In what is presumably the final UK Budget before the General Election, Chancellor of the Exchequer, Jeremy Hunt, delivered a Budget that he billed as being “for long-term growth”.

Focusing on the requirement to be responsible with finances, the Chancellor took advantage of slightly improved growth forecasts from the Office of Budget Responsibility to ‘set out his stall’ prior to voters going to the polls later this year, by promising “more investment, higher growth and lower taxes”.

‍Mandatory VAT registration threshold to be raised

Although the Chancellor started off slowly, with announcements of a freeze of alcohol and fuel duty into 2025 - the sole highlights of the first 20 minutes of his speech -things picked up quickly thereafter with announcements of the mandatory VAT registration threshold increasing to £90,000 (up from £85,000).

‍Introducing a British ISA

A reform of the ISA system was tentatively announced, introducing a “British ISA” announcing a further £5,000 allowance (on top of the existing £20,000 ISA allowance) to invest in UK equities. This will be subject to a consultation later in the year.

‍Abolishing the Furnished Holiday Lettings Regime

In the first of the personal tax announcements, the Furnished Holiday Lettings (“FHL”) regime will be abolished from April 2025. Broadly, the current FHL rules allow landlords to deduct their mortgage interest in full and may also have Capital Gains Tax benefits on a future sale. Having heard suggestions over the weekend of some of the reliefs available on FHL being curtailed (sceptics would say they were leaked), the full abolition came as a bit of a surprise.

‍4% reduction of higher rate of CGT on property

Continuing on with his announcements relating to the taxation of UK property, it was also announced that the higher rate of Capital Gains Tax on property was to be reduced to 24% from 28%.

Taken together, it is clearly hoped that the abolition of the FHL regime and the reduction of the higher rate of CGT will encourage the sale of second homes, and increase the supply of properties on the market for first-time buyers.

‍Concept of domicile for tax purposes to be abolished 

Of all of the announcements that were briefed to the press over the weekend, the changes to the taxation of non-UK domiciled individuals were the ones where we didn’t quite know where the Chancellor was going to land.

The changes announced were of mass and very significant reform, and the concept of domicile for UK tax purposes is to be abolished. It is important to note that the common law concept of domicile (for example, for succession and legal jurisdiction matters) is expected to remain.

From April 2025, the concept of domicile will be changed to one of long-term residence. After just four years of residence (slashed from the previous threshold of 15 years), non-UK “domiciled” individuals will now be taxable in line with longer-term UK residents.

There will be transitional arrangements allowing for the remittance of funds to the UK. From the backing budget documents, this would appear to be possible over a 2-year period, and any foreign income and gains remitted would be taxable at 12%. This may be beneficial.

Inheritance Tax to move to a residence-based regime

Along with the mass reforms to the taxation of income and gains for non-UK domiciled individuals, Inheritance Tax (IHT), which is also currently taxable based on the domicile status of the deceased, will also be reformed. The Budget “Red Book” announced that IHT will, subject to a consultation, also move to a residence-based regime, with the potential for exemptions for new arrivals. It is noted that there will be no changes to IHT before April 2025, but it would not be surprising to see a move towards an Irish-style system where IHT is levied on beneficiaries of the estate depending on their residence status.

High Income Child Benefit Charge threshold for repayment increased

Finally, the application of the High Income Child Benefit Charge (“HICBC”) is to be reformed. From April 2024, the threshold for repayment will increase to £60,000, with the top of the taper increasing to £80,000. The Chancellor also announced a consultation for the collection of the HICBC to be based on household income from April 2026.

‍What we think

There were some interesting choices in today’s Budget, especially given its significance as we gear up to a likely very significant General Election.

The 2% cut to National Insurance sounds, on the face of it, a welcome measure - and it no doubt will be for those in employment. However, does it miss the mark politically? It won’t benefit those at or above the State Pension age (a traditionally strong Conservative voter base), as they don’t pay National Insurance. It won’t benefit those who receive considerable dividend income. And, frankly, it’s far less well-understood (by taxpayers and many advisors alike) than income tax. Would a 1% cut to the rate of income tax have had a great political impact?

We knew that change was coming to the taxation of non-doms. However, the extent of the changes announced was surprising and far more extensive than we think most people expected. We will need to see the full legislation but expect significant activity in this area.

The abolition of the concept of domicile for UK taxation has wide-ranging implications, beyond the taxation of income and gains. The subsequent effect of these changes to Inheritance Tax and the taxation of trusts (both existing and yet-to-be-settled trusts) will be significant, and we will have to wait for both the Finance Bill and the results of the IHT consultation later this year to have a clear idea on the extent of the potential implications.

‍How we can help

It is more important now, than perhaps at any time since 2008, to review your affairs critically and in detail. We are already working with a large number of clients preparing to leave the UK - whether UK domiciled or not - and no doubt these enquiries will only increase.