Tax update: Autumn Budget announced for 30 October 2024

Our tax experts provide some insights into what the Autumn Statement could bring.

Budget date and tax announcements

Rachel Reeves, Chancellor of the Exchequer, confirmed that the date for Labour’s first Budget has been set and will take place on Wednesday 30 October 2024.

This announcement came as part of the Chancellor’s statement on ‘public spending inheritance’ in which Reeves warned that the Treasury’s finances were much worse than expected, leading to speculation that this is paving the way for tax rises to be announced in the Autumn Budget.

As part of Labour’s manifesto, they have already pledged not to increase income tax, national insurance contributions, corporation tax or VAT rates. This leaves the possibility of just a few other taxes being targeted to bring in revenue for the Treasury including capital gains tax (CGT), inheritance tax and stamp duty land tax.

The most favoured of these seems to be an increase to the CGT rates, with some predicting that Labour may even go as far as aligning these with income tax rates, although we would anticipate that there would be some form of taper to remove inflationary gains from being subjected to income tax.

Another possible area of attack for CGT could be to abolish business asset disposal relief (formerly known as entrepreneurs’ relief) which reduces the amount of CGT payable on the disposal of qualifying business assets, offering a rate of 10% for disposals up to the lifetime limit of £1 million.

We would also not be surprised if the government looked to prevent a rebasing of assets for CGT purposes on death, unless those assets were subject to inheritance tax.

As part of the spending review, a number of documents were also published on Monday (29 July 2024) providing a bit more detail on some of Labour’s manifesto pledges, as well as a couple of tax measures previously announced by the Conservative government, but not yet introduced.

Furnished holiday lettings regime

Labour have confirmed that they will go ahead with the Conservative’s plans to abolish the furnished holiday lettings (FHL) regime with effect from April 2025. With very little detail previously announced on this we now know that:

• Capital allowances will no longer be available for expenditure after April 2025 but it will be possible to continue to claim writing down allowances on pools of expenditure already in existence;
• Losses from a FHL business can currently only be carried forward for offset against the same FHL business, however, it will be possible to utilise these against the profits of the UK (or overseas) property business going forward;
• It will no longer be possible to claim a deduction for the full amount of mortgage interest where the FHL business is owned by an individual after April 2025 and, instead, there will be a tax reduction of mortgage interest at 20% as with other non-FHL residential properties; and
• An anti-forestalling rule will apply to prevent the use of unconditional contracts to obtain business asset disposal relief (if it is still here!) where the contract is entered into on or after 6 March 2024 but not completed until after April 2025. In order to fall outside of these rules, it will be necessary to confirm that the contract was either entered into for wholly commercial reasons or the parties are unconnected and that the purpose of the contract was not to take advantage of the reliefs under the old FHL regime.

VAT on private school fees

A well trailed pledge of the party was to introduce VAT on private school fees, to provide funding for free childcare hours for early years, breakfast clubs for primary schools and to recruit 6,500 more teachers.

It has now been confirmed that with effect from 1 January 2025, VAT will be charged at the standard rate of 20%. Furthermore, any fees prepaid from 29 July 2024, relating to the school terms on or after 1 January 2025 will be subject to VAT.

This could be good news for some individuals who have already prepaid school fees prior to this date for future years in anticipation of the change, as there was some speculation that the government would look to block all fees prepaid relating to terms after the commencement date.

It still remains to be seen whether schools will look to pass on a 20% increase in fees to parents/guardians straight away, with potential opportunities to reclaim VAT for capital expenditure in the prior four years, such as for new school buildings or other significant renovation projects.

Non-dom reform

Labour have confirmed that they will press ahead with the non-dom changes from 6 April 2025, as originally announced by the Conservatives, replaced by a residence-based system. In their latest policy paper they have confirmed:

• They will introduce a four year foreign income and gains regime from April 2025, allowing individuals to bring in assets to the UK during that period without triggering a UK tax charge, providing they have not been UK resident in any of the prior 10 years.
• For those individuals already resident in the UK and losing access to the remittance basis, the Conservatives had announced that there would be transitional provisions allowing for a 50% reduction in foreign income subject to tax in the first year, but Labour have now confirmed that they will not be introducing this.
• Overseas assets will be rebased, but the date of rebasing is yet to be confirmed.
• A new temporary repatriation facility (TRF) will be introduced for individuals previously taxed on the remittance basis, allowing for the remittance of foreign income and gains arising prior to 6 April 2025 to be brought into the UK at a reduced rate and for a limited period of time after the new regime comes into force. Details on the rate and timescales are yet to be confirmed.
• Inheritance tax will also move to a residence-based system from 6 April 2025 as previously announced. It was also confirmed that they plan to close down planning opportunities via excluded property under the regime, but details on this are again still to be confirmed.

Tax treatment of carried interest

A call for evidence was also published with the aim of closing down the carried interest ‘loophole’ which currently allows for, primarily, private equity fund managers to benefit from performance related rewards being taxed at CGT rates of 18% and 28% rather than income tax rates.