Tax

On 30 October 2024, Chancellor Rachel Reeves delivered her highly anticipated Autumn Budget, marking not only the Chancellor’s first budget (and indeed the first budget ever delivered by a female Chancellor) but also the first Labour budget in 14 years. It is fair to say that the past few weeks and months have been full of speculation regarding the form and substance of today’s tax-related announcements. The tax treatment of carried interest, the capital gains tax regime and the “Corporate Tax Roadmap” have all featured heavily in the press, and today’s announcements have shed some further light on how these measures, as well as the tax landscape at large, will take shape under the new government.

Below is a summary of the key tax announcements relevant to our clients. Please contact a member of the Weil London Tax team if you would like to discuss anything in further detail.

Business taxes

Tax treatment of carried interest:

The government has announced that the rate of capital gains tax (CGT) on carried interest will increase to 32% (currently 28%) from 6 April 2025. This rate will remain in place until the implementation of a wider reform package for carried interest in April 2026, which includes two key measures.

Firstly, the government will bring carried interest into the Income Tax framework, so that from April 2026 all carried interest will be treated as trading profits and therefore subject to income tax (45% rate) and Class 4 National Insurance Contributions (NICs) (2% rate), subject to special computation rules for so-called “qualifying” carried interest which would be adjusted by applying a 72.5% multiplier. The result is an expected effective tax rate for “qualifying” carried interest of 34.08%. Non-qualifying carried interest will not benefit from the multiplier and will therefore be subject to income tax and Class 4 NICs at the full 47% combined rate.

This revised regime for carried interest to be introduced in 2026 will sit alongside the existing disguised investment management fee (DIMF) rules and the income-based carried interest (IBCI) rules. “Qualifying” carried interest, which is to benefit from the multiplier and therefore from a lower effective tax rate as compared with amounts that are fully subject to income tax and Class 4 NICs, will be carried interest that is not currently already subject to income tax at 45% and Class 4 NICs at 2% as IBCI (broadly, applicable where the fund paying the carried interest has held its assets for less than a minimum holding period).

The government has also confirmed that it will consult on whether any further conditions should be introduced for qualifying carried interest to benefit from the multiplier, namely: (i) a minimum co-investment requirement, to be measured at a team rather than individual level; and/or (ii) a minimum time period between a carried interest award and the receipt of carried interest.

Secondly, the government has announced that it will amend the IBCI rules to remove the current exclusion for carried interest which is also an employment-related security (ERS). The removal of the ERS exclusion means that fund managers who are employees (as opposed to LLP members) will now be subject to both the ERS and IBCI rules in relation to their carried interest and will need to consider both sets of rules in relation to their awards of carried interest. The government has also proposed making appropriate amendments to the IBCI rules in order to ensure they work appropriately for private credit funds, which may otherwise be disproportionately impacted by the removal of the ERS exclusion.

In terms of its implementation, the government has ruled out any grandfathering or other transitional provisions, which means that existing fund and carried interest structures will not be excluded from the revised regime once it takes effect in April 2026.

Corporate Tax Roadmap:

Alongside the Budget, the Treasury published a “Corporate Tax Roadmap” setting out its plans for corporation tax, together with a number of other taxes, over the course of the parliament. The commitments include:

• capping the headline rate of corporation tax at 25%, and maintaining the small profits rate and marginal relief at current rates and thresholds;
• maintaining the existing capital allowances system, including permanent full expensing and the £1 million annual investment allowance;
• developing a new process for increasing tax certainty in advance of major investments; and
• modernising tax administration.

The roadmap also includes a list of consultations stakeholders can expect in the coming months, including in relation to transfer pricing, permanent establishments and the diverted profits tax.

Stamp duty / SDRT:

Finance Bill 2024-25 will include legislation to empower the Treasury to introduce an exemption from Stamp Duty and SDRT for transfers on a PISCES platform, and for onward transfers to end purchasers that result from trading on a PISCES platform. PISCES (the “Private Intermittent Securities and Capital Exchange System”) is a proposed new trading platform that will enable the intermittent trading of shares in private companies, intended to bolster the pipeline of future Initial Public Offerings in the UK.

Pillar 2:

As anticipated, changes will be made to existing UK Pillar 2 legislation to facilitate the entry into force of the undertaxed profits rule for accounting periods beginning on or after 31 December 2024.

Oil and Gas:

The Chancellor confirmed a number of expected changes to the oil and gas fiscal regime with effect from 1 November 2024:

• the energy profits levy will be increased by 3% to 38%, to bring the headline tax rate on UK oil and gas production to 78%;
• the 29% investment allowance that applies to the levy will be abolished;
• the decarbonisation allowance has been retained (this will now be set at 66%, rather than 80%, but is intended to offer the same cash relief after the increased rate); and
• the energy profits levy will now end on 31 March 2030.

Industry will be relieved that the 100% first year allowance regime for capital expenditure against levy profits will be preserved, despite indications in July that the government may restrict this relief. New legislation will also be introduced to provide relief in relation to assets which are transferred for carbon capture usage and storage, rather than being decommissioned.

There are signs that the government has heeded calls for a more stable and predictable fiscal regime. The government has announced that there will be no further changes to the energy profits levy regime before it ends in 2030. They will also launch a consultation in early 2025 on how the taxation of the industry will respond to future price shocks.

Personal taxes

CGT rates:

The rates of CGT for disposals made on or after 30 October 2024 are increasing from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher and additional rate taxpayers. Anti-forestalling rules will be introduced for certain unconditional but uncompleted contracts entered into before 30 October 2024.

Business Asset Disposal Relief (BADR, formerly known as “Entrepreneurs’ Relief”):

The applicable rate of CGT for BADR will increase from 10% to 14% for disposals made on or after 6 April 2025, and then to 18% for disposals made on or after 6 April 2026. Applicable lifetime gains remain capped at £1m. Anti-forestalling rules will be introduced for certain contracts entered into between 30 October 2024 and 5 April 2026 (inclusive).

Non-dom regime:

The remittance basis of taxation of non-domiciled individuals (“non-doms”) will be abolished from 6 April 2025, from which date the non-dom regime will be replaced with a new residence-based regime.

Income tax thresholds:

The current freeze on income tax and employee National Insurance contribution thresholds will not be extended beyond 5 April 2028, at which point they will be increased in line with inflation.

VAT on private school fees:

As anticipated, the government will proceed with the implementation of VAT on private school fees with effect from 1 January 2025, and including any fees paid from 29 July 2024 that relate to terms starting on or after 1 January 2025.

Employees and contractors

Employer NICs:

The rate of employer NICs is increasing from 13.8% to 15%, and the per-employee threshold at which employers become liable to pay National Insurance (the Secondary Threshold) will be reduced from £9,100 to £5,000, in each case from 6 April 2025.

Umbrella market non-compliance:

The government will introduce new legislation in a future Finance Bill to make agencies (or where there is no agency, the end client business) responsible for accounting for PAYE on payments made to workers that are supplied using umbrella companies. This will take effect from April 2026.

Property taxes and Business Rates

Stamp Duty Land Tax (SDLT) surcharge:

The rate of the SDLT surcharge for second homes will increase from 3% to 5%, and the single rate of SDLT payable by companies and non-natural persons acquiring dwellings for more than £500,000 will increase from 15% to 17%. These changes will apply to transactions with an effective date on or after 31 October 2024.

Furnished holiday lettings:

As previously announced, the government will introduce new legislation in Finance Bill 2024-25 to abolish the furnished holiday lettings tax regime with effect from 1 April 2025 for businesses, and from 6 April 2025 for individuals.

Reform of Business Rates:

Further to Labour’s 2024 Manifesto pledge to replace the existing Business Rates system, the government announced its intention to introduce lower Business Rates for retail, hospitality and leisure properties and to provide 40% relief on Business Rates for these sectors in 2025-26 (up to a cap of £110,000 per business). The government will launch an “engagement” with interested parties and stakeholders to discuss priority areas for further reform, to take place between November 2024 and March 2025.

Inheritance tax (IHT)

Agricultural and business property relief, including tax treatment of AIM-listed shares:

The government has announced its intention to reform agricultural and business property relief from April 2026, at which time the current 100% rate of relief will be maintained for the first £1 million of combined agricultural and business assets, and will be 50% thereafter. In all circumstances, the rate of business property relief for AIM-listed shares (and other shares designated as “not listed” on the markets of a recognised stock exchange) will be reduced to 50%.

In-scope pensions:

Unspent pension funds and death benefits payable from a pension fund will be brought within the scope of IHT from 6 April 2027. A technical consultation regarding these changes will be carried out in 2025.

Use of offshore trusts:

From 6 April 2025, the government will introduce a new residence-based system for IHT, ending the use of offshore trusts to shelter assets from IHT.

Compliance and anti-avoidance

The government announced a number of measures targeted at tackling anti-avoidance and increasing tax compliance, relating to (amongst other things) the “loans to participators” charge, offshore tax avoidance and non-compliance and promoters of marketed tax avoidance schemes.

Unaffected by today’s Budget

Corporation tax:

In keeping with Labour’s 2024 Manifesto, the headline rate of corporation tax will remain at 25%, although many corporate disposals qualify for a full exemption from UK corporation tax under the “substantial shareholding exemption”.

Income tax rates:

Also in keeping with Labour’s 2024 Manifesto, no changes have been made to the rates of income tax, which remain at 20% (basic rate), 40% (higher rate) and 45% (additional rate), and the dividend rates also remain unchanged.

Inheritance tax:

Contrary to speculation, there has been no change to the nil-rate band threshold, which will remain at £325,000 until at least 5 April 2030, and no extension of the current 7-year period for Potentially Exempt Transfers.