ARTICLE
14 November 2024

Autumn Budget 2024 – The Impact On Private Individuals

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The 2024 budget introduces significant tax changes, focusing on higher Capital Gains and Inheritance Tax rates, pension inheritance taxation, increased SDLT, and the abolition of the ‘non-dom' regime. While businesses face limited alterations, wealthier individuals encounter higher tax burdens.
United Kingdom Tax

The overall impact of our new Chancellor's budget was less radical than some had speculated. However private individuals and their wealth do seem to have been the focus, with notable tax increases and narrowing of long-established reliefs.

Capital Gains Tax (CGT)

The rates for disposals of non-residential assets have increased from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. The rate for trustees or personal representatives has also increased from 20% to 24%. These new rates apply to disposals on or after 30 October 2024.

CGT on assets which qualify for Business Asset Disposal Relief and Investors' Relief will remain at 10% until 5 April 2025, after which it increases in two phases, rising to 14% for disposals on or after 6 April 2025 and further to 18% for disposals on or after 6 April 2026.

The existing rates for disposals of residential property assets remain unchanged at 18% and 24%, depending on the taxpayer's income tax bracket.

The government highlights that aligning the residential and non-residential rates will simplify the CGT regime.

Inheritance tax (IHT)

Although the government has confirmed that it will extend the £325,000 tax-free threshold until 2030, it has made various significant changes to existing IHT reliefs.

Business Property Relief (BPR) and Agricultural Property Relief (APR)

Currently, relief of up to 100% is available on business and agricultural assets held by an individual or a trust provided they meet the criteria. From April 2026, these combined reliefs will be capped at £1 million per person or settlor, with the value of any business and agricultural assets over this threshold reduced by 50%, giving an effective rate of 20%. This £1 million allowance will apply to the combined value of property qualifying for 100% BPR and APR in an estate.

The allowance will cover the following transfers of value:

  • property in the estate at death;
  • lifetime transfers to individuals in the 7 years before death (ie. failed potentially exempt transfers); and
  • chargeable lifetime transfers where there is an immediate lifetime charge (eg. transfers into a lifetime trust).

Where assets qualifying for APR or BPR are transferred into multiple lifetime trusts on or after 30 October 2024 the settlor's £1 million allowance will be divided equally between the trusts. However, if a settlor has established more than one trust holding qualifying business or agricultural property before 30 October 2024, each trust will benefit from a full £1 million allowance.

Notably, assets which automatically qualify for 50% relief (such as shares in a quoted company) will not use up this allowance. However, any unused allowance cannot be transferred between spouses or civil partners, unlike the IHT nil rate band and residence nil rate bands.

It is also worth noting that, from April 2025, APR will be expanded to include land managed under environmental agreements with or on behalf of the UK government and other approved bodies.

Anyone holding business and agricultural assets should seek advice as to whether existing arrangements (including in their Wills) need reviewing and whether action can be taken now to maximise the use of these reliefs.

AIM investments

The government will reduce the rate of BPR available from 100% to 50% in all circumstances for shares designated as "not listed" on the markets of recognised stock exchanges, such as AIM.

Pensions

From April 2027, so-called 'inherited pensions' (being pensions that have not been drawn down during a person's lifetime) will be taxed under the IHT regime on the pension holder's death. Until now, individuals have been able to pass most pension benefits to their chosen beneficiaries without an IHT charge arising, making them a very attractive and tax-efficient vehicle for transferring wealth on death.

Stamp Duty Land Tax (SDLT)

Individuals who already own a residential property and then purchase an additional residential property are generally subject to a higher rate of SDLT on the additional purchase. From today, this additional SDLT increases from 3% to 5% above the standard rate, applying to those who have not already exchanged contracts on this purchase.

Income tax and national insurance contributions

There will be no changes to employee's national insurance, income tax rates or VAT, although employer's national insurance contributions will increase from 13.8% to 15% from April 2025.

It was also confirmed that the freeze on employee's national contributions and income tax thresholds will not extend beyond 2028/29. From that point on, employee's personal tax thresholds will be adjusted annually in line with inflation.

VAT

As expected, the government will introduce 20% VAT on education and boarding services provided by private schools from 1 January 2025.

Abolition of the 'non-dom' regime

Domicile has always been a key factor in determining an individual's UK tax obligations, influenced by factors such as their father's origin, their intent to remain indefinitely and the length of their UK residency. Individuals who have been resident in the UK but not UK-domiciled (referred to as 'non-doms') have historically received various tax benefits.

Going forward, domicile will no longer determine an individual's UK tax position. Instead, the length of UK residency, as defined by the statutory residence test, will be the sole determining factor. The relevant length of UK residency will vary depending on the tax in question.

Inheritance Tax (IHT)

After being UK resident for 10 years out of the previous 20, an individual will be subject to IHT on their worldwide assets.

For individuals (even UK nationals) ceasing to be UK tax residents, liability for IHT on worldwide assets will lapse between 3 and 10 years after departure, depending on how many years they were UK resident before leaving.

Income and Capital Gains Tax (CGT)

After 4 years of UK residency, individuals will be subject to tax on their worldwide income and gains.

In the first 4 years of UK residence, they will not be subject to UK tax on foreign income and gains even if they bring that money to the UK.

Former non-doms – and some offshore trusts – will benefit from a 3 year window starting 6 April 2025, allowing them to bring foreign income and gains to the UK at a flat rate of 12%-15%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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