Tax Talk: Autumn Budget 2024

Tax Talk is a regular series written by FSL’s Tax Reporting Analyst, Alex Ranahan. Alex has nearly ten years’ experience as a tax adviser and analyst. He is accredited by The Association of Taxation Technicians and was recently elected co-chair of the Tax Committee for The Investing and Saving Alliance.   

Alex’s Tax Talks are on general topics and are not tax or financial advice. If you are unsure of the treatment of a transaction, we encourage you to seek the appropriate advice. 

Revenue over reform 

My second-biggest wish was fulfilled: tax took up the shortest part of the Budget. 

I know that sounds odd for a tax analyst to say, but there were essentially two options for today’s Budget that I would have welcomed: 

1. A full-scale overhaul of the UK tax code, finally ridding us of thousands of pages of needless regulation and bureaucracy – a fresh approach taken by an enterprising and engaged government elected on a mandate of change. 
2. A handful of tax changes that raise the necessary revenue and don’t disturb the wider economy or financial markets without introducing very much extra complexity. 

Now we can say Chancellor Rachel Reeves plumped for the latter. 

Employer National Insurance Contributions 

The biggest news is that the amount of national insurance employers pay will go up sharply because of a mild increase in rates (from 13.8% to 15%) but a halving of the threshold at which it begins to be paid (from £9,100 to £5,000).   

There isn’t a lot I can say about this that isn’t already being covered by the wider press, so go have a read of the FT or BBC or wherever you get your news from. But the important point is that this single measure will raise £23.8bn per year from 2025/26, rising to £25.7bn in 2029/30 – dealing with more than half of the gap in the government’s finances.   

My view is that it will encourage any employers who still operate their workplace pension scheme via Net Pay or Relief At Source to switch to salary sacrifice to reduce their national insurance bill. 

Capital gains tax 

One of my biggest ‘this would obviously make sense to do’ wishes was not fulfilled on Wednesday: the government announced it was raising the main rates of capital gains tax (CGT) with immediate effect. The basic rate rose from 10% to 18%, and the higher rate from 20% to 24%. 

As I have explained before, this makes sense if your goal is to raise the maximum revenue from individual taxpayers. But if your goal is to raise the maximum revenue in aggregate, then it is better to delay the raise until 6 April and allow people the time to crystallise their gains in advance. 

Yes, those individual taxpayers will pay a lower percentage of tax on those gains, but those individuals would have otherwise likely held on to those assets and HMRC wouldn’t have received the tax revenue. The fact that the Chancellor has opted to make this change effective from October 30 means that there is no longer a tax benefit to selling this year and so there is no more ‘extra’ CGT set to come into the Treasury’s coffers from that cohort of asset owners. 

From a tax planning perspective, HMRC have confirmed that the use of losses and the annual exemption may continue to be used in the most beneficial manner. This means that losses may be used against higher-taxed gains before lower-taxed gains, even if the losses were realised before the Budget. It would even be permissible to amend a tax return for an earlier tax year and carry forward unused losses to use in the current tax year. 

For other investors, the increase in the rates of Business Asset Disposal Relief (BADR) and Investors’ Relief to 14% from 6 April 2025 and to 18% from 6 April 2026 will mean either moving quickly to crystallise gains in advance or bedding in to realise a higher profit for the same net taxed gain. 

Non-doms 

In what was quite funny for me, but not at all funny for the poor civil servant who must have had quite a telling-off, the government accidentally published its analysis of the impact of the 2017 deemed domicile reforms early.   

Proof below from the email I was sent: 

The short version of this analysis – which you can now read – is that following the 2017 reforms, the number of non-doms dropped off, but the amount of revenue gained from those who stayed “more than compensated” for it. And with that, the policy to abolish non-domiciliary status from 6 April 2025 was confirmed.   

Here are the key bits you need to know: 

• 100% relief on eligible foreign income and gains (FIG) will be available to new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in the 10 years immediately prior to their arrival. Split year UK residence counts as a full year for the purpose of these four years. 
• After four years of UK residence, those individuals will be subject to UK tax on their worldwide income and gains – same as everyone else. 
• Once someone arrives in the UK and is tax resident in year one of that four-year period, that’s it. There is no extra time for someone who leaves in year two and returns in year four, from year five they are charged on the arising basis. 
• If any claim for FIG treatment is made, the individual loses their personal allowance and annual exemption for that tax year. They will also be unable to claim any foreign income losses or foreign capital losses arising in that tax year. A claim is made on a source-by-source basis. 
• For individuals who lived here already but are or will be past the four-year mark already by the time the new rules kick in, then a Temporary Repatriation Facility will be available to nominate and tax previously untaxed and unremitted FIG at 12% until 2027, and at 15% in 2027-28 (without the need to actually make the remittance at that time). 
• If someone leaves the UK during the four-year period and comes back, they can only claim the four-year FIG regime during that period. From year five onwards, they are not eligible for the FIG regime. 
• Assets will be rebased to their market values on April 5, 2017, the same date as for deemed domicile rebasing. If the individual did not hold the asset in their personal capacity on April 5, 2017, then no rebasing is available. 

Pensions 

Possibly the most significant long-term decision was to remove the inheritance tax (IHT) exemption for pension pots from April 2027, while keeping the maximum tax-free lump sum amount at £268,275.   

This makes sense when looking at policy objectives: a pension is intended to give people an income as they age out of the workforce, not to act as a tax-free vehicle for passing on wealth. By removing this exemption, it removes the incentive to keep wealth stored away rather than spending it in the economy. 

Why do I say this is the most significant?   

Well, we know that a great deal of the nation’s wealth is held by pensioners in one form or another, and that “the great wealth transfer” of roughly £6.7bn of wealth is due to take place from the silent generation and baby boomers to their Gen X and Millennial descendants. The government has made clear that if pensioners do not spend their wealth, the public purse will have its cut of the transfer. 

Making better use of third-party data 

This is the most interesting part of the Budget and yet I know will be the part that receives the least coverage so, I am taking on the responsibility. 

In early 2025, the government will consult on “making better use of third-party data” to make it easier for taxpayers to get tax right first time. This was also the title of an Office of Tax Simplification report, published in July 2021. The purpose was to identify how government could “make tax easier” for people through making better use of data held by third parties and the steps that would need to be taken towards “making it a reality.” 

One area the report looked at was excess reported income (ERI) from offshore funds that have received ‘reporting’ status from HMRC, known as reporting funds. I’m sure I don’t need to bore you with the many issues plaguing investors with ERI from those reporting funds, so suffice it to say that anyone familiar with those issues would agree with the report’s description of them. 

The report recommended that the government include a review of ERI reporting in stage two of its long-term pathway to improving how HMRC uses third-party data. This is the backdrop to the announcement in today’s Budget and at FSL we welcome the review. The white paper which the lang cat prepared on this subject with our assistance was a key conversation-starter last year, and we look forward to engaging with the government through their consultation. 

FSL’s response to the Budget 

Yesterday was historic for several reasons: it was the first Budget delivered by a female Chancellor, the biggest tax-raising Budget since 1993, and the first Budget delivered after the governing party’s first party conference in office – I could go on. 

The team here at FSL are digesting the announcements, policy papers, and draft legislation, and will provide our in-depth response, including updates to CGiX, in due course. This is not the first time FSL has had to respond swiftly to mid-year CGT changes. 

If you would like to get in touch with us to suggest ways in which we can best help you, please contact your Customer Success Manager.