In a statement to Parliament on 29 July 2024, the Chancellor of the Exchequer, Rachel Reeves, confirmed that the date of her first Budget will be delivered on 30 October 2024.
The Chancellor also announced a number of priority tax changes, which will inevitably have an impact on both businesses and individuals. The main measures that will be enacted include:
VAT on Private School Fees
From 1 January 2025, private schools will no longer be exempt from VAT for school fees and boarding services and will be subject to VAT at the standard rate at 20%.
Additionally, to prevent parents paying in advance for future terms, school fees invoiced or paid on or after 29 July 2024, relating to school terms after 1 January 2025, will be subject to VAT.
The good news is that the Chancellor confirmed that VAT will not be applied retrospectively to any school fees that have already been paid in advance (before 29 July 2024).
Non-UK Domicile Status Changes
In the 2024 Spring Budget, the former Conservative government announced that the remittance basis rules for individuals with non-domiciled status will be removed (from 6 April 2025) and replaced by a 4-year foreign income and gains (FIG) regime.
The Chancellor confirmed that the proposed changes will continue to go ahead, albeit with a few changes to the transitional rules.
The current tax rules, allows for individuals who are UK resident but domiciled outside the UK to make a claim, so that foreign income and gains are taxed only as they are remitted to the UK. No UK tax is payable on the remittance basis provided the income or gains are kept overseas.
Under the new rules, new arrivals to the UK (i.e. someone that has not been UK tax resident for 10 consecutive years before arrival) will not pay tax on any FIG the first 4 years.
The protection from tax on income and gains arising within settlor-interested offshore trusts will also no longer be available.
Transitional rules announced by the previous government, that provided a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime, will not be introduced.
It was also announced that the government intends to move the Inheritance Tax (IHT) test, which is currently based on domicile-status system, to a residence-based system from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and trusts. We expect further details to be published in the upcoming Budget.
Furnished Holiday Lettings
The current rules provide beneficial tax treatment for furnished holiday lettings (FHLs), compared to other property businesses.
From
6 April 2025 FHLs will be scrapped and subject to the same rules
as ordinary property businesses. The main changes that are being implemented
are:
FHLs owned personally will no longer be able to deduct the full interest on loans from their rental income and relief will be restricted to basic rate income tax
FHLs will no longer be able to claim capital allowances on the purchase of furniture, fittings and equipment, however, they will be able to claim relief for replacing domestic items, as with property businesses
FHLs are no longer able to apply for relief on capital gains tax for trading business assets, such as Business Asset Disposal Relief (BADR) or Rollover Relief
Income from FHLs will no longer be included within relevant UK earnings for maximum pension relief.
The
government confirmed that transitional rules are being implemented to prevent any
balancing charges at the transition date, in the case where capital allowances
have historically been made. Any unused allowances can continue to be claimed
in the normal way.
There
will also be flexibility to offset carried forward losses of the FHL business
against the profits of ordinary property businesses - previously not permitted.
Changes to Energy Profits Levy
The Energy (Oil and Gas) Profits Levy was introduced in May 2022 to tax the extraordinary profits made by oil and gas companies operating within the UK.
The levy is currently 35% but will increase to 38% from 1 November 2024, bringing the headline rate of tax on upstream oil and gas activities to 78%. The levy has also been extended to 31 March 2030 (previously 31 March 2028).
Multinational top-up tax and domestic top-up tax (Pillar 2)
The UK is part of the Global Anti-Base Erosion (GloBE) rules, alongside many other counties. The countries within GloBE agree that large multinational enterprises pay a minimum level of tax in the country in which they operate.
The
UK government intend to continue to update the UK tax laws to meet the GloBE
rules and continue to protect UK tax income.
Carried interest for Private Equity industry
Carried interest is a form of performance-related reward received by fund managers, primarily within the private equity industry. The Chancellor announced a commitment to take action in respect of the ‘carried interest’ loophole.