UK Spring Budget 2024

Introduction

6 March 2024 saw the UK Spring Budget: this was an election year budget with the focus on personal taxes and relatively quiet on the corporate tax side. Some of the key tax measures included reform of the regime for non-domiciled individuals and the introduction of a new “UK ISA”, coupled with confirmation that proposals for a new “Reserved Investor Fund” would go ahead.

Changes to the current UK tax rules for non-UK domiciled individuals

Of wider interest is the announcement of the abolition of “non-domiciled status” and its replacement with a residency-based regime for individuals, representing a significant change to the UK’s personal tax system with effect from 6 April 2025. Currently, a person who is non-domiciled, but UK tax resident can elect to be taxed on the “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, as currently proposed, this election will no longer be available and instead, individuals who come to the UK for the first time after this date will have a four-year beneficial period and will then be taxable on their worldwide income and gains. In the first four years, they will not be subject to UK tax on foreign income and gains (FIG) even if remitted to the UK (the new FIG regime).

For non-domiciled individuals who are already tax resident in the UK, some may be able to benefit from the FIG regime for a period, depending on when they arrived in the UK. For others, who currently elect to be taxed on the remittance basis, they will be subject to tax on 50% of their non-UK income in tax years 2025/2026 and can elect to rebase certain assets that are personally held to their April 2019 values. To encourage remittance of historic FIG, there will be a temporary repatriation facility, allowing FIG earned personally to be remitted at a reduced rate of 12% for 2025/2026 and 2026/2027. Labour have subsequently announced that if elected, they would not implement this 50% tax rate.

There will be a separate consultation on the impacts of the removal of the domicile concept from a UK inheritance tax perspective. The position for trusts is complex and there are also proposals for the grandfathering for existing excluded property trusts (as of 6 April 2025), again, subject to proposals under consideration by the opposition party.

Introduction a new UK ISA

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.

Moving forward with the Reserved Investor Funds (RIFs)

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. The Finance Bill (No.2) 2024 which makes way for an introduction of the tax rules for the RIFs has been published.