Budget 2024 - Briefing

Today, the new Labour government announced its eagerly awaited budget. In this special briefing our private client and tax experts consider what the announcements will mean for you, your family, and your business.

1. Non-Domicile Rules

2. Significant IHT Changes

3. VAT on school fees – going ahead

4. HMRC and Compliance

5. Tax Avoidance Crackdown

6. Umbrella Companies

7. Employee Ownership Trusts

8. Capital Gains Tax

9. Business Asset Disposal Relief

10. Employee National Insurance Contributions 

11. Stamp Duty

Non-Domicile Rules

Following Jeremy Hunt’s announcement in the 2024 Spring Budget that the non-domicile rules would be abolished from 6 April 2025, we now have confirmation that the new Labour Government will legislate to put this into effect from that date.

Much of what the Conservatives announced has been retained, and the new rules will abolish the remittance basis regime and replace it with a residence-based system. However, the temporary 50% exemption for the taxation of foreign income for 2025/26 (the first year of the new regime) has been scrapped. Additionally, CGT rebasing for current and past remittance basis users will be to 5 April 2017, rather than to 5 April 2019 as previously announced, where certain conditions are met.

The new residence-based system will also apply to Inheritance Tax (IHT) so that non-UK assets owned outright when a person is “long-term resident” will be subject to IHT. For these purposes, a long-term resident is an individual who has been resident in the UK for at least 10 out of the last 20 tax years. Currently an individual’s non-UK assets become subject to IHT if they have been resident in the UK for at least 15 of the last 20 tax years. 

The new residence-based system is extended to trusts, now including existing trusts, where the settlor is long term UK resident. Previously it was thought that the new rules might be limited to new trusts or additions to existing trusts on or after 6 April 2025.  Existing ‘excluded property’ trusts may therefore come within the scope of UK IHT for the first time.

Although these changes were anticipated, the amendments, especially to trusts and IHT, will have a significant impact. The rules will be complex and specialist advice will be required to navigate the changes.

Significant IHT Changes

Two significant announcements were made:

With effect from 6 April 2026:

1. The availability of 100% agricultural property relief and business property relief will be capped at a combined £1 million of assets – there is currently no limit to the amount of either relief. There is still a benefit to the reliefs for assets in excess of that threshold, but the rate will be 50%, making the effective rate of IHT 20%. These reliefs are very important to the long-term continuity of family farms and businesses, and where 100% relief applies that potentially secures the future of a farm or business (with all its socio-economic benefits) through the generations. Having to fund an unexpected tax charge may put the farm or business in jeopardy. Representative bodies had lobbied hard against the introduction of changes of this nature.
2. The government will also reduce the rate of business property relief to 50% in all circumstances for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM.

​With effect from 6 April 2027, unspent pensions pots will be subject to IHT – currently they can be left entirely free of IHT.

All these changes will have a significant knock-on effect for affected owners, and the detail of the changes will need to be considered carefully. Planning done to date is likely to need reviewing and preparations made to fund future tax charges. There are anti-forestalling measures so that planning between now and the implementation of changes on 6 April 2026 may already be caught by new rules. Therefore, specialist advice will be needed.

VAT on school fees – going ahead

From 1 January 2025, all education services and boarding services provided by private schools will be subject to VAT at 20%. This policy had already been announced, and the government has published a response to its technical consultation on this policy.

HMRC and Compliance

The Chancellor started the Budget speech by warning the country that there will likely be an increase of £40billion in taxation. It had not escaped the attention of many that the latest figures for the tax gap (the difference between the amount of tax HMRC should collect) is £39.8 billion. It was, therefore, no surprise that there was a focus on delivering “the most extensive ever package of compliance measures”. This includes recruiting an additional 5000 HMRC compliance staff.  Given the upcoming appointment of a “Covid Corruption Commissioner” who will lead the recovery of public funds from companies that “took unfair advantage of the COVID-19 pandemic”, it seems logical that a significant amount of this staff would be involved in this project too.

Tax Avoidance Crackdown

Promoters of tax avoidance schemes can also look forward to targeted measures due to a consultation in early 2025. Given the importance of such an issue, along with the promise to “expand HMRC’s counter-fraud capability to address high value and high harm tax fraud” and “expanding HMRC’s criminal investigation work”, it is somewhat surprising that more information has not been provided about how the Government intends to do this.

Umbrella Companies

The plans to tackle non-compliance in the umbrella company market are slightly more detailed. From April 2026, the Government will make recruitment agencies responsible for accounting for PAYE on payments made to workers supplied via umbrella companies. Without an agency, this responsibility will fall to the end client business.  

Employee Ownership Trusts

While not mentioned in the speech, the Budget documents confirm changes to employee ownership trust legislation following last year's consultation. They include the requirement that sellers do not control the new trust (which mitigates the risk that the trust does not act in the best interest of the employee beneficiaries) and keeping the trust onshore by appointing UK trustees (so that any future disposal is still within UK CGT). These two changes have been expected and are not particularly controversial. There are also some changes to clarify the legislation and improve HMRC's information gathering (to ensure compliance).

Capital Gains Tax

CGT rates have increased; the top rate is now 24% for assets other than carried interests. This is much better than many feared, although increasing the rate from today may affect an unlucky few.  

Business Asset Disposal Relief

Possibly more dramatic is the reduction in the benefit of business asset disposal relief (which applies a lower rate of 10% on the first £1m of gain when selling a company if certain conditions are met). From tax year 25/26 (and not from today) BADR will provide for a 14% rate of CGT with an 18% rate (so an overall 80% increase) for disposals on or after 6 April 2026. This gives a short window for anyone who wants to take advantage of the lower 10% rate. Surprisingly, the CGT rate on residential property has not changed, remaining at a top rate of 24%.

Employee National Insurance Contributions 

Employer NIC is increasing to 15% and the threshold at which employers will pay is reducing to £5,000 (from April next year). It is difficult to see how employees will not bear the cost of this.  

Stamp Duty

The SDLT "second home" surcharge is increasing from 3% to 5% as of 31 October 2024. This addition to the SDLT rates is paid by companies when they buy any residential real estate or individuals (broadly) buying second homes. The surcharge alone now equals the top rate of commercial SDLT. This will be yet another blow to the buy-to-let market (on top of the many blows it has suffered in the recent past).

The full text of the Budget can be found here.