Author: Charlie Kelleher

Action Stations for Private Clients and Businesses

Original recording: Friday 1st November

Join the Sanctoras team for an in-depth analysis of the October Budget.

With some major announcements in the August 2024 Budget, this session delves into how the changes may impact businesses, high-net-worth individuals, and professional advisors alike.

Managing Partner, James Heathcote was joined by our Head of Private Client Advisory, Richard Thomson-Curtis, and Head of Corporate & Business Advisory, Charlie Kelleher.

The team unpacked the key changes, explored their implications, and offered expert opinions on how best to navigate the evolving landscape.

This webinar is ideal for:

• Other professional advisors (lawyers, accountants, etc.)
• Business owners and entrepreneurs
• High-net-worth individuals and family offices

Key points

• Capital Gains Tax increased to 24% with immediate effect
• Inheritance Tax reliefs for agricultural and business assets reduced
• Stamp Duty Land Tax surcharge on acquiring second homes increased from 31 October
• Non-domicile regime for tax to be scrapped and replaced with a residence-based test
• Trusts established by non-UK domiciled settlors to lose all tax protections
• Employer’s National Insurance increasing to 15%

Overview

After months of speculation, rumours, leaks, briefings and row-backs, tax advisors up and down the land woke up this morning safe in the knowledge that it was almost all over! All that was left was to place bets on the length of the speech (82 minutes), what the Chancellor would be drinking (water), and how many times she says “black hole” (I stopped counting!).

In the first Budget delivered by a Labour Chancellor of the Exchequer since the late Alistair Darling in March 2010, Rachel Reeves delivered her Budget this afternoon promising to “Fix the Foundations to Deliver Change”.

Speaking for over an hour, the Chancellor painted a similar picture to the relatively bleak one we have been seeing since the election in July; of a “black hole” and of “restoring stability to public finances”. Somewhat hamstrung by their manifesto commitments, the Chancellor was keen to make it clear that this Budget was not a return to austerity, but responsible, sustainable announcements which lead to growth.

As expected, this was a Budget which raised taxes, with £40 billion of tax increases announced which included, as endlessly speculated in the media, announcements concerning capital gains tax, inheritance tax and the taxation of non-UK domiciled individuals as key focuses of the Chancellor’s speech.

Updates for Private Clients

As promised in the Labour Party’s election manifesto, the Chancellor reiterated the commitment to not increase the rates of VAT, Income Tax or employee National Insurance (though much criticism has been levied on what many see as a somewhat disingenuous omission of the employee qualification during the election campaign).

The income tax thresholds (the ‘bands’ within which each tax rate is applied) will not be extended beyond those previously announced. From 2028-29, these will increase annually in line with inflation.

Capital Gains Tax (“CGT”)

The potential changes which attracted the most attention in the press were to CGT. The Chancellor did not go as far as some rumours thought that she would, with the lower rate of CGT being increased from 10% to 18%, and the higher rate being increased from 20% to 24%. It was only from April 2016 that the rates of CGT were reduced from 18% and 28% respectively, so today’s increases are nowhere near the ‘unprecedented’ rises that had been feared. However, the new 18% and 24% rates apply immediately to any disposals on or after 30 October 2024.

Against the strong backdrop of rumours of its abolition, Business Asset Disposal Relief (“BADR”) will be retained at its current lifetime allowance of £1 million. Along with the lower rate of CGT, the BADR tax rate will increase, albeit over two years, with the 10% rate being retained for the remainder of this tax year, 14% in 2025-26 and up to 18% in 2026-27.

Hitting another manifesto commitment, the rate of CGT applied to Carried Interest (certain payments made to private equity executives) will be increased to 32% from 6 April 2025, with further reform to Carried Interest announced from April 2026, by bringing Carried Interest within the scope of income tax.

Far from bringing any form of simplification, it means the UK still has four rates of CGT – 10%, 18%, 24% and 32% – with further adjustments over the next two years.

Inheritance Tax (“IHT”)

As with CGT, the Chancellor did not go as far as some rumours suggested as regards changes to IHT, noting that only 6% of estates were liable to pay IHT.

Retaining the Residential Nil Rate Band was a little unexpected; however, this, and the Nil Rate Band thresholds will be frozen until at least April 2030, meaning the impact of inflation will continue to erode the real-terms value of these thresholds. “Unspent” pensions that are inherited (which are currently not within the scope of IHT), will also be brought into the scope of IHT.

IHT reliefs were firmly within the Chancellor’s sights as well this afternoon, with reforms to both Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”). From April 2026, the first £1m of combined APR and BPR-qualifying assets will continue to attract 100% IHT relief as they do at present. For any value in excess of this £1m threshold, IHT will apply, although with a 50% relief – meaning an effective 20% rate of IHT above £1m.

Finally, in another tweak to BPR, shares listed on AIM (and other recognised stock exchanges where shares are treated for BPR purposes as being “unlisted”) will attract relief at a reduced rate 50%, rather than 100% as they do currently. This does not go as far as many had expected, preserving at least some IHT relief on AIM and similar shares (though whether they remain as attractive purely for IHT purposes remains to be seen).

Stamp Duty Land Tax

Stamp Duty Land Tax (“SDLT”) was subject to a single announcement with an increase in the surcharge for second homes by 2% (to 5%) from 31 October 2024, and the rate on which corporate bodies pay SDLT on residential properties costing more than £500,000 increasing to 17%. Note that this only applies to property in England and Northern Ireland, as Scotland and Wales have separate land transaction tax regimes. 

As was expected, the ‘holiday’ for the extended SDLT bands will not be extended, and as such the 0% band will revert to £125,000 from 1 April 2025

It was expected that there would be far wider reforms to SDLT, so the single announcement, and the immediacy of its implementation of the higher surcharge is somewhat disingenuous, given that the speed at which property transactions move will result in very few transactions being able to ‘escape’ the higher rate.

Other updates for Private Clients

• In a surprise move the Chancellor announced that the recent freezes, and 5p per litre cut to Fuel Duty would be retained, against the background of a high cost of living, and ongoing global uncertainty.
• As was expected, the triple lock on the State pension will be retained next year, resulting in an increase in the new and old state pensions by 4.1% from April 2025.
• Finally, and away from taxation, it was announced that the National Living Wage for over 21s will rise by almost 7%, to £12.21 per hour from April 2025, giving lower-paid workers a much needed boost. Rates for 18-21 year olds will be increased by 16%, with the ultimate aim of having a single Living Wage rate for adults.

Updates for Non-UK Domiciled Individuals

The Chancellor announced that the current regime of the remittance basis of taxation will be abolished from 6 April 2025, and the “outdated concept of domicile” be removed from the UK taxation system. This was no surprise and has been known for a considerable time, though we are pleased that draft legislation has today been released.

In place of the current “non-dom” regime as it applies to tax, the Government will introduce a new residence-based approach for IHT and transitional measures for the taxation and remittance of non-UK income and gains – the “FIG (Foreign Income and Gains) regime”. At first reading, this appears to be broadly in line with that announced by Jeremy Hunt in March 2024, although with some tweaks – namely that the Temporary Repatriation Facility, allowing remittances of non-UK funds to the UK at a favourable rate, will be extended to 3 years, and its scope will be expanded.

Alongside the Budget, the Treasury released a technical note and draft legislation detailing the changes that are proposed to the taxation of non-UK domiciled individuals. Rather disappointingly, this confirms that there will be no ‘grandfathering’ of existing structures from the proposed changes and that, from April 2025, foreign income and gains arising in settlor-interested trusts will be taxable on UK resident settlors as they arise, where the settlor does not qualify for, or does not claim, the new FIG regime.

Changes to IHT will also be accelerated, and will be introduced from April 2025 (at the same time as the introduction of the FIG regime). From 6 April 2025, an individual will be within the scope of UK IHT on their worldwide assets if they have been resident in the UK for at least 10 of the 20 tax years prior to the tax year in which a chargeable event (e.g., death) occurs.

To fall outside the scope of UK IHT, an individual would be required to be non-UK resident for at least three years (depending on how long they have been resident in the UK and whether they subsequently return to the UK).

We expect to learn more over the next few months, as draft legislation is released, amended and enacted, and we will be releasing a separate detailed briefing on this shortly.

Updates for Businesses

This Budget was a little on the quiet side for businesses, with Rachel Reeves having previously discussed the need for stability for British businesses. As such, the Chancellor announced that a Corporate Tax roadmap will be published shortly, which will allow for businesses to plan for any future changes. At the same time, she announced that the rate of Corporation Tax will be capped at 25% for the life of this Parliament; full expensing will be retained; the Annual Investment Allowance will be retained at £1 million; and the Research & Development tax credit will be retained at its current rate.

As was rumoured in the media over the last couple of weeks, from April 2025 the rate of employer National Insurance will be increased by 1.2% (bringing the rate to 15%), and the earnings threshold will be lowered to £5,000 per year. At the same time, the employment allowance will be increased from £5,000 to £10,500.

Although the higher employment allowance will be of assistance to small businesses, those with larger employer National Insurance liabilities will feel a considerable hit. Much has been made in the press of the potential knock-on effect to employees, and any impact remains to be seen.

Other Announcements

Further to announcements by Jeremy Hunt in Autumn 2023, reiterated in his 2024 Spring Budget, it was announced that further investment would be made in HMRC, both in hiring 5,000 more staff, and in improving and modernising HMRC’s systems, to enable the UK’s tax authorities to collect unpaid tax liabilities, and thereby reducing the tax gap. 

Additionally, the interest rate on unpaid tax will also be increased by 1.5% from 6 April 2025.

Closing Thoughts

Although clearly constrained by the ongoing global uncertainty, current Government finances and the continuing cost of living crisis (and Labour’s own manifesto commitments), the Chancellor did not go as far in a number of areas as was expected.

Increases to CGT rates were expected, but were ultimately not as substantial as rumoured and speculated. Similarly, changes to IHT and associated reliefs were expected, but were not as substantial as they may otherwise have been. However, this does not mean that more significant changes will not follow in due course once the Government has assessed the behavioural and economic impacts of the measures announced today.

Within the Budget, the Chancellor did include some, albeit limited, good news for taxpayers, with the continuing freeze in Fuel Duty, and the un-freezing of tax thresholds from April 2028. Whether this will be enough to turn the tide on a general sentiment of negativity – perpetuated in considerable part by the Government themselves with extensive reference to “difficult choices” and a “painful” time to come – remains to be seen.

Many of today’s announcements will require urgent consideration or assessment of individual clients’ circumstances, and the time to take affirmative action has now arrived. Please get in touch with your usual Sanctoras contact, or any of the team, if you have any questions about the Chancellor’s Autumn Budget, or how any of the announcements may affect you.

Webinar

You can now register for our interactive webinar on Friday 1st November (10am GMT, 2pm GST) to get further insight and ask any burning questions from Richard, James and Charlie.

REGISTER HERE

For those in Dubai, keep your eyes on our social media for details of an in person session on Friday 15th November.

As summer turns into autumn, we’re speaking to a growing number of HNWIs who are considering a move overseas. Important to note that these are not just the non-doms who will be impacted by the proposed changes to the remittance basis, but UK entrepreneurs are also increasingly looking to move abroad.

It’s interesting to read that this is not just our experience here at Sanctoras, and that HNWIs and UHNWIs are indeed increasingly upping sticks and heading elsewhere. The Private Wealth Migration Report from Henley Global asserts that 2024 will be the most significant year ever for HNWI relocations, with 128,000 moves estimated to be made by the end of December.

The UK is not leading the way here, with China currently seeing the greatest outflow of HNWIs, with an estimated 15,200 individuals leaving China in 2024 (the UK is estimated to have c9,500 departures).

Perhaps unsurprisingly, the UAE is estimated to be the greatest beneficiary of these moves, with c6,700 individuals predicted to move to the UAE this year. With relatively stable weather, and a favourable tax regime, this inflow is likely to only grow in future years.

As Rachel Reeves finalises the announcements and proposals in advance of the Budget on 30 October, the Adam Smith Institute reports that up to 20% of millionaires may leave the UK by 2028. And as noted above, it is not just the non-doms who we are seeing leave the UK. The Chancellor needs to tread a little carefully to ensure that any announcements do not end up costing the UK tax revenue, rather than increasing it.

It’s not just the UK that is looking at different methods of raising tax revenue in a globally mobile world, with a number of governments looking at a variety of different proposals to attract and retain individuals. Portugal has recently proposed a 10-year tax regime to attract and retain young people with up to 100% exemption from tax in the first year of employment in Portugal. This is likely to be a common theme in the coming years.

Likely to be less successful, a discussion around a global wealth tax is ongoing, however progress is difficult, and with the USA reportedly not onboard, it is hard to envisage a wealth tax being introduced on a global scale. Talk certainly seems to have cooled in the UK of a wealth tax, with implementation, reporting and collection likely to be difficult.

Whilst tax is certainly a consideration for some of those relocating, globally this is not always the case, with South Africa, India, Russia and Brazil also seeing a significant emigration, driven by a variety of political, security and quality of life factors. Lifestyle is increasingly becoming a key reason for relocating from the UK to the UAE, with relatively stable (warm!) weather in the UAE, in particular, a significant attraction.

When considering relocating, there are a number of factors that ought to be considered with your advisors, including:

• If required, how easy will it be to unwind any structures established, or investments made if the move needs to be reversed?
• Are your family members relocating with you, or will they be remaining behind?
• Are you willing to minimise time spent in your former homeland, at least in the first few years?
• Are you prepared to keep meticulous records of your activities to evidence your location (if required) for the tax authorities? 
• Is your place of planned relocation somewhere that you want to live? Whilst tax may be a significant factor, it is important that a match for your lifestyle is sought too. Would you prefer the lifestyle in, for example, Jersey or the UAE?

Whilst there are a host of non-tax factors that should be considered, from a UK tax perspective, considerations will include:

• CGT – The timing of the disposal of assets to crystallise gains, and whether they would be subject to tax in the UK or another jurisdiction
• IHT – Whether you are within the scope of UK IHT, and will remain within the scope before your arrival / after your departure, and whether there are any reliefs available;
• Double Taxation Treaties – Whether your destination country has a tax treaty with the UK, which would deal with any residual income or gains in the UK (or vice versa, if you are relocating to the UK).

As an advisory firm with a multi-national footprint ourselves, and clients based around the globe, Sanctoras is well positioned to support you and your family in considering a move. By helping you to understand the financial implications of your plans and supporting you to futureproof your affairs, we enable you to focus on living the life you want to lead – wherever that may be.

If you would like to speak to a specialist about your own move abroad, please contact me via hello@sanctoras.com

With the recent General Election bringing the Labour party to power, there’s a lot to unpack regarding their tax policies. 

Campaigns were filled with promises and speculations, making it challenging to keep track. We’ve summarised below the new Government’s key tax pledges and policies, so you can stay informed about what’s likely to be in store for personal tax and business taxes..

What did Labour say about tax before the election?

‍

‍Personal Tax Pledges

Labour promises no increases to income tax rates but plans to keep tax bands frozen until 2028, resulting in an increased ‘fiscal drag’ as rising wages push more people into higher tax brackets.

As noted above, there are no planned increases to NIC rates for individuals.

Capital Gains Tax

The taxation of carried interest is likely to be significantly changed, and in future may be taxable at income tax rates, rather than the current 28%.

Other potential CGT changes might be on the horizon, though it is expected that the disposals of an individual’s primary residence will remain exempt.

Taxation of non-UK domiciled individuals

Changes to the taxation of non-UK domiciled individuals were announced in the Budget in March 2024. These changes were widely supported by the new Chancellor, Rachel Reeves. 

However it is likely that there will be some tweaks to the proposals announced by Jeremy Hunt, mainly around the transitional provisions, and discounts to remittances in the first two years of the new rules.

The Labour manifesto simply stated that they would ‘abolish the ‘non-dom loophole’.

Inheritance Tax

There are likely to be significant changes to Inheritance Tax, as were trailed in the March 2024 Budget, although it is unclear as to whether the consultation announced by Jeremy Hunt in March 2024 will proceed. 

Reports suggest that legislation around Agricultural Relief and Business Relief (the two main IHT reliefs) will be changed, therefore reducing the availability of relief from IHT.

As noted above, it is also likely that there will be changes to the taxation of offshore trusts, with the excluded property regime removed.

Pensions

The lifetime allowance charge will likely not be re-introduced.

Reliefs on contributions to private pensions may be considered, with a flat rate of relief of 33% being suggested (which would benefit Basic Rate and Higher Rate Taxpayers, but Additional Rate Taxpayers would see a reduction in relief).

‍Stamp Duty Land Tax

The surcharge for non-UK residents purchasing residential property in England and Northern Ireland is likely to be increased from 2% to 3%.

Please note that Scotland and Wales have devolved tax powers, and have similar land transaction taxes, however set their own rates for these.

Business Taxes

Corporation tax and capital allowances

Prior to the election, the new Government repeatedly stated that they will not seek to increase the main rate of corporation tax, to provide stability for businesses in planning investments. Additionally, it is not expected for changes to be made to the full expensing for capital allowances, or the £1m Annual Investment Allowance.

A business tax “road map” is promised within six months to provide more investment decision certainty. 

Expect proposals on tax policies and business investment strategies to feature in this roadmap.

‍Business Investment

There are no planned changes to current R&D reliefs for corporate investment. 

Other pledges include creating a state-owned Energy company (GB Energy), a UK wealth fund with £1.5bn annual government funding, and strategies for industrial and infrastructure growth.

‍Indirect Tax

Pledges were made not to increase the main rate of VAT. 

However VAT will be imposed on private school fees and the business rate relief from which private schools currently benefit will be eliminated. 

It is likely that the legislation will also include certain anti-forestalling provisions, which will aim to counter proposals made by schools, which involve the pre-payment of fees. 

Enforcement

Labour has promised to bolster HMRC with 5,000 additional staff to reduce the UK’s “tax gap” (estimated at £39.8bn for 2022/23). 

This could result in increased compliance enforcement, particularly targeting small businesses, which account for a significant portion of the “tax gap”.

Stability

A key pledge from Chancellor Rachel Reeves is to hold only “one major fiscal event a year,” providing businesses with due warning of tax and spending policies, which is likely to be a popular move among businesses (and advisors!) seeking stability.

‍Employment Tax Pledges

It has been proposed that there will be no changes to employers’ or employees’ National Insurance Contributions (“NIC”) or pensions auto-enrolment obligations. 

Significant reforms are promised under the “New Deal for Working People,” including banning zero-hours contracts and enhancing employee rights from day one.

‍The next few months

• State Opening of Parliament on 17 July – which will reveal more about the Government’s legislative agenda. There is not likely to be significant tax content.
• A Budget / fiscal event – likely to be in Autumn 2024, once the Office of Budget Responsibility has completed their report and delivered this to the Chancellor.

On 4 March 2024, Companies House began implementing the first measures under the Economic Crime and Corporate Transparency Act (“the Act”). These enhanced powers are aimed at improving the integrity of the UK business environment by tackling economic crime and ensuring greater transparency. Our detailed blog post on the proposed provisions can be found here.

Stricter checks on company names

One of the key provisions of these new measures is the enhanced scrutiny of company names. Companies House will now run stronger checks on names that may give a false or misleading impression to the public. This initiative, together with the other measures now in effect, is designed to improve the accuracy and quality of the data held and combat the misuse of company names. All together, the measures now give Companies House the powers to take preventative measures to maintain the robustness of information on the register of companies.

The new measures build upon existing controls, which already prohibit names that are too similar to existing ones or that use restricted terms implying a connection to the UK government or other sensitive words.

Under the Act, Companies House can now also reject applications to register names if there is reason to believe the name:

• is intended to facilitate fraud;
• contains or comprises a computer code; or
• is likely to give the false impression of a connection to a foreign government or international organisation.

Moreover, Companies House has the authority to direct companies to change their names if they are found to be used, or intended to be used, for fraudulent activities. If a company fails to comply with this directive within 28 days, Companies House can assign a new name based on the company’s registered number and suppress the original name from the register.

Compliance and offences

Failure to comply with a directive to change a company name within 28 days constitutes an offence. Additionally, continuing to use a name that Companies House has directed to change is also an offence, underscoring the importance of adhering to these new regulations.

The role of the Company Names Tribunal

The Company Names Tribunal remains responsible for addressing objections to the use of names that are either identical to existing names with established goodwill or sufficiently similar to potentially mislead the public.

Future changes and implementation

The work to enhance the accuracy and integrity of the Companies House register will continue, with further changes planned for the coming years. These include mandatory identity verification for directors and other significant persons, streamlining account filing options for small and micro-entity companies, and transitioning towards mandatory software-based account filings, as mentioned in our previous blog post. Companies House will keep businesses updated on these changes as they come into effect.