Autumn Statement Brief 2024 on Private Client Aspects – Aparna Nathan KC
The much awaited Labour Budget made the following main announcement that affect private clients.
1. Domicile - Domicile is no longer to be regarded as a relevant factor in taxation. It is replaced with the concept of a long term resident. This is based upon residence in the UK in 10 years out of a 20 year period. Draft legislation has been introduced. Notable consequences of the removal of domicile as a relevant fiscal concept are:
a. Remittance basis has been abolished with effect from 6 April 2025;
b. Remittances by remittance basis users will be subject to tax in respect of unremitted foreign income and gains (“FIGs”);
c. A Four-year FIGs Regime has been introduced -It provides 100% relief on some types of FIGs. It applies for 4 consecutive years from the first UK resident year. This applies to persons who are not resident in the UK in the ten years immediately preceding their period of UK residence. The treatment needs to be claimed in the return.
d. Temporary Repatriation Facility – this will apply to those who have claimed the remittance basis It applies for a period of three years: the rate of tax which will apply to the designated amount for the first two years (2025/2026; 2026/2027) is 12% and it rises to 15% for the third year (2027-2028). Amounts subject to this charge are not otherwise chargeable. The designated amount can be identified without the need to identify any underlying FIGs, nor need the designated amount be remitted to the UK. This will assist those with mixed funds. The facility is also available for periods from 2025/2026-20272028 in relation to benefit paid from structures with are matched with FIGs.
2. CGT.
a. Rates to increase for disposals of residential property and other assets on or after 30 October 2024, the new standard rate of 18% and higher rate of 24% applies;
b. CGT rebasing for assets held at 5 April 2017 is available to persons who are not domiciled or deemed domiciled before 6 April 2025 and who have claimed the remittance basis between 6 April 2017 and 5 April 2025.
c. BADR and Investors’ relief - from 6 April 2025 – the rate of tax will increase to 14% ; from 6 April 2024 the rate will b 18%. The lifetime cap is unchanged for BADR. For disposal on or after 30 October 2024, the lifetime cap for Investors’ Relief is lowered to £1m.
3. IHT.
a. There is a limit now the amount of Agricultural Property Relief and Business Property Relief that attracts 100% relief. The combined limit for both APR and BPR is £1m. Values in excess of that will attract relief at 50%. Where the values are in excess of £1m, the relief will apply rateably. The policy paper indicates that the new rules will apply to lifetime transfers made on or after 30 October 2024 where the donor dies after 6 April 2026. These amendments apply to excluded property held in settlements. There will be consultation as to the detail of the changes which will presumably inform the draft legislation once it is issued. In order to ensure that the consultation is an effective exercise, it is prudent to consider what impact these changes have on clients’ estates, to seek specialist advice as appropriate and to convey those comments and concerns in the responses to the consultation.
b. BPR on shareholdings – relief on shares in trading companies not listed on the recognised stock exchange will qualify for relief at 50%. An immediate question is whether the £1m allowance is available for unquoted shares held in trading companies?
c. Excluded Property – changes are introduced to reflect that domicile is no longer a relevant fiscal concept. Property of a long term resident is not excluded property. For foreign property held in trusts, excluded property status will depend on whether the settlor is a long term resident at the relevant time or if the settlor is dead, whether the settlor was a long term resident at the date of their death. If the settlor ceases to be a long term resident, foreign settled or personally held assets appear to become excluded property. Clearly, it is necessary to be aware of the tail for long term residents ceasing to reside in the UK. There are transitional rules for those who are not UK domiciled or deemed domiciled and who cease to be UK resident before 6 April 2025 when the rules come into effect. Those who are domiciled or deemed domiciled but who cease to be UK resident before 6 April 2025 will be subject to Inheritance tax on their worldwide asserts for a period of three years. This period does not appear to take into account the length of that person’s residence in the UK prior to their departure. There are also transitional rules for foreign property held in trusts as at 30 October 2024. If the settlor dies before 6 April 2024 (when the new rules take effect), the current regime applies to the trust assets. If the settlor is alive and not a long term resident, foreign assets held by the trust will continue to be excluded property on the settlor’s death. If the settlor is or becomes a long term resident, the assets are no longer excluded property and are subject to the relevant property regime.
4. Income Tax – ToAA and Settlements Provisions– the PFSI protections are being removed.
The details of the changes is set out in the draft legislation which was published, along with policy papers, as the Chancellor sat down. It remains to be seen whether the draft legislation accurately reflects the statements made during the Autumn Statement and, more concerningly, whether it contains surprises or unintended consequences.
Authored by Aparna Nathan KC.
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