Autumn Budget 2024: Key changes for individuals with a UK connection
Rachel Reeves, the UK's first female Chancellor of the Exchequer, delivered her Budget to Parliament on 30 October 2024.
We already knew that major changes were coming for UK resident non-domiciliaries and had a general overview of the new residence-based regime. The documentation released on Budget day has provided some much welcome clarity on many elements of the proposals. We cover the non-dom changes in a separate note Autumn Budget 2024: Farewell to non-doms; hello to new residents.
In this note we look at a number of announcements made in the Budget which will impact on individuals with a UK connection.
Capital Gains Tax
As widely predicted before the Budget there are increases to the capital gains tax (CGT) rates.
For disposals made on or after 30 October 2024:
- the main rates of CGT that apply to assets (other than residential property and carried interest) will increase from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers
- the rate which applies to trustees and personal representatives will increase from 20% to 24%
Residential property is currently subject to tax at the higher rates of 18% and 24% and this will not change. Please see below for further information on changes to the rates applicable to carried interest.
The rate of CGT that applies to Business Asset Disposal Relief and Investors’ Relief will increase:
- from 10% to 14% for disposals made on or after 6 April 2025, and
- from 14% to 18% for disposals made on or after 6 April 2026.
The Chancellor also announced that the CGT lifetime limit for investors' relief would reduce from £10 million to £1 million. The reduced limit will apply to qualifying disposals on or after 30 October and to certain disposals made before Budget day under anti-forestalling measures.
Anti-forestalling provisions will apply to certain contracts entered into before 30 October 2024 but completed after that date for the main rate changes, and for contracts entered into on or after 30 October 2024 for the phased rate change that applies to Business Asset Disposal Relief and Investors’ Relief. There are also special provisions for share reorganisations and exchanges where an election is made.
Inheritance Tax
Again, there was speculation before the Budget that we would see changes to the IHT regime and so it has proved.
Business property relief and agricultural property relief will be reformed from 6 April 2026. Currently assets which meet the relevant criteria can benefit from relief of up to 100% with 50% relief on other types of qualifying assets.
The 100% rate of relief will continue for assets which meet the criteria but only for the first £1 million of combined agricultural and business property. Thereafter the relief will be 50% for all types of assets.
In addition, the rate of business property relief will reduce from 100% to 50% for shares designated as not listed on recognised stock exchanges including AIM shares.
Trusts within the relevant property regime pay an IHT charge every ten years and exit charges when property leaves the trust. Such trusts, set up before 30 October 2024 will also each get a £1 million allowance. Rules will be introduced to divide the allowance where a settlor sets up multiple trusts on or after 30 October 2024.
New rules will apply to lifetime transfers made on or after 30 October 2024 to prevent forestalling. A lifetime gift of unquoted shares made to an individual will be a failed potentially exempt transfer if the donor dies within seven years of making the gift. Where the gift is made on or after 30 October 2024 and the donor dies on or after 6 April 2026 the new rules would apply.
A technical consultation will be published in early 2025 so we await further detail on this change.
The nil rate band, which has been frozen at £325,000 since 2009/2010 and was due to increase in line with inflation from 2028/29 will remain at that level for a further two tax years (2028/2029 and 2029/2030). The residence nil-rate band will also remain at its current level of £175,000 until the end of the 2029/2030 tax year.
Pensions
Significant changes have been announced in relation to the IHT treatment of pensions. From 6 April 2027 almost all unused pension funds and death benefits payable from a pension scheme (whether in the UK or from a non-UK scheme) will be subject to IHT on death. IHT will apply in addition to the current taxing regime for pension death benefits, meaning that in some situations pension death benefits will be subject to double taxation. These and other changes affecting pensions are covered in a separate note.
Stamp Duty Land Tax (SDLT)
An SDLT surcharge applies to purchases of additional residential properties by individuals and purchases of residential properties by companies. The rate is an additional amount above the standard residential rates of SDLT and has been increased from 3% to 5%.
This applies to transactions with an effective date (usually the date of completion) on or after 31 October 2024. Where contracts were exchanged prior to 31 October 2024 but complete or are substantially performed on or after 31 October 2024, transitional rules may apply.
Companies and other non-natural persons purchasing residential properties worth more than £500,000 also face a 2% increase with the SDLT rate rising from 15% to 17% on or after 31 October 2024.
VAT on school fees
As previously announced, all education and boarding services provided by private schools will be subject to VAT at the standard rate (20%). This will apply from 1 January 2025. Private schools in England will no longer be eligible for business rates charitable rate relief.
Anti-forestalling measures are included in the draft legislation to ensure that any pre-payments of fees made on or after 29 July 2024 will not be effective and VAT will be due on those.
Carried Interest
Carried interest is a performance-related reward received by fund managers. A package of reforms is proposed in relation to the taxation of carried interest which aims to ensure "that the tax treatment of carried interest properly reflects its economic characteristics, putting the UK’s tax regime on a fairer and more stable footing for the long term, while recognising the unique characteristics of the reward and protecting the UK’s position as a world-leading asset management hub."
The current rates of CGT which apply to carried interest (18% or 28% depending on how much of the individual's basic rate income tax band is left) will be increased to a single rate of 32%. This will apply to carried interest arising to an individual on or after 6 April 2025.
From 6 April 2026, carried interest will be subject to a revised regime within the income tax framework.
