Collyer Bristow’s Tax and Estate Planning team provide their analysis on the Labour government’s Autumn budget announced on 30 October 2024

After weeks of speculation, leaks, and briefings, Rachel Reeves was the first female Chancellor of the Exchequer to deliver a Budget Statement to the House of Commons.  As expected, her speech was sombre, though intensely political – criticising the Conservative Party now in Opposition for what she repeatedly called their 14 years of failure and promising to “fix the foundations to deliver change”, especially in improvements in public services.  The government’s Budget measures are predicted by the independent Office for Budget Responsibility to generate nearly £40bn in additional revenue in the 2025/26 tax year.

Notably, Labour’s key manifesto tax pledges (abolishing the ‘non-dom’ tax regime; adding VAT to private school fees; and increasing tax on private equity ‘carried interest’ payments) all made it into the Budget – despite apparently well-sourced recent press commentary indicating that the Chancellor’s plans (and especially the revenue intended to be generated by them) were encountering difficulty with the OBR’s more conservative predictions.  The ‘non-dom’ changes, for example, are now valued at £4.2bn in 2028/29, not the £5.2bn anticipated in Labour’s manifesto.  Conversely, adding VAT to private school fees is now said to be worth an additional £1.665bn in 2028/29 – more than the £1.5bn hoped for by Labour, despite the fact that this policy, in particular, was reported to be in difficulties over the fear it would raise much less than predicted – or even end up costing money.  Certainly, assumptions about the value to the Exchequer of the ‘non-dom’ changes and parents’ willingness to pay higher private school fees, for example, will be subject to very significant variation dependent on behavioural changes by those affected.

As ever, it will be very difficult to assess the overall economic effect of the Budget changes in real time, and anecdotal experience of clients’ intentions will be the first guide as to the success of this Budget (measured against its aspirations) – certainly, that is true in terms of inward investment by internationally mobile High Net Worth private clients.  It remains to be seen whether this is the Budget for growth promised by Reeves.

Non-dom reforms

Under pressure, the Government has kept its manifesto commitment of abolishing domicile from the UK tax code, replacing it with a pure, residency-based regime.  The fact that taxpayers have effectively known about these changes since March may have allowed the water to reach its boiling point gradually before many of the people formerly known as ‘non-doms’ hopped out of the UK.

The four-year FIG regime

From 6 April 2025, the remittance basis of taxation is to be replaced by a new four-year regime for those becoming UK resident for the first time (or after at least 10 years of non-residence). During that period, upon the relevant claim being made in a taxpayer’s self-assessment tax return (or within the following 12 months), his/her specified foreign income and gains will not be subject to UK tax in that year.

Controversially, perhaps, the new rules appear to introduce a concept of “qualifying foreign income”, which must be identified (i.e. disclosed to HMRC) for the regime to apply to it.  If so, this will vastly increase HMRC’s awareness of the non-UK income/gains of all UK residents.  Currently, remittance basis users must only disclose foreign income and gains that they remit o the UK, with no obligation to disclose non-remitted funds.  Moving forwards this appears to be inverted, with taxpayers having to disclose that which they are seeking to shield from tax. This is a significant increase in the level of disclosure required for taxpayers.

Whilst the 4-year period is significantly shorter than the current 15-year window for the remittance basis, the breadth of the 4-year is, at least, more generous to those with overseas wealth.

Temporary Repatriation Facility

It is welcome that the Government plans to extend the Temporary Repatriation Facility (TPF) to three tax years from 6 April 2025, allowing non-domiciliaries to remit foreign income and gains previously shielded by the remittance basis to the UK at a rate of only 12% (15% in 2027/28).  This facility will be used by wealthy taxpayers who might accept that paying only 12% to bring overseas wealth in the UK is better than not remitting it at all.

Inheritance Tax

Inheritance Tax will be levied on foreign individuals on the expiry of the new 10-year residency period. During the initial 10 years, the individual’s non-UK assets will remain outside the scope of IHT. However, after 10 years his/her worldwide wealth will fall within the scope of charge.

Crucially, this will include “excluded property trusts”.  This includes those trusts previously settled by non-domiciled settlors well before today’s changes.  From 6 April 2025, trusts with a long-term resident settlor (i.e. a person who has been resident in the UK for 10 years or more) will no longer benefit from excluded property status for IHT purposes.  This proving to be amongst the most controversial changes. Anecdotally, many of our clients accept that UK taxation of worldwide income and capital gains becomes reasonable after an initial tax-efficient period. However, IHT on worldwide wealth, including wealth placed in excluded property trusts, is definitely the straw that will break the back of many non-dom camels.

For foreign trusts where the settlor is either (a) not resident in the UK or (b) dead (provided that, if dead, he/she was not a long-term UK resident), it will come as a relief that exposure to UK taxation remains substantially unchanged.  Such trusts will remain an effective way of deferring UK tax until the point of receipt by a UK-resident beneficiary, whilst also shielding trust capital from IHT.

Non-dom winners

Whilst the focus for many affected non-doms and their advisers will inevitably – and understandably – be the higher tax costs that will come with long-term residence in the UK, there are some beneficiaries of the Budget changes.  These will include individuals returning to the UK after more than 10 years abroad. Currently, those individuals are be brought back within the scope of all UK taxes within two tax years of their return. However, in keeping with Labour’s promise to remove domicile as a relevant tax concept, there appears to be no distinction in the new rules for those ‘returning domiciliaries’, and in future they will be treated in the same way as anyone coming to live in the UK.  In other words, this essentially opens up the replacement for the non-dom regime even to those who are domiciled in the UK.  It is a rare and welcome example of the Treasury taking the rough with the smooth, and applying the logic of its changes fairly, even where it is disadvantaged by doing so.

IHT reforms

In looking ahead to this Budget, Inheritance Tax was not one of the taxes declared immune from rate increases in Labour’s manifesto.  As such, it was widely predicted that IHT would increase in this Budget.

Lifetime giving and tax-free allowances

Many will be relieved that the fundamental infrastructure of Inheritance Tax remains the same.  The tax-free allowances available to all individuals (the “nil rate band”) remains unchanged at £325,000.  The widely-disliked and complex additional “residence nil rate band” of a further £175,000 for individuals passing residential property to their children or other lineal descendants remains – thus missing an opportunity to reform and simplify the rules.  Married couples will continue to be able to transfer their available tax-free allowances to each other, with gifts to a spouse or civil partner continuing to pass tax free.

Similarly, despite fears over the abolition of the seven-year gifting rule, this too has survived the Autumn Budget unchanged, meaning lifetime giving remains an effective strategy for IHT planning.  This means that, as now, IHT will not be payable on gifts where the donor survives them by seven years.

Agricultural and Business Property Reliefs

As predicted, Agricultural property relief (“APR”) and business property relief (“BPR”) were deemed fertile ground for cuts.

Some commentators feared the government might abolish APR and BPR in their entirety, but the Autumn Budget has not gone that far.  Instead, their value to any given taxpayer is subject to a ‘cap and collar’ arrangement.  From 6 April 2026, only the first £1 million of combined agricultural and business property will benefit from 100% rate of relief; any value over £1 million will benefit from a reduced 50% rate of relief.

Notably, the new allowances combine both agricultural and business property, with the allowance applying proportionately across any qualifying assets; rather than providing separate streams of relief.  Allowances will not be transferable between spouses or civil partners.

Assets only qualifying from a 50% rate of APR or BPR (e.g., land farmed by tenants under a pre-1995 agricultural tenancy, or land used by a business owned by the taxpayer) remain unaffected.  For the first time, from 6 April 2025, the scope of APR will be extended to include land managed under an environmental agreement with the local authorities or UK government.  Land managed for ecological benefits, for example those involved in rewilding, will not automatically benefit from this extension to APR unless they are part of a managed scheme – though there is now an avenue to such relief where farms and estates are managed for ecological purposes in accordance with a qualifying government scheme.

The new £1 million relief threshold will also apply to trustees of settlements containing qualifying assets on a ten-year anniversary charge or an exit charge.  If a settlor created multiple trusts comprising qualifying business or agricultural property, then from 6 April 2026 each trust will be entitled to a £1 million allowance.  However, any trusts created after 30 October 2024, will have the £1 million allowance divided proportionately between them.

The Chancellor said that 75% of those claiming APR will be unaffected, with smaller family farms and businesses remaining protected, and the benefits of APR and BPR being better targeted.  However, it remains to be seen how those farms and businesses that will be affected by the change will cope with the additional and unexpected tax.  In some cases, it may mean the breaking up of family businesses – especially farming businesses – after a death to be able to afford the tax.  In the case of farms, especially, this might even mean a widowed spouse losing the family home.

Slightly complex anti-forestalling measures are being introduced so that the restricted APR and BPR allowances coming into effect from 6 April 2026 will also apply to any lifetime transfers into trust made on or after 30 October 2024 where the transferor then dies before 6 April 2026.  These may well suffice prevent business owners taking steps to capitalise now on APR and BPR while they theoretically (but not in practice) remain available in full.

AIM shares

To date, BPR has applied to AIM-listed shares, meaning that an industry has sprung up of selling packaged IHT-relieved AIM portfolio products, which was arguably an unintended consequence of the previous generosity of the BPR regime.  From 6 April 2026, Business Property Relief for shares designated as “not listed” on the markets of recognised stock exchanges, including AIM, will be capped at 50%, meaning that qualifying portfolios will now be taxed at 20% (at current rates).  The value of the AIM market (already down approximately 9% in anticipation of this change) is likely to drop further.

Pensions

The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for Inheritance Tax purposes from 6 April 2027.  While not many contribute to their pensions solely due to their favourable Inheritance Tax treatment, the knowledge that pensions would pass IHT-free was a comfort to many.  With these changes, that reassurance will go, and more estates will find themselves liable to pay Inheritance Tax. (with the increased filing complexity that inevitably comes with that).  As part of these changes, pension scheme administrators will become liable for reporting and paying any inheritance tax due on unused pension funds and death benefits.

CGT

The Capital Gains Tax changes were largely in line with what many expected; the worst fears of 39% were not realised.  The main rate is increasing from 10% to 18% and the higher rate from 20% to 24%.  The residential property rate remains unchanged at 24%.

Rate increases

Importantly, these [CGT] changes are effective immediately, and any disposals made on or after midnight on 30 October 2024 will attract the new rates.  This is only the second time in recent years that there has been a mid-year CGT rate rise, and both HMRC and accountants’ tax software packages will have to move quickly to allow for the change.  ‘Anti-forestalling’ of this kind (i.e., Finance Bills retrospectively making tax increases effective immediately as from the date of the Budget) has become an article of faith at HMRC and HM Treasury, seemingly because they see any attempt to pre-empt rate increases by triggering disposals before they come into effect as tantamount to ‘avoidance’.  This is despite the fact that such disposals, if they were allowed to take place, would bring forward significant revenue into the Exchequer.

Investors and entrepreneurs

From 6 April 2025, the rate of charge for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) and Investors’ Relief will increase to 14%, and will increase again to match the main rate of 18% from 6 April 2026.  Furthermore, the lifetime limit for Investors’ Relief will be reduced from £10m to £1m (matching that of BADR) for all qualifying disposals made on or after 30 October 2024.  The only good news here is that those who have already made use of these reliefs won’t be punished by eating into their lifetime limit.

Carried interest

Labour said in its election manifesto that the way carried interest is tax would change.  The Chancellor has confirmed it will – twice.  First, as an interim measure, from 6 April 2025, carried interest will be taxed at Capital Gains Tax rate of 32%.  Then, from April 2026, it will be taxed at the taxpayer’s income tax rate with a multiplier of 0.725.  For those in the private equity world, this [these CGT increases] will feel like a massive tax hike.

Limited Liability Partnerships

In one of the numerous unannounced and less-headline-grabbing changes in this Budget, from today, those contributing assets to a Limited Liability Partnership (who can presently qualify for relief from CGT) will suffer a clawback of tax if the LLP is later liquidated, and its assets disposed of to a contributing member (or a person connected to him/her).  Whilst this may be a response to a certain type of aggressive tax avoidance scheme, the changes are widely-drawn, and the risk is that it will have a wider impact than apparently intended, also catching many innocent situations.

UK property

With immediate effect from 31 October 2024 (the day after the Budget announcement), the higher rates of SDLT that apply to an individual purchaser who owns (or will own) two or more properties will increase from 3% to 5%.  Labour’s election manifesto had pledged to amend the SDLT regime to increase the additional rates paid by non-UK purchasers – but not the higher rates for individuals owning more than one property (though a self-serving statement that this higher rate is often paid by non-residents is made in the Budget notes, presumably to spare the Government’s blushes about another broken manifesto pledge).  In fact, the additional rate applies to both UK and overseas purchasers.  This means that a non-UK-resident individual buying a second or subsequent property now faces a top SDLT rate of 19% (for the portion over £1.5m).

A transitional provision applies to purchases completing after 31 October 2024 on the basis of contracts exchanged before that date (provided they are not subsequently varied), and those transactions will remain subject to the old rates.

Meanwhile, the flat rate of SDLT for companies and other non-natural persons purchasing high value properties has also risen from 15% to 17%.

The Government had been warned that further changes to the CGT rate for residential properties risked destabilising the UK’s property market, and the CGT rate for properties (other than those qualifying for the principal private residence relief, which remains in unaffected) remains at 24%.