Autumn Budget 2024: what are the tax changes?

Following the Chancellor’s Autumn Budget, our tax lawyer Michael Fluss provides an overview of the key tax changes and their impact.

Main changes in tax rates

• Capital Gains Tax (CGT):
• • For gains on disposals made:

• • • on or after 30 October 2024:

• • • • the main rate of CGT is increased from 10% (basic rate taxpayers) and 20% (higher rate taxpayers) to 18% and 24%, respectively (with rate of CGT on disposals of residential property (18%/24%) remaining unchanged); and
      • the rate of CGT applicable to personal representatives and trustees is increased from 20% to 24%.
        NB: Generally (in the case of unconditional contracts), entry into the contract itself (rather than the transfer pursuant to it) triggers the disposal giving rise to the gain (or loss).  However, by virtue of anti-forestalling rules, the new CGT rates will apply to any contract entered into before 30 October and completed on or after that date if the timing of entry into the contract was driven by the objective of taking advantage of the pre-October 30 CGT rates under the general time of disposal rule (treating entry into the contract as the occasion of disposal) or, if the contract was entered into between persons connected with each other, the contract was not entered into for wholly commercial reasons.  In either case, if the total gain realised on the disposal (or disposals if there are two more “30 October” uncompleted contracts) exceeds £100k, a statement to the effect that the anti-forestalling rules do not apply needs to be made.It is somewhat difficult to see how or why a contract entered before 30 October 2024 for wholly commercial reasons between persons not connected with each other could or should be caught by these anti-forestalling rules. Practical guidance from HMRC on this would be helpful.

• • • on or after 6 April 2025 and 6 April 2026:

• • • • Business Asset Disposal Relief (BADR) (formerly entrepreneurs’ relief), which is applicable to lifetime gains of up to £1m, is reduced so that the rate of CGT on qualifying disposals is increased from 10% to 14% for disposals made in year beginning 6 April 2025 and 18% for disposals made in year beginning 6 April 2026; and
      • similarly, Investors’ Relief, which is, with effect from 30 October, applicable to lifetime gains of up to £1m in place of £10m on qualifying disposals (broadly, in respect of shares in unlisted trading companies held for at least three years where the shareholder is not an employee of the company) is also reduced so that here too the rate of CGT is increased from 10% to 14% for disposals made in year beginning 6 April 2025 and 18% for disposals made in year beginning 6 April 2026.NB: There are also anti-forestalling rules in relation to contracts entered into before 30 October 2024 and completed on or after 6 April 2025 aimed at precluding the availability of BADR and Investors’ Relief at the pre-30 October 2024 rates if the timing of entry into the contract was driven by the objective of taking advantage of the general rule treating the date of entry into the unconditional contract as the time of disposal.

• • Carried interest (private equity – performance-related reward received by fund managers): rate of CGT on carried interest arising to be increased from 18%/28% to single rate of 32% with effect from 6 April 2025. From April 2026, carried interest is to be subject to a revised regime within the Income Tax framework, although subject to a “72.5% multiplier”, which would appear to suggest an Income Tax rate broadly corresponding to the CGT rate applying from 6 April 2025. Clarification of this will hopefully follow soon.

• Stamp Duty Land Tax (SDLT):

 Two key changes:

• • The SDLT surcharge applicable to acquisitions by companies of dwellings and individuals of additional dwellings not replacing the only or main residence is increased from 3% to 5% with effect from 31 October. Completion or substantial completion on or after 31 October 2024 of contracts exchanged before 31 October and not subsequently varied or assigned on or after that date should generally not be caught by this increase.

• • The 15% flat rate of SDLT applicable to acquisitions by companies acquiring dwellings for more than £500k where relief (e.g. for property investment, development or trading) is not available is increased to 17% with effect from 31 October, giving, it would appear, a top SDLT rate of 19% where the company is not UK resident (and therefore the 2% non-resident surcharge applies).
• National Insurance Contributions (NICs): With effect from 6 April 2025, employer’s NICs are to be increased from 13.8% to 15% and the secondary threshold above which they are paid is to be reduced from £9.1k to £5k.

Corporate/Finance/Capital Markets

• Anti-avoidance:
• • LLP liquidations – new deemed disposal by members contributing assets giving rise to potential capital gains charge on LLP liquidation: While LLPs are generally transparent for UK direct tax purposes, this treatment is switched off when an LLP goes into liquidation. At that point the LLP becomes taxable as a company on any subsequent income and gains. Chargeable gains on the disposal of the LLP’s assets by the liquidator are computed by reference to the date on which they were first acquired by the LLP and their cost at that date. With effect from 30 October, however, on a disposal by the LLP liquidator of assets to a member who contributed the assets to the LLP or a person connected with that member, the assets will also be treated as having been disposed of by the member to the LLP at the time of the contribution, with the result that chargeable gains accruing up to the contribution will now be charged to tax when the LLP is liquidated. The benefit to the Exchequer from this measure (which is framed as anti-avoidance legislation) is likely to be relatively modest (£15m p.a.) according to the impact summary accompanying the draft legislation.

• • Loans by close companies to shareholders – expanded targeting of tax avoidance: Where a close company makes a loan to a shareholder or other ‘participator’ which is not repaid, the company is liable to pay an amount (a ‘section 455 charge’) equal to 33.75% of the loan no later than nine months to HMRC following the end of the accounting period when the loan is made. However, HMRC says that it has become aware of arrangements using a group of companies or amongst associated companies, where new loans are made and then repaid in a chain such that no section 455 charge arises on the increasing amounts extracted. The new measure is intended to augment the existing targeted anti-avoidance rule (TAAR) to catch these arrangements by ensuring that where the TAAR applies (where companies and their shareholders are attempting to avoid the section 455 charge on any extractions), tax is payable regardless of whether there has apparently been a repayment, or a repayment is subsequently made. The revenue estimated to be raised by this measure is £5m–£10m p.a.
• • Charities: The Government will introduce legislation in a future Finance Bill to prevent abuse of the charity tax rules by strengthening several existing anti-abuse rules to ensure that only the intended tax relief is given. These changes are to take effect from April 2026 to give charities time to adjust to the new rules.
• Alternative finance – continued progress to creating level playing field across alternative and conventional finance: Alternative finance refers to the raising of finance other than by conventional means (which involve the charging of interest). It may be used by individuals who hold religious beliefs that prohibit the receipt and payment of interest, such as the Islamic faith, which mean that other financing products cannot be used. There is detailed tax legislation (dating back to 2005) providing for the tax treatment of alternative finance to correspond to the tax treatment of conventional finance. However, there are still gaps between the two: HMRC has noted that under the current tax rules, entering into certain types of alternative finance arrangements can result in tax consequences that do not arise under conventional financing. Complexities arise due to the multiplicity of transactions needed for alternative finance to replicate the effect of conventional financing. The issue identified by HMRC mostly affects properties that do not qualify for CGT Private Residence Relief, such as rental properties, second homes and commercial properties. The new legislation, which applies for the purposes of Income Tax, Corporation Tax and CGT, relates to a particular form of alternative finance, diminishing shared ownership financing arrangements, used for these purposes, and is intended to ensure a level playing field across conventional and alternative forms of finance.
  The alternative finance tax rules are also being amended so that the Annual Tax on Enveloped Dwelling consequences are the same for those using alternative and conventional financing arrangements.
• Continued progress to minimum 15% tax rate for worldwide businesses with global revenues of more than €750m: Under the Pillar 2 Organisation for Economic Co-operation and Development (OECD) global anti-base erosion (“Globe”) model rules to which over 135 “implementing” jurisdictions (including the UK) have signed up, multi-national enterprises (MNEs) with global revenues exceeding €750m are required to ensure that their profits are chargeable to tax globally at a minimum effective tax rate of 15%. Where, in relation to profits of any implementing jurisdiction, the effective tax rate is calculated to be less than 15%, the MNE group is required to pay a top-up tax, to bring the total amount of tax in that low-tax jurisdiction up to the 15% rate. In very broad terms, as regards the mechanics, the low tax income is first subject to a top-up tax as may be provided for in the tax code of the local jurisdiction. If that jurisdiction does not have a top-up tax mechanism, the top-up tax is imposed by means of the allocation of rights to the jurisdiction of the highest entity in the ownership chain having a top-up tax mechanism, with (as a back-up) residual taxing rights being allocated to other implementing jurisdictions of companies in the MNE group.
  The UK has introduced these rules over a “phasing in” period of up to, in broad terms, two years beginning with accounting periods starting after 31 December 2023, with further rules taking effect for accounting periods beginning after 31 December 2024. New legislation of a largely technical nature, published with Budget 2024, is being introduced to facilitate the effective implementation by the UK of these OECD rules.
• Removal of stamp duty and stamp duty reserve tax (SDRT) on transfers of shares on the new Private Intermittent Securities and Capital Exchange System (PISCES): PISCES has been developed using a ‘financial market infrastructure (FMI) sandbox’ as established under the Financial Services and Markets Act (FSMA) 2023 and is intended by the Government to form an important part of the UK’s offering to companies seeking to grow and list in the UK. It operates as a secondary market and provides a regulatory framework for the intermittent trading of private company shares on a multilateral system (as offered by public markets), but with an accompanying bespoke disclosure regime that reflects the periodic nature of trading and allows greater discretion on what company disclosures should be made public. Due to the expected benefits to the UK financial services sector which PISCES is expected to bring, legislation (in the form of SI to be laid by HM Treasury under a power to be included in Finance Bill 2024/25 enabling HM Treasury to make Stamp Duty and SDRT changes in connection with any exercise of the FMI sandbox power in FSMA 2023) will be introduced to exempt from Stamp Duty and SDRT transfers on a PISCES platform and onward transfers to end purchasers which result from trading on a PISCES platform.

Private client

• Non-doms – remittance basis of taxation for non-doms to be replaced by residence-based system (expected to raise over £12.5bn to the Exchequer over the next five to six years) – a sweeping tax change which will have a major impact on non-doms. Read a more detail analysis of the changes for non-doms here.
• Inheritance Tax (IHT) – change from domicile-based system to residence-based system and inclusion of pension pot in estate:
• • The current domicile-based system of IHT will be replaced with a new residence-based system. This will affect the scope of non-UK property brought into UK Inheritance Tax for individuals and trusts.

• • From 6 April 2027, unused pension funds and death benefits payable from a pension will be included within the value of a person’s estate for Inheritance Tax purposes, and pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC. The Government is consulting on the processes required to implement these changes and has said that it will then publish a response document and carry out a technical consultation on draft legislation for these changes in 2025.
• Employment Ownership Trust (EOTs) and Employment Benefit Trusts (EBTs):
• • An EBT is a trust set up for the benefit of employees of a company. An EOT is a specific type of Employee Benefit Trust whereby a controlling shareholding in a company is owned by a trust specifically set up for that purpose. A package of reforms to the taxation of EOTs and EBTs has been announced in the Budget, mostly with effect from 30 October. The stated purpose of these reforms is to prevent opportunities for abuse, ensuring that the regimes remain focused on encouraging employee ownership and rewarding employees.

• • The main changes to EOTs relate to the conditions for obtaining relief from CGT on disposal of a controlling shareholding in a company to the trustees of an EOT (these are tightened, e.g. for the purposes of ensuring that the trustees are clearly independent of the former owners) and a helpful measure introducing relief from tax from distributions paid by the company to meet the trustees’ acquisition costs.
• • In relation to EBTs generally, certain changes are made to the conditions that need to be met for a transfer into an Employee Benefit Trust to be exempt from Inheritance Tax (including a requirement that the individual transferring the shares to the EBT has been beneficially entitled to the shares throughout the period of two years ending with the date of the transfer).
• Consultations on tax treatment of predevelopment costs (focussing on capital allowances) and effectiveness of land remediation relief, considering whether the relief is still meeting its objectives and evaluating its value for money, to be launched over the course of the next few months.
• Consultations also to be launched for the purposes of modernising and simplifying the rules relating to:
• • transfer pricing, permanent establishment and diverted profits tax; and
  • bringing medium-sized (but not small) businesses within the scope of the UK’s transfer pricing rules.
• VAT on private school fees to take effect from January 2025. Pre-payments of fees or boarding services on or after 29 July 2024 that relate to terms starting after 1 January 2025 will also be subject to VAT at the standard rate.

Click here to read all the tax measures announced in the Budget.

If you have any questions in relation to the above or to anything else arising from the Budget, please contact Michael Fluss.