Spring Budget: An analysis

Non-dom tax rules

As widely predicted, one of the key changes in today’s budget was to the non-dom tax rules, with the chancellor confirming that the current regime will be completely abolished from April 2025. 

Under the current rules, individuals who are tax resident in the UK but not domiciled here can elect to be taxed on the ‘remittance basis’ for up to 15 years, meaning that they only pay UK tax on income/gains brought into the UK (subject to an annual charge after a few years).

These rules will no longer apply from 6 April next year. Instead, while new arrivals to the UK will pay no additional tax for their first four years of residence (provided they have been non-UK resident for the preceding ten years), after that they'll pay UK tax on all of their foreign income and gains in the same way as any other UK taxpayer. 

Transitional arrangements will apply for people already claiming the remittance basis, including:

• An option to rebase the value of capital assets to 5 April 2019
• A temporary 50% exemption for the taxation of foreign income for 2025/26
• A two-year window in which foreign income and gains accrued before April 2025 but brought into the UK after that can be taxed at a reduced rate of 12%

While the income tax and CGT changes are the only amendments to the non-dom regime at present, the chancellor did also announce a consultation on a move to a residence-based regime for inheritance tax. This would include changes to:

• the rules on when an individual is subject to IHT on their worldwide assets on death
• the rules on excluded property trusts (trust creating by individual before becoming UK resident)

Further updates on this are due to be issued in the coming months.

The new rules are undoubtedly more stringent, but delaying the implementation until April 2025 does at least allow some time for planning before then. In addition, as mentioned in our article last week all is not lost even when the new regime is fully underway – there are still a wide range of planning opportunities and structures for international families living in the UK, all of which we can advise on.

Probate and payment of inheritance tax

Some more welcome news involved probate and payment of IHT. As many people who have been through the probate process will know, some or all of the IHT due on an estate must be paid before the Grant of Probate can be issued. This can cause immense difficulties when there are insufficient liquid funds available, with families often having to take out loans from commercial lenders at ever-higher rates of interest. From 1 April 2024, this'll no longer be necessary, as people will be able to apply to HMRC for a ‘Grant on Credit’ without having to go down the borrowing route first. 

CGT on residential properties

Another bit of helpful news for individuals, executors and trustees alike was the reduction of the higher-rate CGT on the disposal of residential properties from 28% to 24% (the lower rate remains at 18%). The new rates come in on the 6 April 2024 – however this is the same date that the CGT annual exemption drops from £6,000 to £3,000. If you have a sale due to complete around this time, careful calculations will be needed to see whether it will be better to sell before or after 6 April!

Furnished holiday lets

The furnished holiday lettings tax regime will be abolished from April 2025. This regime currently gives extra tax reliefs for properties which are available for holiday lettings for a certain number of days per year (and actually let our for at least half of that time). The reliefs include CGT reductions and plant & machinery allowance (e.g. for replacement of fittings & fixtures). These exemptions will all disappear from next year. Coupled with the increasingly strict rules surrounding IHT on holiday lets, it's likely to make ownership of these types of properties less and less attractive.

SDLT – multiple dwellings relief

SDLT reductions for people purchasing multiple properties at the same time are also set to be abolished. The old rules will continue to apply to transactions where contracts were exchanged on or before today’s date, or where the purchase completes on or before 1 June.

The government has noted that this may impact the agricultural sector more than others and has agreed to engage with the sector on this – further details will follow in due course.

Agricultural relief

The chancellor has confirmed that agricultural relief from IHT will be extended to cover land managed under certain environmental land management schemes (ELMs). This should help provide certainty to landowners who are hoping to benefit from these schemes, alongside their ‘traditional’ agricultural activities. We’ll provide more detail on this as and when it becomes available.

National Insurance

The widely anticipated 2% NI cut will also come into effect from 6 April. Employee’s NI will go down to 8%, with self-employed NI going down to 6%.

Savings

Finally, a slight boost for savers was announced, with the creation of a new ‘UK ISA’ concentrating on UK investments, to give an additional ISA subscription of £5,000 per year (in addition to the existing £20,000.)

Summary

This budget will undoubtably have a huge impact on many individual and families. Mills & Reeve can advise on all aspects of tax and estate planning, so please get in touch with us to discuss the options for you or your clients.