EMPLOYER NATIONAL INSURANCE CONTRIBUTIONS (NIC)
The rate of employer NICs will increase from 13.8% to 15% from 6 April 2025.
The Secondary Threshold, the point at which employers become liable to pay NICs on employees’ earnings will be reduced from £9,100 to £5,000 a year from 6 April 2025 until 6 April 2028, and then increased in line with the Consumer Price Index (CPI) thereafter.
The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. The government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NICs bills from 6 April 2025.
REPLACEMENT OF THE "RES NON DOM" REGIME WITH A NEW RESIDENCE-BASED REGIME
Under the current rules, UK resident non-domiciles who haven’t become deemed-domiciled can choose to be taxed on the remittance basis. This means that whilst they pay tax on their UK income and gains in the same way as other UK residents, they only pay tax on their foreign income and gains (FIG) if and when these are remitted to the UK.
With effect from 6 April 2025, this preferential tax treatment based on domicile status will be replaced by a residence-based regime, providing 100% relief on eligible FIG for new arrivals to the UK in their first four years of tax residence provided that they have not been UK tax resident in the 10 tax years immediately prior to their arrival (4-year FIG regime).
From 6 April 2025, all former remittance basis users who are not eligible for the 4-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG.
Overseas Workday Relief (OWR), which broadly exempts from UK tax earnings from overseas employment duties, will be retained and extended to a 4-year period. There will no longer be the requirement for the relevant earnings to be paid into an overseas account. From 6 April 2025, OWR will be subject to an annual financial limit for each qualifying year (the lower of 30% of the qualifying employment income or £300,000 per tax year).
Transitional arrangements
A new Temporary Repatriation Facility (TRF) will, however, be available for individuals who have previously claimed the remittance basis and have untaxed FIG. They will be able to make an election to designate amounts derived from previously untaxed and unremitted FIG that arose prior to 6 April 2025 for a period of 3 tax years, from 6 April 2025. Designated amounts will be charged to tax at a rate of 12% in tax years 2025 to 2026 and 2026 to 2027, with the rate rising to 15% in tax year 2027 to 2028.
For Capital Gains Tax (CGT) purposes, current and past remittance basis users can rebase their personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.
New residence-based regime for inheritance tax
IHT is currently a domicile-based system. A new residence-based system for IHT will be introduced from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and trusts.
From 6 April 2025, the test for whether non-UK assets are in scope for IHT will be whether an individual is a “long-term UK resident”, meaning they have been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises.
On the other hand, if a “long-term UK resident”, individual leaves the UK and does not return before the chargeable event (including death), they may still remain within the scope of UK IHT depending on the number of years of residence prior to departure. In particular
New residence-based regime and the effect on trusts
The protection from tax on FIG arising within settlor-interested trust structures will also no longer be available for non-domiciled and deemed domiciled settlors who do not qualify for the 4-year FIG regime from 6 April 2025.
FIG that arose in protected non-resident trusts before this date will not be taxed unless “matched” with distributions paid to UK residents who cannot claim the 4-year FIG regime.
The TRF will also be available for qualifying UK resident settlors or individuals who receive a distribution from an offshore trust structure during the 3 tax years, from 6 April 2025.
With regard to IHT, subject to transitional points, the excluded property status of non-UK trust assets will not be determined at the time the assets are added to a trust. Instead, they will only be excluded property (and so not subject to IHT charges) at times when the settlor is not long-term resident. Therefore, when a settlor becomes long-term resident, any assets they have settled in trust (even when not long-term resident) will be subject to IHT.
CAPITAL GAINS TAX
The Budget increases the lower rate of Capital Gains Tax (CGT) from 10% to 18% and the higher rate from 20% to 24%. The CGT rates for chargeable disposals of UK residential property, however, remain unchanged at 24%.
Business Asset Disposal Relief and Investors’ Relief
CGT rates for Business Asset Disposal Relief and Investors’ Relief will increase to 14% from 6 April 2025 and match the main lower rate of 18% from 6 April 2026.
The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, matching the lifetime limit for Business Asset Disposal Relief. This will be legislated in Finance Bill 2024-25.
CARRIED INTEREST
From 6 April 2025 the Capital Gains Tax rate applicable to carried interest will increase from 28% to 32%. From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. The government announced that it will consult on introducing further conditions of access into the regime.
INHERITANCE TAX
The inheritance tax nil-rate bands are set at current levels until 5 April 2028 and will stay fixed at these levels for a further two years until 5 April 2030. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million.
Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
Agricultural property relief and business property relief
The government will reform these inheritance tax reliefs from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property. The rate of relief will be 50% thereafter, and for quoted shares designated as “not listed” on recognised stock exchanges, such as AIM.
VAT ON PRIVATE SCHOOL FEES
From 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools.
CAPITAL ALLOWANCES
The government will extend for a further year the 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle charge points, to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes.
STAMP DUTY LAND TAX
The government announced an increase of the Higher Rates for Additional Dwellings in Stamp Duty Land Tax on the purchases of second homes, buy-to-let residential properties, and companies purchasing residential property, from 3% to 5% from 31 October 2024.
TRANSFER PRICING
The government will publish a further consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and Diverted Profits Tax in spring 2025. This includes the potential removal of UK-to-UK transfer pricing.
The government will also publish consultations in spring 2025 on further changes to the transfer pricing rules, including considering lowering the thresholds for exemption from transfer pricing for medium-sized businesses while retaining an exemption for small businesses and introducing a requirement for multinationals in scope of transfer pricing rules to report information to HMRC on certain cross-border related party transactions.
MULTINATIONAL TOP-UP TAX : UNDERTAXED PROFITS RULE (OECD PILLAR 2)
The government will legislate for the Undertaxed Profits Rule (UTPR) in Finance Bill 2024-25. The UTPR is the final part of the G20-OECD Global Minimum Tax agreed by over 135 countries and jurisdictions. It will take effect for accounting periods beginning on or after 31 December 2024. Technical amendments to the Multinational and Domestic Top-up Tax legislation will also be included in Finance Bill 2024-25 to incorporate latest international updates and following stakeholder consultation.
ANNUAL TAX ON ENVELOPED DWELLINGS (ATED): ANNUAL CHARGEABLE AMOUNTS
The annual chargeable amounts for ATED will be uplifted by the September CPI figure of 1.7% for the 2025-2026 ATED chargeable period. This uprating will be implemented through a Treasury Order.