After months of anticipation, Rachel Reeves finally unveiled the Autumn budget on October 30. Here are the key points that immediately caught our attention, followed by a deeper analysis below.
- Pensions: from April 2027, any unused pension funds will be included within your estate, but no changes to the tax-free lump sum.
- Inheritance Tax (IHT): Trust protections have been removed from IHT and there is unlikely to be an element of grandfathering of old trust structures.
- Capital Gains Tax (CGT) was raised to 24% for higher rate taxpayers as of 30 October 2024.
The US capital gains tax rate is 23.8% with Net Investment Income Tax (NIIT) for long-term assets. Therefore, individuals will effectively be paying 27.8% in tax as NIIT cannot be offset by foreign tax credit. - Business Property Relief and Agricultural Property Relief – from April 2026 this will be limited to 50% on the values above £1m, this also applies to Alternative Investment Market (AIM) shares. The existing 100% rates of relief will continue for the first £1 million of combined agricultural and business property.
- Gifting: No changes, the 7-year rule remains, with no tax on lifetime gifts.
- Non-domiciled regime – to be axed altogether, with the new residence-based test being introduced instead from April 2025.
What should I do now? Any opportunities?
- Gifting: For US-connected individuals, now’s the time to review your gifting before the lifetime exemption likely ends on 1 January 2026. Of course, the upcoming US election could still throw a twist in the tale.
- Transitional Relief: There’s a chance to bring mixed funds into the UK at a reduced tax rate, making it a great moment to tidy up offshore accounts and give the mixed pots a fresh start.
- Remittance Opportunity: Until April 2026, those on the remittance basis can make offshore gains without UK tax and may be able to remit funds at only 12% instead of 24%.
- Insurance: Consider getting coverage for that looming 10-year tax tail – it’s one way to keep your bases covered.
- Review Your Structuring: Offshore trusts are now subject to Inheritance Tax, so it’s worth speaking to your advisors to see if any changes are required.
- Income Strategy: While it’s generally best to withdraw from your SIPP last, its new inclusion in the estate may mean rethinking that approach. More on this soon.
Below, we’ve provided a closer look at some of the finer details within the Budget. Given the importance of precise analysis, we will continue our review over the coming weeks to identify any additional opportunities that may arise.
Income Tax
No change, the income tax thresholds remain frozen until 2028.
Capital Gains Tax
- Capital Gains Tax – the lower rate increased from 10% to 18%, the higher rate increased from 20% to 24%. The increase applies to disposals made on or after 30 October 2024.
- Carried Interest – CGT rate applicable to carried interest will increase from 28% to 32% from 6 April 2025.
- Residential property gains – no change.
- Business asset disposal relief (BADR) – increased from 10% to 18% by 6 April 2026.
Non-Domicile Regime
- The concept of remittance and domicile will be abolished from 6 April 2025 and will be replaced by a residence-based regime. This means the concept of being non-dom will be removed everyone will be subject to the same regime.
- Individuals will be able to make a claim to pay no UK tax on foreign income and gains (FIG) during the first four years of UK residence.
- For individuals who have been UK residents in the past, the above FIG regime would only apply if they were non-UK residents for 10 consecutive years.
- There will be a transitional relief regime for offshore money, this will be available from 6 April 2025 and will attract a flat rate of 12% for the first two years (2025/26 and 2026/27 tax years), 15% in the third year (2027/28 tax year).
- For CGT 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.
- Trust ‘protections’ will be removed for those not in the four-year regime, and foreign income and gains from settlor-interested non-UK trusts taxed on the settlor from 6 April 2025.
- The transitional relief will also apply to distributions made from offshore trusts to beneficiaries who claimed the remittance basis prior to April 2025
Inheritance Tax
From 6 April 2027, the government will bring unused pension funds and death benefits payable from a pension into a person’s estate.
- From 6 April 2026, Business Property Relief and Agricultural Property Relief will be limited to 50% on the values above £1m, this also applies to Alternative Investment Market (AIM) shares. The existing 100% rates of relief will continue for the first £1 million of combined agricultural and business property.
- Individuals who have been resident for at least 10 out of the last 20 years will be subject to UK Inheritance Tax on their worldwide assets.
- Non-UK assets within the Excluded Property Trusts (EPT) will become ‘relevant property’ for UK IHT purposes if the person is a long-term resident.
Other Announcements
The rate of employers’ National Insurance Contributions (NICs) will increase from 13.8% to 15% from April 2025. The threshold at which employers start paying NICs will be lowered from £9,100 to £5,000.
- From 31 October 2024, the additional 3% rate that applies on the purchase of additional residential properties will increase to 5%.
- The annual limits for Individual Savings Account (ISA) of £20,000, Junior ISA (JISA) and Child Trust Fund at £9,000, will remain frozen until 5 April 2030.
- The government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.
- Both the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes will be extended to at least 2035.
- From 1 January 2025, all education and boarding services provided by a private school or connected person will be subject to VAT at the standard rate of 20%.
We will be publishing further articles exploring the opportunities arising from these changes, along with the requisite planning considerations and its implications for Americans. In the meantime, should you have any queries pertaining to this subject or any other topics covered above, we encourage you to reach out to our Tax & Advance Planning team for assistance.
