TAX_UK_Autumn_Budget_Key_Takeaways_October_2024 by Alvarez_and_Marsal

Autumn Budget: Key takeaways

Foreword from Marvin Rust

“Following all of the hype and announcements, and a consequent rebuke to Members from the Deputy Speaker of the House, the bulk of the contents of this first Labour Budget in 14 years, and the first ever from a female Chancellor, was largely as we expected following the significant warnings and feedback from industry, the PE community and others.

There are clearly going to be challenges for employers, as through their increased NIC payments they will be bridging £25bn of the apparent £40bn funding gap. Even with the 40% business rate relief for retail, hospitality and leisure businesses, this measure alongside the increase in the national living wage is going to put a continued squeeze on the high street, and an administrative burden on the 98% of UK private businesses which have 50 or fewer employees.

For owners seeking to pass on family businesses, including agricultural ones, to the next generation, the changes to inheritance tax rules will provide some challenges, and strike at the heart of family business in the UK. Equally, those bequeathing hard earned pensions will see these brought within the scope of IHT from 2027.

Whilst little has changed in the core areas of corporation tax, the publication of a road map and the launching of a number of consultations, means there will be other matters for businesses to consider once the dust has settled on today’s headline announcements.

One of the largest areas of change, although hardly a surprise, is the abolishment of the UK’s non-domicile regime from April 2025. As the Government seeks to fix the foundations for rebuilding Britain, this is likely to lead to a drain on direct investment into the country and lead to some deciding the tax regime and lifestyle elsewhere is more attractive.

With all of these measures, and the material increases in some taxes, this afternoon it will not only be the Chancellor making difficult decisions; plenty of working people, entrepreneurs and businesses alike will be carefully considering their future decisions.”

Marvin Rust Head of A&M Tax EMEA

Personal Taxes and Capital Gains Tax

Capital Gains Tax

As widely anticipated, the top rate of Capital Gains Tax (CGT) has increased to 24% with effect from 30 October 2024. Business Asset Disposal Relief (formerly Entrepreneurs' Relief) remains at 10% before increasing, first to 14% (from 6 April 2025) and then to 18% (from 6 April 2026).

Inheritance Tax

From April 2025, non-UK assets are in scope for Inheritance Tax if an individual has been resident in the UK for at least 10 out of the last 20 tax years. Individuals leaving the UK will remain in scope for UK IHT for up to 10 years after departure, subject to a reduction where they have only been UK resident for between 10 and 19 years.

From April 2026, assets qualifying for 100% exemption from IHT under Business and Agricultural Property Relief will only be available on the first £1m. Above £1m, relief will be reduced by 50%, meaning certain businesses may be subject to an effective IHT rate of 20%. AIM listed shares will also only qualify for 50% Business Relief.

From April 2027, private pensions will be within the scope of IHT on death. Pension scheme administrators will now become liable to report and pay any IHT due in respect of a deceased member.

Personal Taxes and Capital Gains Tax (cont.)

Non-domiciled individuals

As broadly expected, the current “non-dom” rules will be abolished from April 2025, impacting individuals and their non-UK structures, including trusts. However, transitional rules include the ability to bring pre-2025 foreign income and gains to the UK at a reduced rate of tax (during a three-year period from April 2025), and the rebasing of certain assets to their April 2017 value (for CGT purposes), along with grandfathering provisions introduced for trusts.

As previously announced, the Government will introduce a four-year foreign income and gains (FIG) regime, which will apply to individuals in their first four years of UK tax residence, following a period of at least ten consecutive years of non-UK residence. Individuals who make a claim to use the new four-year FIG regime will not pay tax on any foreign income and gains arising in those four years.

Anthony Whatling Managing Director

“The Chancellor has confirmed the end of the “non-dom” tax regime, as we expected, fromApril 2025. It is promising to hear that there are some concessions, with the extension to the temporary repatriation facility, which will allow non-doms to bring their historic income and gains to the UK at a reduced rate of tax. We will need to see the detail to see whether this will be enough to satisfy those non-doms who had been considering leaving the UK ahead of the new rules coming into force”

Carried Interest

The good news in the short term is a modest 4% increase in the rate of carried interest taxation to 32% from 6 April 2025 (alongside the general increase in rates of capital gains to 18%/24%). For investors and entrepreneurs alike, this keeps levels substantially below the highest rates of income tax rates seen across the industry. Provided there are no more material changes in the near future, this should help provide some certainty and hopefully mitigate the flight of talent from the UK.

However, following August's Call For Evidence, the Chancellor has taken on board the need to consult, and has left the door open for further reform, the aim of making the regime "simpler, fairer and better targeted". It seems the Government looks set to introduce a tighter alignment between capital at risk and tax treatment, moving to taxing carry as trading income rather than as capital gains, but with bespoke rules to "reflect its unique characteristics". From April 2026 it is likely the key elements will be:

• Qualifying carry to receive a "72.5% multiplier" on the tax rate (i.e. the rate will be (45% + 2%) x 72.5% - so an effective rate of c.34% from April 2026).

• Removal of certain exemptions resulting in proceeds on disposals within 40 months at least in part being taxed at 45% plus 2% NIC.

• The Government is still considering additional conditions for application of the carried interest rules.

• Non-UK residents to be subject to UK income tax on their carry to the extent it relates to services provided in the UK (subject to double tax treaties) which would be a fundamental departure from the existing rules.

With full details still to be determined, this leaves some continued uncertainty for funds and executives in the UK for at least another 12 months.

Employment Taxes

The key change for employers is the much-expected increase in the rate of employer’s National Insurance Contributions (NIC), up 1.2% to 15%, coupled with the reduction in the threshold from £9,100 to £5,000 from April 2025. The combined increased cost for a business with 50 employees will be approximately £43,000, and for a business with 200 employees, just over £173,000. The impact is offset by an increase in the Employers Allowance from £5,000 to £10,500, which most employers, regardless of their size, will now be able to claim.

Helpfully, there was no extension of employers NIC to employer pension contributions and, overall, the changes to employers’ NIC were perhaps not as bad as feared.

As reported ahead of the Budget, the National Living Wage will increase from April 2025 across all rates. The top rate, applying to those aged 21 and over increases by 6.7% to £12.21/hr. The Chancellor announced her intention to eventually have a single flat rate.

The Chancellor provided some certainty to employers in relation to Company Car benefits, keeping Benefit In Kind rates through to 2027-28 unchanged, with increases announced for the following two years.

The anticipated changes impacting umbrella companies and the responsibility for PAYE, effective from 6 April 2026, will place additional compliance obligations on employment agencies, or end user businesses. Driving compliance in this sector should create a fairer environment for providers and users of umbrella companies which currently operate compliantly.

Changes to the taxation of non-domiciled individuals will have consequences for employers with internationally mobile employees, including the application of Overseas Workday Relief via PAYE and Employment Related Securities.

The Budget also confirmed mandatory payrolling of benefits from 6 April 2026 and has provided helpful clarification on implementation.

Stamp Duty Land Tax

The higher rate of SDLT for purchases of additional dwellings will increase by 2%.

• The new rate will be 5% above the standard residential rates, an increase from 3%.

The single rate of SDLT for purchases of dwellings of more than £500,000 by companies or non-natural persons will increase by 2%.

• The new rate will be 17%, an increase from 15%.

The Government’s objective is to free up housing stock for main homes and first-time buyers through disincentivising acquisitions of second homes and properties and to ensure that noncommercial property held in corporate wrappers and by offshore investors is subject to the highest rates of SDLT.

Kersten Muller Managing Director

“The increase of surcharge from 2% to 5% on second homes and investment properties was not surprising and is aimed at supporting first time buyers entering the market.”

Indirect Taxation

Private School Fees

The VAT exemption on private school fees will be removed from 1 January 2025. All education services provided by a private school will be subject to VAT at the standard rate of 20%.

Pre-payments of fees on or after 29 July 2024 that relate to terms starting after 1 January 2025 will also be subject to VAT at the standard rate.

• There was some expectation that these changes would be deferred to the start of the 2025 school year to allow a smoother transition, but this is not the case and there has been limited consultation or consideration of the sector’s unique challenges.

• Wealthier schools may be able to absorb the impact as a result of historical capital expenditure, however, less well-funded schools are likely to face significantly more difficulty.

Air Passenger Duty

Whilst there are minimal changes proposed to APD rates for 25/26 as these will increase in line with RPI, in 26/27 all rates will increase by 13%. In addition, from 1 April 26 the higher rates that apply to larger private jets will increase by a further 50% and a consultation was announced at Autumn Budget 2024 to extend the scope of the higher rates to all private jets.

Corporation Tax

The Autumn Budget was reasonably quiet for core corporation tax matters but did include the publication of a Corporate Tax Roadmap, intended to make features of the system clear and highlight key areas where changes are expected. Planned consultations include:

• Potential removal of UK-to-UK transfer pricing to reduce the compliance burden

• Possible lowering of transfer pricing exemption thresholds so only small businesses are exempt from the rules instead of small and medium enterprises (SMEs):

• A small enterprise has a maximum of 50 staff and less than €10 million turnover / balance sheet total of less than €10 million

• A medium enterprise has a maximum of 250 staff and less than €50 million turnover / balance sheet total of less than €43 million

This would significantly increase the compliance burden for medium sized international groups

• Potential introduction of a requirement for multinationals subject to transfer pricing rules to report to HMRC cross-border related party transactions.

The Corporation Tax Roadmap also includes a commitment to maintain stability in the current Capital Allowances regime, which is to be welcomed. Alongside an intent to consolidate and simplify the Capital Allowances Act 2001 (could be a new Act?), comes a planned consultation on pre-development costs. This is welcome following a recent ruling, and the potential impact of uncertainty on investment in renewable energy and major infrastructure projects.

Research and Development

It is to be welcomed that the Budget has not brought any further changes to rates or the operation of the newly merged R&D regime. Indeed, HMRC continues to focus on improving the management of the regimes with the announcement of a stakeholder consultation on widening the use of the advance assurance scheme offered to SMEs. This voluntary scheme guarantees that any R&D claim for tax relief will be accepted if it’s in line with what was discussed and agreed in the application but only applies for the first three accounting periods.

A document setting out the approach to addressing fraud and error has also been published, which shows the estimated level of fraud has dropped significantly from that previously estimated by HMRC.

Kathie Haunton Managing Director

“The R&D tax regimes have been a key source of funding for many companies in the tech sector for the last 24 years. The announcement of a consultation on the use of advance clearances for R&D claims, show that HMRC are continuing to focus on improving the management of the R&D tax credit regimes.”

Tax Compliance

The rate of interest charged on late payment of tax liabilities will increase by 1.5% from 6 April 2025. The new rate will be set at the Bank of England base rate plus 4%. Currently the rate is set at base rate (5% at present) plus 2.5%, making the current rate 7.5%. The rate will be 9% from 6 April 2025, if the base rate does not change.

This applies to all unpaid tax apart from Corporation Tax Quarterly Instalment Payments (QIPs). Interest on underpaid QIPs is currently set at the base rate plus 1%, so this will increase to base rate plus 2.5%.

HMRC late payment interest has become increasingly burdensome in recent years as a result of a higher Bank of England base rate. This measure will place even more importance on individuals and businesses paying the right amount of tax on time.

We are seeing increasing requests for VAT time-to-pay arrangements with HMRC across sectors facing cashflow pressures. This policy, which is intended to target non-compliant companies, will likely capture compliant businesses struggling with cashflow.

As is now normal, there was an announcement of further investment in countering tax avoidance with a promise of 5,000 more HMRC compliance officers and further proposals to deal with promoters of tax avoidance schemes.

Real Estate

The measures announced are certainly wide-ranging and, all in all, the property industry is probably a net beneficiary from the Autumn Budget. This, coupled with the expectation of lower interest rates to come, will be good news for the sector that has experienced significant turbulence over the last 18 -24 months.

An increase in Capital Gains Tax was widely expected, whilst the effective alignment of rates at 18% (lower) and 24% (higher) for all assets was less than expected and is arguably a welcome simplification. Whilst residential property investors will not face an increase in CGT, the SDLT surcharge on additional residential properties will increase from 2% to 5% from 31 October 2024.

More significant were the announcements on housing investment, being one of the Government’s key aims, which on first inspection seem to have been well-received. The headline investment of £5bn to deliver the housing plan being only part of the package. Additionally, there will be a reduction in the Right to Buy discount, with Local Authorities retaining the proceeds from such sales for reinvestment. This will be further bolstered by additional funding for the planning system.

For occupiers of property, Business Rate relief for the retail, hospitality and leisure sector will be retained, although lowered from 75% to 40%. This means businesses in the sector will still face a significant increase in their rates bill from April 2025 but not the £3bn cliff edge that had been feared.