Billed as a ‘once in a generation event’, the hotly anticipated Autumn Budget has been the subject of intense speculation for what seemed an eon in the private wealth sector and our clients. Looking at the announcements broadly, then, it was a Budget for which, for all intents and purposes, we prepared ourselves: large tax rises, more borrowing and commitment to increased public spending and investment.
We set out below our initial thoughts on the key proposals affecting our clients.
Non-domiciles
The surprises came in the form of tempered measures and concessions, in attempts to stem the stampede of foreign HNWs for the departure gates at Heathrow, including:
- a tapering of the Inheritance Tax ‘tail’ on worldwide assets of between three to ten years, depending on the length of residence in the UK; and
- an extension of the ‘Temporary Repatriation Facility’ to three years, at a reduced rate of 12% for the first two years and 15% for the third year, for those who have previously claimed the remittance basis.
Although these measures are more ‘moderate’ compared to previous proposals, , the scrapping of protected status for trusts settled by non-domiciliaries, with no grandfathering provisions will not be warmly embraced.
Whether taxpayers and their advisors will agree with the Chancellor that the new residence-based regime is ‘internationally competitive’, will be evaluated more accurately through the passage of time.
Capital Gains Tax and Inheritance Tax
At the height of the pre-budget frenzy, it was speculated that Capital Gains Tax (CGT) rates would be aligned with Income Tax rates and that that various Inheritance Tax (IHT) reliefs would be removed.
Clients and their advisers gained some comfort that the rates announced for CGT (an increase of the main rate from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate and additional rate taxpayers, to align with residential property rates) were more conservative when held up against media speculation.
Business Asset Disposal Relief and Investors’ Relief is also set to rise from next year, making it more costly for those selling their companies.[insert link to Autumn Budget summary article here maybe?]
Whilst fears that Business Property Relief (BPR) and Agricultural Property Relief (APR) would be removed entirely did not come to pass, the restriction of 100% relief to the first £1,000,000 of combined business and agricultural property, with values in excess of this amount only benefitting from 50% relief from April 2026, has been met with robust responses.
For many businesses, the £1,000,000 cap is likely to be insufficient for even the smallest of operations and IHT will be an existential threat to the continuity of businesses. In sectors such as farming with high capital values and increasingly low yields, for example, it will be a real concern that IHT could lead to the breakup of farms.
Unused pensions and death benefits payable from a pension which largely sit outside an individual’s estate for IHT purposes, will also become subject to IHT from 2027.
However, the rules surrounding gifting remain unchanged for now, and it is likely that gifting onto the next generation will be accelerated and will form an important part of succession planning where feasible.
Wealth taxes
Whilst the UK does not levy a tax on wealth per se, many may view the newly proposed levies as such.
The Government has committed to applying VAT to private school fees from 1 January 2025. VAT for the supply of services (education in this case) will be subject to where it is delivered and it is unclear whether this will deter international students from UK independent schooling due to the higher fees.
The Chancellor, in a mocking quip to the former prime minister Rishi Sunak, also confirmed a 50% uplift in air passenger duty (APD) for trips by private jet from 2027/28.
In a commitment to support first-time buyers of property in the UK, it was also announced that the Stamp Duty Land Tax surcharge on additional property will rise from 3% to 5%. This surcharge also applies to those purchasing buy-to-let residential properties.
Conclusion
It has always been crucial for HNW/UHNW individuals and families to seek advice on wealth protection and planning opportunities as early as possible. However, with unused pensions being brought into scope of IHT and the restriction of full BPR and APR subject to a cap, many who would have considered themselves to be of more moderate wealth or who have business operations, will now need to give serious thought as to gifting and succession planning during their lifetimes.
For non-domiciled individuals, the Budget has provided certainty on the abolition of the current tax regime, but it remains to be seen whether the four-year foreign income and gains regime, will be a sufficient sweetener for prospective inpatriates whom the Government hope to become long-term taxpayers.
Please do contact the Private Wealth & Tax team to understand the implications for you and/or your clients.
