United Kingdom | Publication | March 2024
This was an election year budget with the focus on personal taxes and quiet on the corporate tax side. Key personal tax measures had largely been trailed: the 2% reduction to the main rate of class 1 employee National Insurance contributions (NICs) and class 4 NICs and reform of the regime for non-domiciled individuals.
The introduction of a new UK ISA targeting investment in the UK was a welcome surprise, although likely timescales mean its introduction would not be until after the general election. There were also a number of reforms for the real estate sector and welcome confirmation of the introduction of the new reserved investor fund (RIF) predominantly aimed at investment into commercial real estate.
Other headlines for business were the delay to the sunsetting of the energy profits levy to 2029 (or, as previously, earlier if energy prices fall below levels set by the energy security investment mechanism), the plan to extend full expensing to lease assets when fiscal conditions allow and the increase of the VAT threshold to £90,000.
Perhaps surprisingly there were no updates published in relation to Pillar 1 or Pillar 2, the reforms to transfer pricing and diverted profits tax (DPT) or the new single research and development regime that was confirmed at the 2023 Autumn Statement (see Exclusively Online article "Autumn Statement 2023: back to work with 110 measures", www.practicallaw.com/w-041-4778). With the Tax Maintenance and Administration Day just around the corner on 18 April 2024, there may be more on these soon.
The abolition of non-domiciled status and its replacement with a new residency-based regime represents a significant change to the UK’s personal tax system. Currently, non-domiciled UK tax resident individuals who pay an annual fee can, broadly, elect to be taxed on a remittance basis, which means that they are only taxed on their non-UK source income and gains to the extent that they are remitted to the UK.
From 6 April 2025, this election will no longer be available. Instead, an individual who has not been UK tax resident at any time in the previous ten years will, after a four-year beneficial period, be taxable on their worldwide income and gains whether or not they are remitted to the UK, in the same way as other UK residents. For the first four years from the date of arrival in the UK, individuals will benefit from not being subject to UK tax on foreign source income and gains (FIG) even if, unlike under the current regime, it is remitted to the UK.
For non-domiciled individuals who are already resident in the UK, the four-year clock will start from the date that they became UK resident, and so, if they arrived after April 2021, they may be able to benefit from the new FIG regime for a period. There are transitional rules for those who currently have non-domiciled status but are not eligible for the FIG regime. These individuals will only be subject to tax on 50% of their foreign income in tax year 2025/26 and will be able to elect to rebase personally held foreign assets to 5 April 2019 for disposals made on or after 6 April 2025. In order to encourage the remittance of historic income and gains, the government are introducing a temporary repatriation facility, which will allow foreign income and gains earned personally by an individual before the introduction of the new FIG regime to be remitted to the UK at a reduced tax rate of 12%.
Exactly how the new regime will work in the context of inheritance tax (IHT) will be the subject of a separate consultation but the technical note published along with the Budget sets out the broad proposal that an individual will be subject to IHT on their worldwide assets once they have been UK resident for ten years and that, if they leave the UK, their worldwide assets will remain in scope to IHT for ten years. There are also proposals for the grandfathering for existing excluded property trusts (as at 6 April 2025).
In an echo of the 2023 Autumn Statement, there was a further reduction to NICs and a clear indication from the Chancellor that he would have liked to have been able to reduce this further. With effect from 6 April 2024, the main rates of Class 1 employee NICs and self-employed class 4 NICs will be 8% and 6% respectively.
An additional £5,000 allowance for investment in a new UK ISA has been announced to encourage retail investment in UK companies. The proposed UK ISA can include shares or corporate bonds issued by UK companies. The consultation, which ends in June 2024, considers how the concept of “UK company” should be defined and suggests that this could be UK incorporated companies that are either listed or admitted to trading on a UK recognised stock exchange. The consultation also considers whether collective investment vehicles that meet a certain threshold (75% is mentioned), of investment in eligible UK companies should qualify.
The real estate arena saw a number of changes. The first, a reduction in the higher rate of tax on capital gains from residential property from 28% to 24% “to encourage landlords and second homeowners to sell their properties”. This will be broadly welcomed by anyone disposing of residential property that does not qualify for main residence relief. The rate reduction comes into effect from 6 April 2024.
The Chancellor also announced the abolition of multiple dwellings relief and of the furnished holiday lettings regime. The first of these, multiple dwellings relief (MDR), broadly enables a buyer of multiple residential units to calculate stamp duty land tax (SDLT) on the basis of the average value of the units purchased rather than their aggregate value and could have the effect of reducing SDLT on the purchase of multiple residential units from 15% to 1%. The furnished lettings regime provides a favourable tax regime for landlords who let short term furnished holiday accommodation as compared with the tax treatment of long-term lets.
MDR has been abolished with effect from 1 June 2024 and the furnished holiday lettings regime with effect from 6 April 2025.
There was good news with confirmation that the government will introduce a new type of unauthorised investor fund vehicle for professional and institutional investors, predominantly designed for investment into commercial real estate. A consultation on proposals for the RIF closed back in June 2023 and was itself a response to a 2020 government review of the UK funds regime. Draft legislation is now promised in the spring Finance Bill 2024.
In November 2023, the Chancellor announced that full expensing, the regime allowing first year allowances of 100% for investments in qualifying main rate plant and machinery, would be made permanent. At the same time, he announced that the government had established a working group to consider whether full expensing could be made available for expenditure on plant and machinery for leasing, something which had been excluded from the regime when it was introduced due to government concerns over the potential for abuse. The Chancellor has now confirmed that full expensing for leased assets will go ahead “when fiscal conditions allow” and that a technical consultation will be published.
Susie Brain is Knowledge Of Counsel at Norton Rose Fulbright LLP.
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