Budget 2024 - implications for our clients

While Jeremy Hunt’s Budget 2024 announcement was not the big tax giveaway some might have expected in an Election year, it did still include a number of changes which will impact Private Clients.

Whilst a lot of the Press has focused on the 2p cut to the main rates of National Insurance Contributions, this article sets out an overview on some other measures which may affect individuals, trustees and estates.

No More “Non-Doms”

A regime long considered to benefit only the wealthy, Hunt has pre-empted Labour and decided to abolish favourable tax regimes available to individuals who are not domiciled in the UK.  Residence based regimes are expected in its place.

Domicile is its own concept in law; it is separate from residence and citizenship.  Broadly, domicile is where a person considers to be “home”, where they feel most closely connected.

Currently, if an individual moves to the UK and does not intend to live in the UK on a permanent or indefinite basis, they may be non-UK domiciled.  For tax purposes, this means that they have the opportunity to claim the “remittance basis” of taxation.  Put simply, they can protect their non-UK source income and gains from UK Income Tax and Capital Gains Tax (“CGT”) for up to 15 tax years of UK residence unless such income and/or gains are brought to, used or received in (“remitted to”) the UK (subject to paying a charge for the remittance basis of £30,000 per tax year after seven tax years of UK residence and £60,000 per tax year after 12 tax years of UK residence).  Non-UK assets of non-UK domiciled individuals are also outside the scope of UK Inheritance Tax (“IHT”) for the first 15 tax years of UK residence.

From 6 April 2025, it is expected that non-UK domiciled individuals coming the UK (who have not been resident in the UK in the previous ten tax years) will be taxed on the same basis as other UK residents after they have been UK resident for four tax years.  In effect, such individuals may be able to protect their non-UK source income and gains from a UK tax charge for a maximum period of four tax years, following which they will be subject to UK tax on such funds regardless of the taxpayer’s domicile and whether or not the funds are remitted to the UK.

Protections currently available in respect of non-UK resident trusts are also expected to be removed such that non-UK source income and gains arising in such trusts on or after 6 April 2025 may be taxed on a UK resident settlor who has been in the UK for more than four years or otherwise a beneficiary who has been in the UK for more than four years in receipt of a trust distribution.  Non-UK source income and gains of a non-UK resident trust which arises prior to 6 April 2025 should not be brought into charge unless distributed to a UK resident beneficiary who has been in the UK for more than four years.

Transitional arrangements are also expected to come into effect to encourage individuals currently benefiting from the remittance basis to bring overseas wealth to the UK.  These include:

·         an option to rebase the value of capital assets to their value at 5 April 2019;

·         a 50% exemption for the taxation of foreign income for the tax year 6 April 2025 to 5 April 2026 only; and

·         from 6 April 2025, a two-year Temporary Repatriation Facility for individuals who have paid tax on the remittance basis prior to 6 April 2025 to bring their personal non-UK source income and gains into the UK at a 12% tax rate. This is expected to bring in £15 billion of non-UK source income and gains to the UK and raise over £1 billion in additional tax revenue.

Individuals coming to the UK may still be able to benefit from relief from UK tax on employment income received in respect of overseas employment for the first three years of UK residence (known as “Overseas Workday Relief”).  In addition, the relief is expected to be reformed to remove restrictions on being able to bring such income to the UK to encourage individuals to come to the UK for work.

The Budget announcement also indicated that there will be a move to a residence based regime for IHT, but with a consultation to follow on how this will be achieved and implemented.  Policy documents indicate that a non-dom’s non-UK assets may be brought into scope of IHT after ten years of UK residence and may remain in scope for a further ten years after leaving the UK.  No changes to IHT are expected to take effect before 6 April 2025 and it is thought that non-UK assets settled into trust by non-doms prior to 6 April 2025 should remain outside the scope of IHT.  On-going trust IHT charges are likely to depend upon the status of the settlor at the time the trust is established and when relevant charges arise, i.e. on each ten year anniversary of the trust and on trust distributions.

Transfer of Assets Abroad

With effect from 6 April 2024, changes will be made to prevent individuals using companies to get around the anti-avoidance legislation known as the Transfer of Assets Abroad (ToAA) provisions, in order to avoid UK income tax.

Broadly, the result of these changes will mean that individual participators (e.g. shareholders) in certain companies may be caught by the ToAA rules  and taxed in the UK on income arising abroad, unless the arrangements are in place for genuine commercial reasons and not for tax avoidance purposes.

Income Tax

The 0% starting rate for interest up to £5,000 on savings will be kept for the tax year 6 April 2024 to 5 April 2025.  As is currently the case, the availability of this starting rate will depend on the level of the taxpayer’s other income.

CGT

The current top rate of CGT on residential property is to fall from 28% to 24% from 6 April 2024.  The lower rate of 18% is to remain the same.  This is expected to encourage sales of second homes and rental properties to open up the housing market.

Furnished Holiday Lettings

Furnished Holiday Lettings (“FHL”) businesses have enjoyed a beneficial tax regime enabling them to be treated as a trade for certain tax purposes.

From 6 April 2025, the FHL tax regime will be abolished meaning short-term and long-term lets will be treated the same for tax purposes.

IHT

Payment of IHT

Generally, IHT due on a deceased’s estate must be paid before the personal representatives can obtain a grant.  The Budget announcement shows recognition of the fact that it is often difficult for personal representatives to access funds for the payment of IHT without a grant.

From 1 April 2024, personal representatives of estates should be able to apply for a “grant on credit” from HMRC without first having to pay IHT.  This should avoid the need for personal representatives to take out commercial loans to pay IHT.

Agricultural Property Relief (“APR”)

APR, which provides a 50% or 100% reduction in IHT on certain agricultural property, is to be extended to apply to certain environmental land management agreements.  This change is due to take effect from 6 April 2025.

Stamp Duty Land Tax (“SDLT”)

Multiple Dwellings Relief

From 1 June 2024, the SDLT relief known as Multiple Dwellings Relief (“MDR”) will be abolished.

MDR currently enables a buyer purchasing more than one residential property in certain circumstances to calculate the SDLT due as if they had purchased each property separately.  This can lead to a significant SDLT saving as compared to SDLT being calculated on the purchase price as a whole.

The Budget announcement removing MDR followed an evaluation of the relief which indicated that it was not being used for the purposes for which it was introduced.

MDR will remain available on purchases which complete prior to 1 June 2024 or which otherwise exchanged prior to 6 March 2024 but complete on or after 1 June 2024.

First Time Buyers’ Relief for Nominee Purchasers

From 6 March 2024, First-Time Buyers’ Relief will be available to individuals buying a leasehold residential property through a nominee or bare trustee.

Acquisitions by Registered Social Landlords

SDLT will no longer apply to purchases made by registered social landlords using public subsidies for the purchase with effect from 6 March 2024.

What Next

It remains to be seen how great an impact these changes will make with a General Election and potential change of government looming.  In any case, we are likely to see significant changes to the non-dom tax regime regardless of who is in power by the end of this year.

If you consider that any of these issues affect you, please get in touch and we should be pleased to assist.

Do contact Partner, Caroline Belam at caroline.belam@theburnsidepartnership.com