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.

‍