Some of the changes announced in the budget will be felt widely in the Financial Services sector. We have highlighted below the changes which we think will be most impactful for our clients and contacts in the sector. For individuals, there will be key considerations depending on personal circumstances.
Non-UK domiciled individuals
From 6 April 2025, changes will be made to replace the remittance basis of taxation, which is based on domicile status, with a new tax regime based on residence. The new regime will provide 100% relief on most foreign income and gains for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival.
The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the four year foreign income and gains regime. Transitionally, for Capital Gains Tax (CGT) purposes, current and past remittance basis users will be able to rebase most foreign assets they held on 5 April 2017 to their value at that date when they dispose of them. Any foreign income and gains that arose on or before 5 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK under the current rules. This includes remittances by those who are eligible for the new four year foreign income and gains regime.
A Temporary Repatriation Facility (the Facility) will be available for individuals who have previously claimed the remittance basis. They will be able to designate and remit, at a reduced rate, foreign income and gains that arose prior to the changes. The Facility will be available for a limited period of three tax years, beginning in 2025/26. The Facility rate will be 12% for the first two years and 15% in the final tax year of operation.
The current domicile-based system of Inheritance Tax will be replaced with a new residence-based system, which will affect the scope of non-UK property brought into UK Inheritance Tax for individuals and trusts. Overseas Workday Relief will be extended to four years to align with the new four year foreign income and gains regime and will be subject to a financial limit on the amount of relief that can be claimed, namely the lower of £300,000 or 30% of an individual’s total employment income.
Capital Gains Tax rates
The rates that apply to carried interest of 18% and 28% will increase to a flat rate of 32%. This will apply to carried interest arising to an individual on or after 6 April 2025. From April 2026, all carried interest will be taxed within the income tax framework. A multiplier of 72.5% will be applied to any qualifying interest brought within the charge.
Capital Gains Tax on liquidation of a Limited Liability Partnership
Where a member of a Limited Liability Partnership (LLP) has contributed assets to the LLP, chargeable gains that accrue up to the contribution will be charged to tax when the LLP is liquidated and the assets are disposed of to the member, or a person connected to them. The charge to tax will be on the member and the measure will have effect for liquidations that commence on or after 30 October 2024.
Reducing tax-free overseas transfers of tax relieved UK pensions
The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS), unless an exclusion from the charge applies. Transfers to QROPS established in the EEA and Gibraltar were included within the exclusion but this exclusion will no longer apply for such transfers made on or after 30 October 2024.
From a company perspective, whilst employers national insurance costs will increase from April 2025, there is some respite in Corporation Tax, the rates of which will stay flat.
Employer’s National Insurance
Currently, the main rate of Class 1 employee NICs is 8%, and the employer rate is 13.8%. Following the budget the Government announced that it will increase the employer rate from 13.8% to 15% from 6 April 2025. The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings, and is currently set at £9,100 a year. The Government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter. The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. From 6 April 2025 the Government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility.
Corporation Tax rates
The Government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2025, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
If you would like to discuss these with our Team please do reach out to Karen Allan or Simon Wilks.
