This was the headline for Rachel Reeves’s first Budget. She spoke for one and half hours in a wide ranging speech which contained many of the changes announced during the last few weeks but also some surprises.
We set out in brief below the key announcements that may affect you.
Stamp Duty Land Tax
The Labour Party committed to reforming stamp duty land tax (“SDLT”) in their election manifesto and so changes were expected. Non-UK resident purchasers buying property in the UK will welcome the news that there will be no increase in the surcharge on residential property purchases by non-UK residents. However, the Chancellor did announce that the SDLT surcharge on the purchase of second homes and purchases of property by companies will increase from 3% to 5% from 31 October 2024. This will impact those looking to purchase second homes and landlords which could mean a slowdown in that sector of the market.
In addition to the above, the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, rose from 15% to 17% from 31 October 2024.
Home buyers will have been hopeful that the Labour government would extend the SDLT reliefs introduced in 2022 beyond the March 2025 deadline, with them perhaps being made permanent. This would have continued to incentivise first-time buyers and make the move up the property ladder more achievable. The Budget makes no changes to this policy and so the SDLT reliefs introduced in 2022 will end in March 2025 as planned. This means we can expect a rush to complete transactions in the run-up to 31 March 2025 as buyers look to effect purchases before the reduced rate reliefs come to an end. In addition, we can likely expect a slow-down in transactions in the months post March 2025 after these reliefs end. We expect to see greater demand on the rental market which might lead to increased rental prices and supply shortages.
Non-doms
The government has resolved to press ahead with its full strength non-dom reforms, particularly in relation to its intention to extend inheritance tax (“IHT”) from 6 April 2025 to all excluded property trusts created by “long-term residents” (a category which has also been widened in the latest announcements).
For further detail please see our Globally Speaking bulletin.
Capital Gains Tax
The changes to the main rates of capital gains tax (“CGT”) were not unexpected and were ultimately lower than the speculation had been. The rates increased from 10% and 20% to 18% and 24% respectively from 30 October 2024, matching those for residential property. Whether this simply results in fewer disposals and a consequent reduction in revenue for the Treasury, or also deters investment in UK assets and/or the choice of the UK as the place in which to incorporate a company, remains to be seen.
Inheritance Tax
It had been anticipated that IHT would be one of the taxes targeted by the Chancellor. There will be changes, but not overnight. The inheritance tax nil-rate bands are already set at current levels until 5 April 2028 and will stay fixed at these levels for a further two years until 5 April 2030.
The changes announced include extending IHT to both agricultural and business assets. At present, assets that qualify as agricultural or a business receive up to 100% relief from IHT. From April 2026, the 100% rate of relief will continue for the first £1 million of combined agricultural and business assets to help protect family farms and businesses, and IHT will be charged at 50% thereafter. There is concern already as to how this will impact on such family farms and businesses. There will be a reduction in the rate of business property relief to 50% for shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM.
From 6 April 2027, unused pension funds and death benefits on death will be subject to IHT.
The Government announced IHT digitalisation. It is hoped that this will introduce a modern, easy-to-use system, making returns and paying tax simpler and quicker. The present system needs a major overhaul and we hope that this will make a difference.
VAT on school fees
The Chancellor has confirmed that VAT will apply to school fees from January next year together with a view to removing business rates relief from April 2025.
Tax treatment of carried interest
As expected, changes will be made to the tax treatment of carried interest. From 6 April 2025 the CGT rate associated with carried interest will increase by 4% to 32%. From April 2026 the carried interest regime will be reformed to be taxed as trading income and subject to class 4 NIC but with a specific reducer applied.
We anticipate more details and clarification to be forthcoming on all of the above announcements, but in the meantime we would recommend those affected to seek advice now so that they are aware of their options whatever the future holds.
Please contact your usual Wedlake Bell adviser for more information.