As expected this was a Budget with a number of very significant announcements but short on a lot of detail. Some of the details (and unannounced changes) are in the accompanying Government documents and Treasury publications (of which there are many).
This briefing summarises what I have been able to glean so far. Things will become clearer over the coming days but it won’t be until the Finance Bill is published in just over a week’s time that we will be able to advise in detail on some of the changes and intricacies.
The Budget will raise £40 billion in additional tax, £25 bn of this coming from increases to employers’ NI. No changes to rates of income tax, VAT or employees’ NI.
BUT: No extension to freeze in income tax and NI thresholds other than those previously announced by the Conservative Government. From 2028/29 these thresholds will be updated by inflation each year.
There is a raft of measures proposed to be legislated on in the Finance Bill. Many of these are very specific and the headlines are fairly meaningless until we see the detail.
National insurance
Employers’ NI (currently 13.8%) to rise by 1.2% to 15% from 6 April 2025.
The Secondary Threshold is the point at which employers become liable to pay NICs on employees’ earnings and is currently set at £9,100 a year. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter. The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. The government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NICs bills from 6 April 2025.
Capital gains tax
Lower rate increased from 10% to 18%.
Higher rate increased from 20% to 24%.
This applies to disposals on or after 30 October 2024.
Business Asset Disposal Relief (BADR) to remain at £1 million lifetime limit. The rate will increase to 14% from 6 April 2025 and to 18% from 6 April 2026.
Employee Ownership Trusts and EBTs
There is a package of reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts. These reforms will prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees. The changes will take effect from 30 October 2024.
EIS and VCT schemes: no substantive changes.
Corporation tax
The government has published a Corporate Tax Roadmap. The Roadmap includes a commitment to cap the corporation tax rate at 25%; maintain the small profits rate and marginal relief at current rates and thresholds; and maintain key features as such as full expensing, the Annual Investment Allowance, R&D relief rates, and the Patent Box. The Roadmap also outlines areas for further exploration including a new process for advanced assurance for major projects and simplifying and improving tax administration.
R&D – no substantive changes. However, the government will discuss widening the use of advance clearances in research & development reliefs with stakeholders, with the intention to consult on lead options in spring 2025. The government has also published a document setting out further information on the scale and characteristics of error and fraud up to 2023-24, the policy and operational changes that have been made to address this, and further data on customer experience.
Transfer pricing. The government will publish a further consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and Diverted Profits Tax in spring 2025. This includes the potential removal of UK-to-UK transfer pricing. The government will also publish consultations in spring 2025 on further changes to the transfer pricing rules, including:
- considering lowering the thresholds for exemption from transfer pricing for medium-sized businesses whilst retaining an exemption for small businesses, and
- introducing a requirement for multinationals in scope of transfer pricing rules to report information to HMRC on certain cross-border related party transactions. Alongside this the government will review the transfer pricing treatment of cost contribution arrangements, to ensure that the rules are certain and do not act as a deterrent to investment that brings economic benefits to the UK.
If the exemption for medium-sized businesses is removed this could add a very considerable administration and compliance burden to many businesses.
Inheritance tax
Unused pension funds and death benefits payable from a pension will be brought into a person’s estate for inheritance tax purposes from 6 April 2027. This is a significant change and all pension fund holders will need to assess the potential impact of this.
Agricultural Property Relief (APR). There will be an extension of APR to environmental land management under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or approved responsible bodies.
APR and Business Property Relief (BPR). These IHT reliefs will be reformed from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter, and in all circumstances for quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.
IHT nil-rate band and residence nil-rate band. The inheritance tax nil-rate bands are already set at current levels until 5 April 2028 and will stay fixed at these levels for a further two years until 5 April 2030. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
Non dom tax regime
“Non dom” status to be abolished.
There will be legislation to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence based regime, which will take effect from 6 April 2025. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence. From 6 April 2025 the government will introduce a new residence based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT, and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime. For capital gains tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met. Overseas Workday Relief will be retained and reformed, with the relief extended to a four-year period and the need to keep the income offshore removed. The amount claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income. The government is extending the Temporary Repatriation Facility to three years, expanding the scope to offshore structures, and simplifying the mixed fund rules to encourage individuals to spend and invest their FIG in the UK.
Fund management carried interest
The government will reform the way carried interest is taxed, ensuring that this is in line with the economic characteristics of the reward. From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. As an interim step, the two CGT rates for carried interest will both increase to 32% from 6 April 2025. The government will also consult on introducing further conditions of access into the regime.
SDLT
Second home surcharge to be increased from 3% to 5% from 31 October 2024. This will also apply to non-UK residents purchasing additional property.
Duties
Fuel Duty: Frozen for next two years.
Draught beer duty to be cut.
Rise in Air Passenger Duty.
VAT on private school fees confirmed. No exemptions.
Selected other changes and consultation – note these are subject to detailed legislation and further details being published
- Investing in additional HMRC compliance staff – the government will invest £1.4 billion over the next five years to recruit an additional 5,000 HMRC compliance staff, raising £2.7 billion per year in additional revenue by 2029-30.
- Investing in additional HMRC debt management staff – the government will invest £262 million over the next five years to fund 1,800 HMRC debt management staff, raising £2 billion per year in additional revenue by 2029-30.
- There is to be modernization of various HMRC processes and systems.
- Mandate the reporting of benefits in kind via payroll software from April 2026 – the government confirms that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2026.
- Making Tax Digital for income tax Self-Assessment – the government is committed to delivering Making Tax Digital (MTD) for income tax Self-Assessment. The government will expand the rollout of MTD to those with incomes over £20,000 by the end of this Parliament and will set out the precise timing for this at a future fiscal event.
- Modernising and mandating tax adviser registration – the government will invest £36 million to modernise HMRC’s tax adviser registration services and will mandate registration of tax advisers who interact with HMRC on behalf of clients from April 2026.
- Strengthening the regulatory framework in the tax advice market – the government is publishing a summary of responses to the ‘Raising standards in the tax advice market: strengthening the regulatory framework and improving registration’ consultation and is considering options to strengthen the regulatory framework of the tax advice market.
- Tackling tax non-compliance in the umbrella company market – to tackle the significant levels of tax avoidance and fraud in the umbrella company market, recruitment agencies will be responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end client business. This will take effect from April 2026.
- Changing late payment interest rates on unpaid tax liabilities – the late payment interest rate charged by HMRC on unpaid tax liabilities will be increased by 1.5 percentage points. This measure will take effect from 6 April 2025.
- Close Company Loans to shareholders – legislation will ensure that shareholders cannot extract funds untaxed from close companies by removing opportunities to side-step the anti-avoidance rules attached to the loans to participators regime. This change will apply from 30 October 2024.
- Deterring tax fraud – HMRC’s counter-fraud capability will be expanded to address high value and high harm tax fraud.
- Tackling promoters of marketed tax avoidance – there will be consultation in early 2025 on a package of measures to tackle promoters of marketed tax avoidance.
- The government is committed to tackling offshore non-compliance as part of the ambition to close the tax gap and is committing additional resources, including the scaling up of compliance activity to tackle serious offshore non-compliance including fraud by wealthy customers and intermediaries, corporates they control and other connected entities.
- Consultation on new ways to tackle tax non-compliance – there will be consultation on reforming HMRC’s correction powers, exploring changes to HMRC’s existing powers and processes, and a potential new power to require taxpayers to correct mistakes themselves.
