Autumn Statement – Labour’s first budget

31 October 2024

On October 30, 2024, Chancellor Rachel Reeves delivered Labour’s first Budget since 2010. This long-awaited statement introduced significant changes to taxes on income, capital gains, pensions, and inheritance tax, targeting wealthier individuals and specific sectors to fund public spending and address economic inequalities. Here’s an overview of the main policies announced:

Tax Treatment for Non-Domiciled Taxpayers

• Four-Year Foreign Income and Gains Exemption (FIG): UK residents who were non-resident in the past 10 years can claim an exemption on foreign income and gains for the first 4 years of their residency, effective April 2025. Qualifying individuals will need to claim this on their tax returns, though they will forego certain personal allowances.
• Temporary Repatriation Facility (TRF): Previously non-domiciled individuals who used the remittance basis can remit untaxed foreign income gains under a new TRF. Available from April 2025, this facility offers a tax rate of 12% for the first two years, increasing to 15% for 2027/28
• Residence-Based IHT System: Set to replace the domicile-based system, the new residence-based IHT policy will tax non-UK assets based on UK residency, with a “tail” period of between 3 and 10 years depending on the length of residence, for those leaving the UK. This approach aims to simplify the rules, but long-term UK residents with overseas assets should expect greater scrutiny.
• Settled Property and Excluded Assets in Trusts: From April 2025, assets held in non-UK trusts will only qualify as excluded property if the settlor hasn’t been a UK resident for over 10 of the past 20 years.
• OWD Relief for Overseas Workdays: Available for the first four years of residence, Overseas Workday Relief (OWD) will no longer require that employment income is kept outside of the UK. However, a financial limit will apply: the lesser of 30% of employment income or £300,000 per year.

Inheritance Tax (IHT) Adjustments

• Pension Funds within IHT Scope: From April 2027, pension funds will fall within the scope of IHT, impacting those with substantial pension wealth.
• Revised Business and Agricultural Property Reliefs: Business and Agricultural Property Reliefs will be reduced from 100% to 50% for assets exceeding a combined value of £1 million, starting in April 2026. The rate on AIM (Alternative Investment Market) shares will also be reduced to 50%.

Capital Gains Tax (CGT)

• Aligned CGT Rates: Starting immediately, capital gains tax rates on all chargeable disposals have been aligned with those for residential property sales, set at 18% for basic rate taxpayers and 24% for higher rate taxpayers and trusts.
• Business Asset Disposal Relief (BADR): Changes are set to come into effect in April 2025, with the BADR rate initially increasing to 14% and then rising to 18% by April 2026. Despite these changes, the lifetime allowance of £1 million for relief remains intact, though new anti-forestalling rules are being introduced to prevent tax avoidance strategies.
• Investors Relief: The lifetime limit for the relief will reduce from £10 million to £1 million for disposals made on or after 30 October 2024.
• Carried Interest Increase: From April 2025, the rate on carried interest (a common form of compensation for private equity fund managers) will increase from its current 18% to a flat 32%.

Other Notable Changes

• Employer NIC Increase: From April 2025, employer National Insurance Contribution rates will rise from 13.8% to 15%, with the threshold for contributions dropping to £5,000.

• Stamp Duty Land Tax (SDLT) Surcharge Increase: Effective October 31, 2024, the SDLT surcharge on second homes will rise from 3% to 5%, aiming to address property market dynamics by deterring multiple property ownership.

• Freeze on Personal Allowance and Tax Thresholds Ending in 2028: After several years of frozen tax allowances, the government has announced these limits will begin to adjust in line with inflation from April 2028.

Implications for Individuals and Businesses

This budget marks a clear focus on closing tax loopholes, increasing tax liabilities on wealthier individuals, and incentivizing domestic investment. The changes could significantly impact high-net-worth individuals, businesses with substantial workforces, and investors. For non-domiciled residents, the move to a residence-based IHT framework and more stringent rules on trusts signal a major shift, demanding careful planning for those with international financial interests.

With these policies, the government aims to generate additional revenue, support essential services, and encourage fairer economic participation across sectors. For individuals and businesses alike, early financial planning and consultation will be essential to adjust to these changes in the coming years.

If you are unsure about how any of these changes impact your affairs, please get in touch with your usual advisor, or reach out to us via the contact form.