Impact on Employers, Individuals and Businesses

As predicted in our article earlier this week, the Chancellor announced some measures in his budget for long-term growth that he hopes will “unleash people power” (and potentially encourage votes). We have summarised the "key" tax announcements below.  

Reform of tax regime for non-domiciled individuals

The Chancellor announced the abolition of the current “non-dom” regime which will be replaced with a residence-based system.

From April 2025, UK resident, non-domiciled individuals will no longer be able to claim the remittance basis of taxation. There will instead be a 4-year ‘Foreign Income and Gains’ (FIG) regime for individuals who become UK tax resident after a 10-year period of non-UK residence.

During the first 4 years of UK residence, individuals will not pay any UK tax on FIG and will be able to bring these funds into the UK free from tax. Following the 4-year transitional period, newly arising FIG will be subject to UK tax, in line with all other UK residents.  

Those individuals who move from the remittance basis to the arising basis of taxation on 6 April 2025 will, for the 2025/26 tax year only, pay tax on 50% of their foreign income (this measure does not apply to foreign gains).

Anyone who has availed of the remittance basis until April 2025 will continue to be taxed once those income or gains are remitted to the UK however it will be possible to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 FIG for the 2025/26 and 2026/27 tax years under a new Temporary Repatriation Facility.  In addition, capital gains tax rebasing to 5 April 2019 will be available for individuals who have the claimed the remittance basis and dispose of foreign assets after 6 April 2025.     

The Government intends to similarly move from a domicile-based system for Inheritance Tax (IHT) to a residence-based system from April 2025.  This will be subject to consultation although it is anticipated that IHT will be charged on worldwide assets once an individual has been UK resident for 10 years, with a ‘tail’ provision keeping the individual within scope of UK tax for 10 years after leaving the UK.

For trusts, it is expected that the chargeability to IHT will depend on whether the settlor of the trust meets the 10-year UK residence criteria at the date the trust was created and/or the date when charges such as the 10-year charge or exit charges apply. 

New trusts and additions to existing trusts made by a non-domiciled settlor on or after 6 April 2025 will be subject to the new rules.  Where non-UK assets have been transferred into trusts by non-domiciled individuals prior to 6 April 2025, the current rules will continue to apply; these will continue to be ‘excluded property’ and not subject to IHT (except where UK residential property is held by the offshore trust; or the settlor is a formerly domiciled resident). 

These changes will have ramifications for a number of individual and trust scenarios that will require detailed consideration once further details are available. 

High Income Child Benefit Charge (HICBC) to become "fairer"

The Government has announced that it wants to make the HICBC "fairer" through several measures, including raising the income threshold for the Charge from £50,000 to £60,000. The rate at which the Charge is applied will also be halved such that it is not fully withdrawn until £80,000. These measures will be effective from 6 April 2024.

The Government has also committed to moving to a system based on household rather than individual incomes by April 2026, and will consult in due course. 

It has been estimated that the adjustments to the HICBC will remove 170,000 families from paying the Charge and that nearly half a million families will gain an average of £1,260 in 2024-25 as a result. 

Cut in higher rate of Capital Gains Tax (CGT) for residential property from 28% to 24%

This measure will reduce the higher rate of CGT charged on residential property gains by higher rate taxpayers from 28% to 24% from April 2024.  The lower rate will remain at 18% for any gains that fall within an individual’s basic rate band. 

The Government has badged this measure as an attempt to encourage landlords and second homeowners to sell their properties, while also raising revenue.

It is estimated that the move will raise £660m of revenue over the next two tax years. However, Private Residence Relief will remain in place for disposals of “main” residents, meaning that most residential property disposals will continue to not give rise to a CGT liability.

Preferential tax regime for Furnished Holiday Lets (FHL) abolished

The Government will remove the current incentive for landlords to offer short-term holiday lets rather than longer-term homes by abolishing the FHL tax regime.

The specific preferential tax treatment that will be abolished includes the exemption from finance cost restriction rules, beneficial capital allowance rules, access to reliefs from CGT and the inclusion of relevant UK earnings when calculating maximum pension relief. 

This measure will take effect from 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for Corporation Tax. 

Abolishment of Multiple Dwellings Relief (MDR)

Within the Stamp Duty Land Tax (SDLT) regime, MDR reduces the SDLT payable when an individual or company purchases two or more dwellings, either in one transaction or as part of a series of linked transactions.

The Government has today announced the abolishment of MDR from 1 June 2024.

In terms of deals already in progress, property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024. 

National Insurance Contribution (NIC) rate cuts

The Chancellor has said the UK needs a simpler, fairer system that makes work pay.  With this in mind, the main rate of NIC paid by employees has been cut by 2% to 8% from 6 April 2024, saving an ‘average’ employee on a salary of £35k approximately £900 when combined with the previous cut announced in the Autumn Statement.  

The main rate of Class 4 NIC for self-employed individuals has also been cut by a further 2%, meaning that, with effect from 6 April 2024, the main rate will reduce to 6%.  When taken with the abolition of Class 2 NIC announced in the autumn, the average self-employed person will save approximately £650 per year. 

Indirect Tax Measures

VAT registration threshold

The VAT registration threshold will increase from £85,000 per annum to £90,000 per annum with effect from 1 April 2024 and the VAT deregistration threshold will increase from £83,000 per annum to £88,000 annum with effect from the same date. 

Fuel duty main rates

The fuel duty rates for 2024-25 will be frozen with the temporary 5p cut in fuel duty rates extended until March 2025. The planned inflation increase for 2024-25 will not take place. 

Alcohol duty

The six month freeze in alcohol duty will be extended from 1 August 2024 until 1 February 2025. 

Landfill tax

The standard rate of Landfill tax for the year 2025-26 will increase to £126.15 per tonne and the lower rate will increase to £4.05 per tonne.

Air Passenger Duty

There will be a “one-off adjustment” to the rate of air passenger duty (APD) for non-economy tickets, such as premium economy, business class and first class.

Carbon Border Adjustment Mechanism

A Carbon Border Adjustment Mechanism will be introduced from 1 January 2027. It will apply to relevant goods imported in the aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron & steel sectors and the details will be subject to public consultation later in 2024.

Vaping Products Duty

A new duty on vaping products will be introduced with effect from 1 October 2026. The rates of duty will be £1.00 per 10ml for nicotine free liquids, £2.00 per 10ml on liquids that contain 0.1-10.9 mg nicotine per ml, and £3.00 per 10ml on liquids that contain 11mg or more per ml. 

Prior to the introduction of the duty there will be a 12-week consultation on the policy design and the technical details. 

A one-off tobacco duty increase of £2.00 per 100 cigarettes or 50 grams of tobacco will be introduced with effect from 1 October 2026.

Bringing trades in Carbon Credits within the scope of the Terminal Markets Order (TMO) 

The legislation underpinning the VAT Terminal Markets Order (TMO) will be updated to allow for further reform. This includes bringing trades in carbon credits within the scope of the TMO at some point in the future. 

Plastic Packaging Tax

As announced in the Autumn Statement 2023, the rate of Plastic Packaging Tax (PPT) will increase to £217.85 per tonne with effect from 1 April 2024. The new rate of PPT will apply to all plastic packaging, containing less than 30% recycled plastic that is manufactured in or imported into the UK on and after 1 April 2024.”