more estates taxable (the last time the nil-rate band was increased was in 2009).
Unused pension funds and death benefits payable from a pension will become subject to IHT from 6 April 2027. A formal consultation on these changes will be conducted.
There were no announcements in relation to the existing “7-year rule” for lifetime gifts to individuals, the regular gifts out of normal income relief or in relation to heritage property.
Changes to the taxation of “non-doms”
These changes have been confirmed. The current Remittance Basis regime will be replaced by a new 4-year regime, where individuals arriving in the UK (after being non-resident for at least 10 prior tax years) will not be taxed on foreign income and gains (“FIGs” for short) regardless of whether they are brought to the UK or not. Similarly, IHT will be due on a person’s worldwide assets on their death if they have been UK tax resident for 10 UK tax years out of the prior 20 tax years. The changes will significantly affect the taxation of trusts as well. We will be releasing a briefing in the coming days which explores these changes in more detail.
National Insurance Contributions for employers
From April 2025, employers’ NICs will increase from 13.8 per cent to 15 per cent from April 2025. The threshold at which employer NICs become payable will fall from £9,100 to £5,000.
To help mitigate these additional NICs costs for smaller employers, the employment allowance (which allows businesses to reduce their NICs costs) will at the same time increase from £5,000 to £10,500.
Income tax
Income tax rates thresholds will be “unfrozen” and will begin to rise in line with inflation from April 2028.
Corporate tax roadmap
The Government has committed until the next general election to:
- Keep the headline rate of UK corporation tax at 25 per cent;
- Maintain the existing corporation tax small profits rate of 19 per cent;
- Maintain the existing core capital allowances regimes, which can provide valuable tax deductions for certain types of capital expenditure;
- Keep the existing R&D, patent box and intangible assets tax regimes; and
- Retain the UK’s suite of cross-border tax regimes relating to matters such as transfer pricing, diverted profits and OECD pillar 1 and 2 initiatives.
VAT on independent school fees
As anticipated, the Government has confirmed that education and board and lodging supplied by independent schools from 1 January 2025 will be subject to VAT at the standard rate of 20 per cent. Fees received by independent schools from 29 July 2024 for terms commencing from 1 January 2025 are also subject to VAT due to anti-forestalling provisions.
The legislation generally takes the same approach as explained in our previous briefing. However, there are now some helpful further concessions around Teaching English as a Foreign Language courses.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, October 2024
