Budget 2024

Rachel Reeves announced that Inheritance Tax thresholds will be fixed at their current level for a further two years, until April 2030. The nil rate band remains at £325,000 and the residence nil rate band remains at £175,000. The nil rate band will have been fixed at this level since 2009!

Agricultural & Business Relief Reforms

From April 2026, Agricultural Property Relief and Business Property Relief will be reformed. Relief will continue to be 100%, however, this will be capped at the first £1 million of combined business and agricultural assets on top of the existing nil rate bands. The Chancellor believes that this will protect the majority of businesses and farms. The rate of relief will reduce to 50% after the first £1 million.

Business Property Relief on AIM share portfolios will also be limited to 50%. At present, 100% of the value of an AIM portfolio is relieved from Inheritance Tax once the shares have been held for two years. Under the reform, any AIM portfolio will effectively be taxed at 20%, still beneficial over the main rate of 40%.

Pension Funds

Pension funds are currently outside of the scope of Inheritance Tax. This will change from April 2027. The value of the pension pots will be added to the total value of other assets in the estate and taxed in the same way. There is to be consultation on how this will work, but currently it is likely that the pension fund administrators will be responsible for arranging the payment of tax.

The main rate of Capital Gains Tax (CGT) will increase from 20% to 24% for disposals made on or after 30 October 2024. Gains falling within a taxpayer’s basic rate band will increase from 10% to 18%.

The Business asset disposal relief (previously known as Entrepreneur’s Relief) lifetime allowance will remain at £1m, but with the rate increasing from 10% to 14% from 6 April 2025 and increasing again to 18% from 6 April 2026. To recap, this relief is for taxpayers who have owned trading businesses for two years or at least a 5% stake in a trading company of which they are an employee or officer for two years.

There were no changes announced regarding what is classed as a ‘non-trading’ company, which is still where a company carries on a ‘substantial extent’ of non-trading activities, which is generally accepted to mean more than 20%.

Tax reliefs are available when investing into innovative enterprises via the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). These investments provide a 30% tax relief on investment and potential Capital Gains Tax reliefs as well. These reliefs have a sunset clause, and the Chancellor confirmed that they will both continue to be available until 2035.

For residential property purchases completing on 31 October and later, the additional surcharge which applies to purchases by companies and individuals where they own more than one residential property is increasing from 3% to 5%.

These rates apply to any purchase where, at the end of the day of completion, you (or your spouse/civil partner) own another residential property. There is an exemption from this increased rate where you are replacing your main residence.

A flat rate of Stamp Duty Land Tax (SDLT) applies to companies and other non-individuals (trusts, pensions etc.) purchasing high value property which is not used within its trade or rental activity. These properties are generally also caught within the ATED regime.  Where such a purchase occurs, the flat rate of SDLT will increase from 15% to 17% from 31 October 2024.

From April 2025, the basic and new state pension will be increased by 4.1% next year, meaning pensioners may benefit from an increase of up to £470 a year.

The government has announced that the late payment interest HMRC charges on unpaid tax liabilities will increase by 1.5% from 6 April 2025. Significant investment in IT systems and staffing have been announced, with an additional 5,000 compliance staff plus 1,800 debt management staff to be recruited. This is all part of a big push on getting the right amount of tax paid as early as possible.

This announcement comes alongside other measures looking to strengthen HMRC’s powers to tackle non-compliance and fraud. A consultation has been published which explores reforming HMRC’s powers to correct errors they encounter, looking at the existing powers and potential new ones to require taxpayers to correct their mistakes. A further consultation will follow on modernising how HMRC can use third-party data to help taxpayers get their tax right first time.

There will be little to no change in respect of Corporation Tax with the government committing to capping the headline rate at 25%. The Corporation Tax Small Profits Rate and marginal relief will be maintained at the current rate and thresholds too.

With regards to capital allowances, the £1m Annual Investment Allowance, writing down allowances and the Structures and Buildings Allowance are maintained at their current rates and thresholds. 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle charge-points will be extended to 31 March 2026.

The current R&D regime, including the merged R&D Expenditure Credit (RDEC) scheme is maintained. The government’s Corporation Tax Road Map mentions a consultation on widening the use of advance clearances for R&D reliefs.

Electric Vehicle Benefit in Kind

The appropriate percentage used to calculate an individual’s company car tax for fully electric cars, which currently rises by one percentage point per year until 2027/28, will be maintained. From 2028/29 this will increase by 2 percentage points per year, meaning that the percentage rate for 2028/29 will be 7% and for 2029/30 will be 9%.

This is different from the amounts petrol and diesel cars pay, which will increase yearly until hitting 37%.

The appropriate percentage for cars with emissions of 1–50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in 2028/29 and 19% in 2029/30.

For all other vehicle bands, the percentage will increase by 1 percentage point per year in 2028/29 and 2029/30.

The maximum percentage (currently set at 37%) will also increase by 1 percentage point per year to 38% for 2028/29 and 39% for 2029/30.

This means for vehicles with emissions of 51g/km and over, the percentage will increase to 19% – 38% in 2028/29 and 20% – 39% in 2029/30.

Van Benefit in Kind

The Government will uprate the Van Benefit Charge and Car and Van Fuel Benefit Charges by CPI (Consumer Price Index) from 6 April 2025.

Capital Allowances

100% First Year Allowances for zero-emissions cars and electric charging points will be maintained until 31 March 2026 for Capital Allowances purposes.

Double Cab Pickups

In February of 2024, the previous Government announced a change to the rules regarding the treatment of double cab pickups and whether they would be defined as a car or a van. It then made a dramatic U-turn only days later. Today, the Chancellor has announced that the treatment of double cab pickups will indeed be refined.

From 1 April 2025, HMRC will now treat double cab pickup vehicles with a payload of one tonne or more as cars for the purposes of capital allowances and benefits in kind.

Existing capital allowances treatment will apply to vehicles purchased before April 2025, and transitional benefit in kind rules will apply for vehicles purchased, leased or ordered before April 2025. Employers will be able to use the previous treatment until the earlier of disposal, lease expiry, or 5 April 2029.

The Budget announced a number of changes to national insurance contributions (NICs), effective from 6 April 2025. Although the rate of employee NICs will remain unchanged, employers’ NICs will increase by 1.2%, from 13.8% to 15.0%. The government will also reduce the secondary threshold at which employers begin paying the standard rate of NIC, from £9,100 to £5,000.

However, the Employment Allowance will be increased to £10,500 from £5,000 to support small businesses, with the £100,000 NIC liability threshold removed.

The income tax and employee NIC thresholds have previously been frozen, tending to put more taxpayers into higher tax bands. This freeze will not be extended, and from 2028/29, the personal tax thresholds will be increased in line with inflation.

Given the above changes, consideration will need to be given on the best way to remunerate employees and owners of businesses and advice will need to be sought.

The National Living Wage will increase by 6.7% to £12.21 an hour in April and the National Minimum Wage will increase to £10 an hour for 18-20 year olds. The system will be changed to a “single adult rate” over time.

One of Labour’s flagship policies in recent years has been private school fees and arguing they should have VAT charged on them. In their first Budget, they have introduced this as soon as they deemed practicable. They have also taken aim at so-called “advanced payment schemes” which lots of schools have been offering in recent months.

As of 1 January 2025, all education services and vocational training supplied by a private school (or a “connected person” to the school), for a charge will be subject to VAT at the standard rate of 20%. Boarding services closely related to such a supply will also be subject to VAT at 20%.

The Government are going further and seeking to ensure VAT is charged on fees that were intended to attract the current rate, under certain advanced payment schemes. They have said that any fees paid from 29 July 2024 pertaining to any terms starting on or after January 2025 onwards will be subject to VAT (the relevance of 29 July being when the Government “judges the.… policy was formally announced” following their election victory). Additionally, lump sum payments that did not specify what period was covered may be looked at.

Where HMRC do look to assess VAT on fees already charged, we anticipate that many schools will have protected their position (within their terms and conditions) and will look to charge on this cost to parents.

From before the election and the Spring Budget, it was clear that changes would be made to the tax regime for non-UK domiciled individuals and trusts.

In her speech, the Chancellor did not give much detail. She confirmed that there would be a 4-year period from moving to the UK where beneficial tax rules would apply, and that a period in which previous un-remitted income and gains could be brought to the UK at a reduced rate of tax.

Alongside the speech, a 34-page technical note has been released to provide more detail. This states within the first ten paragraphs that it is draft and may be subject to change.

We are reviewing all the available information and will be contacting our affected clients shortly, as well as providing a more in-depth analysis of the proposals.

To summarise, the changes are:

• From April 2025, domicile status will not impact the tax position of individuals or trusts for Income Tax, Capital Gains Tax, or Inheritance Tax.

• For Income Tax and Capital Gains Tax, the remittance basis will end, with all worldwide income and gains arising to UK resident individuals being taxable in the UK.

• If an individual is in their first four years of UK residence, having been non-UK resident for the 10 years prior to coming to the UK, they will not be subject to UK Income Tax or Capital Gains Tax on their foreign income and gains in those first four years. This can apply to people who moved to the UK since 6 April 2022.

• Rebasing of non-UK asset for remittance basis claimants to their value on 5 April 2017 is available, subject to having made a remittance basis claim since April 2017.

• A repatriation facility will be available to designate previously unremitted funds to be taxable in the UK at a lower rate. This will be available for three years, at a rate of 12% for the two years to 5 April 2027 and a higher rate of 15% for the final year of the scheme.

• For Inheritance Tax, non-UK assets will be within the scope of UK IHT where the individual has been UK resident for 10 of the previous 19 tax years.

• They will cease to be within the scope of UK IHT on their non-UK assets once they have been non-UK tax resident for 10 consecutive years.

• For trusts, currently the test for whether their non-UK assets are within the scope of UK IHT was based on the settlor’s domicile position at the date the asset was settled into the trust. This will change from 6 April 2025 and the position will no longer be “fixed”.  Instead, at the time of any IHT event (ten-year anniversary, property leaving the trust etc.) the position will be decided by the settlors “long term residence” position at that time. If they have been resident in the UK for 10 of the previous 19 years at that time, the non-UK assets within the trust will be subject to UK IHT.

• Where a settlor has passed away prior to 6 April 2025 the trust’s status will be fixed under the current rules, whereas a death post 6 April 2025 will fix the trust’s status based on the long-term residence status at the date of death.

The trust rules in particular give rise to several specific situations in which IHT exit charges can apply on 6 April 2025 or on the change of the settlor’s long term residency status.

The rules around domicile have always been complicated, and these changes appear to add to this complication. Every trust and individual circumstances will be unique and will need reviewing prior to April 2025 to understand the new position and any actions which are available to mitigate these changes.

EOTs have become an increasingly popular structure used by owner-managed businesses as a viable way of achieving an exit/succession event in recent years.  The advantageous tax reliefs (including the potential of no Capital Gains Tax on the share sale) has been a driver behind this (particularly since the BADR limit reduced from £10M per person to £1M per person). However, the previous Government had been consulting on a tightening of the EOT rules to ensure that it was only the “right” kind of structures that benefitted from the reliefs.

In the Budget the new Government has confirmed it will move ahead with a package of reforms, including:

• Restricting former owners (or persons connected with them) from retaining control of companies post-sale by virtue of control (direct or indirect) of the EOT.

• Requiring that the trustees of an EOT must be UK resident (as a single body of persons) at the time of disposal to the EOT.

• Confirming in legislation that contributions made by a company to an EOT to repay the former owners for their shares will not be charged to income tax as a distribution.

• Extending the period of time within which the relief can be withdrawn from the former owner if the conditions are breached after sale (from the second tax year to the fourth).

• Requiring that the trustees must take reasonable steps to ensure that the consideration paid to acquire the company shares does not exceed market value.

• Confirming in legislation that the restrictions on connected persons benefiting from the Trust must apply for the lifetime of the trust.

• Restricting the Inheritance Tax (IHT) exemption to situations where the shares have been held for 2 years prior to transfer (similar to the BPR rules).

In isolation, each of these measures appears fairly reasonable; however, taken together, they will require additional detailed consideration of the structure of EOT transactions moving forward.