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On 30 October, Labour delivered a bombshell budget. Labour’s first budget in 14 years contained significant UK tax changes. Sweeping reforms were made to the fundamentals of the tax system.
What tax changes were announced?
From April next year your Inheritance Tax bill will no longer be decided by your domicile status (broadly the country where you have your permanent home). Instead, your Inheritance Tax liability will be determined by how long you have been living in the UK. Once you have been resident for more than 10 years you are exposed to UK Inheritance Tax on your worldwide assets. But after 10 years of non-residence your UK Inheritance Tax bill will only encompass UK assets. This is a fundamental change to the current rules.
In a shock announcement UK pensions will be brought within the charge to Inheritance Tax from April 2027. Less of a surprise is a restriction to a combined £1mn of Inheritance Tax relief for Agricultural Property Relief and Business Property Relief. AIM listed shares will see their Inheritance Tax relief halved.
At the moment, non-UK domiciles are able to exclude overseas income and gains from confiscatory UK tax rates for up to 15 years. From 6 April 2025 that advantage will now be reduced to just four years. For the first time UK domiciles and UK citizens can also exclude their overseas income and gains from UK tax for their initial period of UK tax residence too, as long as they have been non-UK tax resident for more than ten years.
Overseas workdays relief allows you to escape tax on the salary paid for your workdays undertaken outside of the UK when you are UK resident. This valuable relief will be extended from three years to four years and will be open to anyone (including UK domiciles) as long as they have been non-UK tax resident for more than ten years.
Other headlines are a raise in capital gains tax rates on anything but the sale of UK land and property from 10% and 20% to 18% and 24%. The property rates remain unchanged. The rate of capital gains tax on Business Asset Disposal Relief will be raised from 10% to 18% over the next two tax years but the lifetime limit remains at £1mn.
There is a significant raise in employer’s national insurance from 13.8% to 15%. A raise to carried interest from 28% to 32% was also announced with a consultation on further raises promised.
It will cost you more to buy a house in England and Northern Ireland too with the additional dwelling surcharge raised from 3% to 5% and a reduction in the bands for first time buyers and for replacing your main residence.
Who are the winners & losers?
Long term British expats now have a far clearer route to escaping Inheritance Tax on their overseas assets. Or, if they are returning to the UK will be able to use overseas workdays relief and exclude overseas income and gains from UK tax for the first four years they are living in the UK.
Non-UK domiciles are the losers. The opportunity to use simple trust planning to shelter overseas assets from inheritance tax will be much tougher. And rather than have up to 15 years in which overseas income and gains can be excluded from UK tax that advantage will now be reduced to just four years.
Peter Webb
Technical Consultant, Select Investors
peter.webb@sjpp.asia
+65-8908-1558
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.
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