UK and International Tax news

Latest Budget Predictions

Wednesday 23rd October 2024

Following recent media articles and statements from government ministers, our latest predictions for possible tax changes to be announced by the new Chancellor in her Budget on 30 October are set out below.

Employment Taxes

It looks likely that the biggest tax rise to be announced on Budget day will be an increase to employer’s NIC given Labour’s manifesto pledge not to raise employee NIC. There may also be NICs on employer pension contributions which, according to the Institute for Fiscal Studies could raise around £17bn for the Treasury.  Either change will increase employment costs which could have a downward effect on salaries, pension contributions and savings.

It is understood that the Chancellor may also be considering reforming tax relief for pension contributions and introduce a flat 30% rate of relief.

Capital Gains Tax

Changes are expected to the tax treatment of ‘carried interest’. At the time of the election, Labour said they would tax carried interest as income at up to 45% plus NIC. However, more recent reports indicate that the Chancellor is considering a compromise on this policy amid warnings that the full planned change could put UK competitiveness at risk. This compromise may operate by increasing the rate of CGT on carried interest by a few percentage points from 18%/28% rather than attempting to tax it as income at up to 45%.

Latest rumours suggest that the Chancellor could raise the main rate of CGT applying to shares and other assets, currently 10%/20%, to perhaps 30% – 35%, but leave rates for residential property gains unchanged at 18%/24%.

Other changes to CGT may include widening the scope of CGT to include assets held by a person on death, and the introduction of an exit tax to apply to capital gains arising on the deemed disposal of assets when individuals emigrate from the UK.  There could also be changes to the scope and rate of CGT applying to business asset disposal relief.

Inheritance Tax

Changes are expected to exemptions and reliefs, including those applying to business and agricultural assets with possible caps to both of £500,000 per person.

There may be changes to the taxation of gifts, with possible extension to the seven-year rule to ten years for potentially exempt transfers, or reducing the period to five years and scrapping taper relief.

It is understood that there has been consideration of removing the exemption for shares in smaller UK companies listed on AIM, and pension pots of those who die before the age of 75 may be brought within the scope of IHT.

Non-Doms

Uncertainty remains about what changes Labour will make to the proposals to scrap non-dom tax status which were proposed by the Conservatives in their March 2024 Budget.

The new Chancellor had hoped to raise about £1bn a year by closing what Labour said were loopholes in the Conservatives’ proposals, particularly around use of overseas trusts. However, it appears that the Chancellor may be rethinking her plans given growing concerns that those affected could simply leave the country, resulting in a lower or even nil additional tax yield.

There have also been calls to replace the proposals in this area with a different system of taxation to encourage wealthy non doms not to leave the country, including a flat tax regime perhaps similar to that available in Italy.

The Italian flat tax regime introduced in 2017 allows wealthy taxpayers who transfer their tax residence to Italy, to avoid paying tax on their worldwide income at 43% on income above Euro50,000 by agreeing to pay an annual flat rate of tax of Euro100,000 for up to 15 years. This was recently increased to Euro200,000 in August 2024 for new residents. In addition, such taxpayers do not have to declare their overseas assets, only those in Italy.

In the UK, there have been discussions on a Tiered Tax regime which could levy wealthy foreign nationals an annual charge of between £200,000 and £2m across four bands based on the total value of their assets net of liabilities. The regime would protect foreign assets from IHT and provide an exemption from tax on overseas income and capital gains. It may also provide an exemption from tax on UK investments for up to 15 years.

In just a week’s time the Chancellor will deliver her first Budget and, with an emphasis on public investment to grow the economy, she will need to put forward an appropriate programme of tax rises, spending cuts, and additional borrowings if she is to bring under control budgetary deficits by 2028/29.

If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.

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