Private client aspects of Autumn Budget 2024

Introduction

Labour’s first post-election Budget contained tax rises that will total over £40billion a year by 2029/30. The largest individual tax raising measure is an increase to Employers’ National Insurance Contributions (NICs) which will raise £25billion before adjustments for impacts to the public sector. Personal tax changes also raise a significant amount of tax, with measures including increases to capital gains tax rates and reductions in inheritance tax reliefs. This note sets out the key personal tax measures included in the Budget. 

Capital Gains Tax (CGT)

• The main CGT rates on disposals of shares and other non-residential property/carried interest assets will increase from 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers to 18% and 24% respectively. This aligns these tax rates with the residential property CGT rates which will remain at 18% and 24%. The changes to the CGT rates will take immediate effect from 30 October 2024.
• The CGT rate on assets eligible for Business Asset Disposal Relief (BADR) and investors’ relief will increase from 10% to 14% with effect from 6 April 2025 and to 18% from 6 April 2026. The lifetime limit for BADR remains at £1million but for investors’ relief, the lifetime limit will reduce to £1million, from £10million with immediate effect from Budget Day.
• The CGT rate on carried interest will increase to 32% from 6 April 2025. Further reforms are to follow from April 2026 to instead treat carried interest as income subject to income tax and Class 4 NIC, though a reduced tax rate will apply to carried interest which is “qualifying”, which will be subject to a maximum effective tax rate of up to 34.075%.
• Anti-forestalling measures will apply to contracts that exchanged before 30 October 2024 that complete after CGT rates change (i.e. after 30 October 2024 where the main rates of CGT apply or after 6 April 2025 or 2026 where the business asset disposal relief or investors’ relief rates apply). Anti-forestalling is also being introduced for certain elections that can bring forward disposal dates on a reorganisation for business asset disposal and investors’ relief purposes.
• Changes will be made with immediate effect from 30 October 2024 to liquidations of Limited Liability Partnerships (LLPs) which are liquidated where assets are disposed of to a contributing member or a person connected with them. The amount of chargeable gain that is to accrue to the member is an amount equal to the amount of chargeable gain that would have accrued when a given asset was contributed to the partnership, absent legislation that prevents a CGT charge arising at the point of contribution. The LLP will be taxable on disposal of the asset on any gain realised during the LLP’s ownership period in the normal way. This change is targeted at tax avoidance activity.

Inheritance tax

• The freeze on the inheritance tax nil rate bands will be extended to 5 April 2030. The standard £325,000 nil rate band has been frozen since 6 April 2009 and the residence nil rate band has been £175,000 since 6 April 2020.
• Unused pension funds and death benefits from a pension will be included within the deceased's estate from 6 April 2027. There is no mention of any changes to the income tax rules, suggesting that taxable death benefits, such as those from members who die after their 75^th birthday, will suffer both income tax and inheritance tax.
• Agricultural Property Relief (APR) and Business Property Relief (BPR) will be reformed from 6 April 2026. 
  • A £1million combined allowance will be available for most APR and BPR qualifying assets, which will continue to benefit from 100% relief up to this threshold.
  • Above this allowance, APR and BPR qualifying assets will only be eligible for 50% relief, representing an effective IHT rate of up to 20% upon death (and 10% on chargeable lifetime transfers, such as most gifts into trust). 
  • AIM shares (and other shares designated as 'not listed' on a recognised stock exchange) will not qualify for this £1million allowance so will attract 50% relief regardless of value.
  • The £1million combined allowance will be available for trusts in respect of ten-year charges and exit charges.
    • If a settlor has multiple existing trusts, each will have a £1million allowance for qualifying property.
    • However where a settlor sets up multiple trusts on or after 30 October 2024, the government intends to introduce rules to divide the allowance between them.
  • Trusts may have to pay IHT on 10 year charges at an effective rate of 3% because of the reduction in BPR or APR. They will need to consider how to fund the tax. Where dividends are drawn from an underlying company, this will be subject to income tax as well so consideration should be given to the level of dividend to draw. This could be materially higher than the IHT liability it funds.
  • The new rules for BPR and APR will apply from 6 April 2026. They will also apply to lifetime transfers made on or after 30 October 2024 if the donor dies within 7 years of the gift where death occurs on or after 6 April 2026, such that the gift becomes chargeable to inheritance tax. The reduced rate of BPR/APR will apply in calculating the inheritance tax payable.
• A further change to APR means that, with effect from 6 April 2025, APR will apply where land is managed under an environmental agreement which is with, or on behalf of, the UK government, devolved governments, public bodies, local authorities or approved designated bodies.
• No changes were made to the seven year rule for lifetime gifts to fall outside of estates for inheritance tax.
• No changes were made to exemptions. Notably the normal expenditure out of income exemption remains unchanged.

Abolition of tax regime for non-UK domiciled individuals (non-doms) and introduction of a new regime for arrivers

The abolition of the existing regime for taxation of non-doms and its replacement with a new regime for new arrivers to the UK will go ahead as planned from 6 April 2025. Detailed information was published on the changes, and some outstanding points were confirmed. This section of the note sets out information that was newly announced or confirmed in the Budget.

For income tax and CGT:

• The temporary repatriation facility which is intended to encourage non-doms to remit foreign funds to the UK will apply for three years, instead of the previously announced two years. The tax rate will be 12% for the first two years of the facility (2025/26 and 2026/27) increasing to 15% in year three (2027/28). In a change from the original policy, the facility will apply to funds which are ‘designated’ – it will not be necessary to remit funds to the UK. The facility will be extended to distributions from qualifying overseas trusts structures (as opposed to remittances by individuals only, as per the Conservative announcements). Taxpayers must be UK resident in the relevant years to qualify.
• As per previous announcements, current and past remittance basis users will be able to rebase the value of personally held foreign assets on disposal where certain conditions are met. It has been confirmed that assets will be rebased to their value on 5 April 2017.
• Overseas workdays relief will be available on eligible foreign earnings during the first four tax years of UK residence (as opposed to three currently), though some changes will be made to the operation of the rules. An annual financial limit will be introduced for the relief, which will be the lower of 30% of the qualifying employment income and £300,000.
• A call for evidence has been published on personal tax anti-avoidance rules that apply in this area, including capital gains tax, settlements, and transfer of assets abroad rules. These areas of legislation can also apply to UK domiciled individuals with overseas assets. The call for evidence seeks suggestions on how these rules could be updated or improved.

For inheritance tax:

• Inheritance tax will be reformed to apply on a worldwide basis for individuals who have been UK resident for at least 10 out of the last 20 tax years. The length of time individuals will need to be non-UK resident will be shortened on a sliding scale for individuals who have been UK resident for between 10 and 19 years, with fewer years of non-residence being required to fall out of the scope of worldwide taxation the less time an individual has been UK resident.
• Trustees will be subject to inheritance tax on worldwide assets at any point when the settlor is a long-term UK resident (i.e. meets the above tests), instead of inheritance tax exposure being fixed based on the settlor’s domicile position at the date of settlement.

Income tax and employee NICs

• No major changes were announced. The Chancellor confirmed that the income tax and employee NIC threshold freezes will end in 2028 and will then increase based on CPI inflation.

Stamp duty land tax

• The 3% additional rate that applies on the purchase of additional residential properties in England and Northern Ireland will increase to 5% with effect from 31 October 2024.

Employee Ownership Trusts (EOTs)

EOTs are intended to increase employee ownership of companies using a trust to own shares for employees. Various tax reliefs are available. Changes were made to some details of EOTs in the Budget. These include:

• Restrictions on the availability of tax reliefs if an owner or former owner retains control of a company after it is transferred to an EOT through controlling the EOT.
• The time period over which CGT relief can be withdrawn from a former shareholder who has transferred shares to an EOT where the EOT ceases to meet the relevant conditions to up to four years. The previous position was that CGT relief could be withdrawn if conditions ceased to be met between the point of transfer and the end of the following tax year.
• A new requirement is to be introduced to require EOTs to be UK resident for tax purposes.
• The changes will take effect where shares are transferred to EOTs on or after 30 October 2024.

Individual Savings Accounts (ISAs)

• The government has confirmed that the existing ISA limits will remain in place until 5 April 2030. This includes the standard ISA limit remaining frozen at £20,000 and the Junior ISA limit remaining frozen at £9,000.
• The previous government consulted on the potential introduction of a ‘British ISA’, which was intended to encourage UK investment. The Chancellor has confirmed that the British ISA will not go ahead due to mixed responses being received to the consultation launched in March 2024.

Interest on late tax payments

• The rate of interest charged on late paid tax will increase from the Bank of England base rate plus 2.5% to the Bank of England base rate plus 4%. The Bank of England base rate is currently 5%, which means that, at this rate, the rate of tax on late paid interest will be 9%. This change will take effect from 6 April 2025.