UK Budget Update

On Wednesday, 30 October, 2024, the Chancellor delivered the new Labour government’s first Budget. Along with core messages around investment, growth and balancing the books, the Chancellor was upfront in announcing £40 billion of tax hikes. This summary sets out the key points for business and asset management taxation in just two short pages.

Key Tax Rates

• No changes to the current rates of income tax, value added tax or employee or self-employed National Insurance contributions.
• The capital gains tax rate increases from 18% to 24% for higher rate taxpayers (and from 10% to 18% for basic rate taxpayers), other than for carried interest which has its own new developments (see below). The change to capital gains tax rates is effective immediately.
• There are new “anti-forestalling” provisions to prevent uncompleted contracts signed before 30 October from benefiting from the old, lower rates of capital gains tax unless the taxpayer can show that the contract was not entered into for a purpose of triggering the disposal prior to 30 October. The practical application of this rule is somewhat uncertain, but any contracts entered into or accelerated in anticipation of the Budget changes need careful assessment.

Corporate Taxation

• A new Corporation Tax Roadmap has been published – this is designed to offer continuity and stability for the UK’s corporation tax rules and to explain proposed changes during this Parliament in advance.
• The current corporation tax rate of 25% (as well as the small profits rate of 19%) will be maintained for the duration of this Parliament, as will key allowances, including full expensing, the annual investment allowance, R&D reliefs and the UK patent box and intangible assets regimes. Generally, the picture for UK corporation tax appears fairly stable.

Employment Taxes

• Employer’s National Insurance contributions will rise from 13.8% to 15% from April 2025, which (even after the associated corporation tax deduction) represents a significant additional payroll cost for employers.
• This announcement was coupled with increases in UK minimum wage requirements and a reduction in the threshold at which employer’s National Insurance contributions become payable – those changes could disproportionately affect employers with staff on lower wages or part-time contracts.
• These changes appear to be the biggest revenue raisers in the Budget – coming in at around £25 billion a year.

Carried Interest

• The Chancellor’s speech announced an increase in the applicable rate of capital gains tax for carried interest from 28% to 32%. This change will be effective for carried interest arising from April 2025.
• The Budget documents released today reveal the true scale of the reforms anticipated for carried interest taxation from April 2026. HM Treasury have published a response to this summer’s “Call for Evidence,” which proposes that carried interest will in fact be brought within the UK’s income tax regime from 2026, with the benefit only of a “tax multiplier” to preserve an effective rate income tax of c. 32%, but with the new addition of Class 4 National Insurance at c. 2% for a true rate of c. 34%. The HM Treasury document also outlines other significant changes, notably the extension of the “income based carried interest” rules to overlap with the employment related securities regime.
• These developments will be subject to a further technical consultation through January 2025, and there will be a number of significant issues to iron out.

Non-Domiciled Individuals

• As was widely expected, a seismic change has been announced for the UK’s “non-dom” regime, which will be abolished from April 2025.
• Currently, UK resident individuals who are non-dom (claiming “domicile” outside the UK) can claim to be taxed on non-UK income and gains only if these are remitted into the UK.
• This long-standing regime will be replaced with a purely residence-based tax system, with some temporary four-year reliefs available on non-UK income and gains for new arrivals, and a Temporary Repatriation Facility to allow (former) non-doms to bring untaxed foreign money back into the UK at a reduced rate over the next three years.

Other Personal Taxes

• Inheritance tax remains at 40% and the key thresholds remain unchanged. The current IHT exemption for agricultural and business property will be limited to £1 million, after which a 20% rate of IHT will apply. Shares listed on London’s Alternative Investment Market will also lose their full IHT exemption and be taxed at 20%. These changes will take effect from April 2026.
• The Labour government has confirmed the introduction of UK VAT at 20% on private education fees from January 2025.
• Personal investment tax reliefs, such as Enterprise Investment Scheme and Venture Capital Trusts, will remain unchanged.
• The Stamp Duty Land Tax on acquiring second homes rises from 3% to 5% as of 31 October 2024.