On 6 March, the Chancellor announced the Spring Budget, which many expect to be the last fiscal event ahead of this year's general election. There had been many leaks and announcements trailed but none expected the Chancellor to announce a wholesale abolition of the UK's "non-dom regime".
The non-dom regime enables UK residents who are not domiciled here to be taxed only on income and gains arising in the UK, leaving their foreign income and gains free of UK tax unless used or brought into the UK. Non-doms can currently take advantage of the regime for up to 15 years, after which they will be taxed in the usual way. Having previously said that he would not change the non-dom regime, the Chancellor said he wanted to get rid of the outdated concept of domicile and create a simpler and fairer regime which would ensure the UK remains "internationally competitive and attracts the best international talent". Under the new regime, after four years, those who continue to live in the UK will pay the same tax as other UK residents with some transitional provisions. Surprisingly, those transitional provisions do not apply to trusts. In 2021 there were 54,300 non dom, UK resident taxpayers in the UK registered with HMRC, of whom 37,000 were taxed on the remittance basis in 2021. Whether the proposed four-year regime, coming into effect in April 2025, offers sufficient incentive to encourage overseas talent and the world's super-wealthy to move to the UK, particularly when there are few visa options encouraging them to come, will remain to be seen.
In addition to abolishing the non-dom regime, the Chancellor abolished the Furnished Holiday Let regime and Multiple Dwellings Relief – both announcements are aimed to make "the property tax system fairer".
The big tax giveaway was the 2% reduction in National Insurance Contributions. An uplift of the VAT registration threshold from £85,000 to £90,000 and the introduction of a new British ISA, allowing investors to invest up to £5,000 p.a. into UK equities tax-free, were also announced. Landlords and holiday homeowners will welcome the reduction in CGT from 28% to 24% from April 2024.
We explore the announcements in further detail below. Should you require any further information please get in touch with your usual Mishcon de Reya contact.
Abolition of the non-dom regime and proposed change to inheritance tax for non-doms
The common law concept of domicile was used as a connecting factor for UK taxation for over two centuries. However, today the Chancellor announced that, from 6 April 2025, the UK's remittance basis of taxation for non-domiciled individuals will be abolished. In its place, the Government plans to introduce a system based on the statutory residence test. There will be a period of four years during which short term residents will be exempt from UK tax on foreign income or gains regardless of whether they are remitted to the UK. Once those 4 years have expired, they will be taxed in the same way as any other UK resident taxpayer: as the income or gains arise. Crucially, the current "protected trust" regime will not apply for income or gains realised within a trust from 6 April 2025; these income and gains will be taxed on the trust's settlor where the trust is "settlor interested" (which is likely to mean where the settlor or certain close family members can benefit).
The Government has also announced a fundamental reform to the law of inheritance tax. Under the current regime, no inheritance tax is due on non-UK assets of non-doms until they have been UK resident for 15 out of the past 20 tax years. While the proposed changes are less developed, and will be subject to consultation, the contours of the new regime have been explained. The charge to inheritance tax will remain based on the location of assets but, from 6 April 2025, the Government intends to introduce a system based on the owner's residence to replace the current charge based on domicile. The significant difference appears to be that the period of residence required to expose a taxpayer to UK inheritance tax is longer, at ten years, than for income tax purposes. In addition, property in existing excluded property trusts will remain excluded. Somewhat surprisingly, assets added to new or existing trusts before April 2025 will be permanently excluded from inheritance tax.
Authors: Christopher Eames, Andrew Goldstone
Read more on the abolition of the UK's "non-dom regime" in our article: Non-dom no more? What do the Spring Budget's announcements mean for the UK taxation of non-UK domiciliaries?
Private Intermittent Securities and Capital Exchange Systems (PISCES): Consultation
A key challenge for private companies is that, during the early stages in their growth, there are few ways for shareholders to realise their gains, for example, where their shares have increased in value, or to allow companies to rationalise their (sometimes increasingly unwieldy) shareholder base by providing their early investors with an exit route. Similarly, it is harder for investors to access companies that are not yet operating on public markets. In November 2023, we wrote about this new proposal for a private company secondary share sale market platform, to be known as PISCES.
The idea of PISCES is to help generate liquidity for UK private companies, without those businesses having to proceed to a full flotation and listing on an existing stock exchange. It should be noted that this exchange will be a secondary sales market only for share capital already in issue. It will not facilitate fundraising or primary investment. This new, secondary market, initiative is an important development and there will be various stakeholder views to consider in relation to the regulatory, legal, tax and practical aspects of this new platform.
It raises several questions, including:
- Who should be allowed to invest?
- What requirements will companies need to meet?
- What reporting and disclosure regime will be put in place?
These are some of the questions posed and explored in the consultation document published today. The consultation will close on 17 April 2024 and the launch timeline for the sandbox stage of the project remains targeted for the end of this calendar year.
We have today launched our own survey to seek views on this new initiative and that was planned in expectation of the PISCES Consultation announced today. We would welcome your views.
Author: Liz Hunter
Financial Promotion Exemption changes for High Net Worth and Sophisticated Investors
The earnings and assets thresholds criteria, under the financial regulatory regime, to be classified as a High Net Worth Investor or Sophisticated Investor, rose with effect from 1 February 2024.
There is new prescribed wording to be used when making investments so updated advice may be required. Our article here sets out the new criteria. Following lobbying and press speculation, there has been a U-turn announced in the Spring Statement.
Whilst the increased limits remain in place for now, the Chancellor has committed to reinstating the prior, lower, earning and asset thresholds and will also undertake a wider review of the exemption criteria. The timeline for passing the legislation required to reinstate the prior threshold limits and the period of wider review is not yet known. We might speculate that is potentially linked to the investor criteria that might be set in relation to the new PISCES platform mentioned above.
Authors: Liz Hunter and Guy Wilkes
National Insurance Contributions (NIC) changes
For employees: The much-publicised reduction in employee National Insurance Contributions materialised. The Government is cutting the main rate of employee National Insurance by 2p from 10% to 8% from 6 April 2024.
For the self-employed: The Government is cutting a further 2p from the main rate of self-employed NIC, on top of the 1p cut announced in the Autumn Statement 2023 and further to the previously announced abolition of Class 2 NIC.
This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will be reduced down to 6% in addition to the abolition of the requirement to pay Class 2.
Author: Liz Hunter
Employee Share Plans and Employee Ownership and Benefit Trust reviews remain outstanding
We have not yet seen any publication of the awaited Government response to the Review of Taxation of Employee Ownership Trusts and Employee Benefit Trusts or the Call for Evidence re Non-Discretionary Tax-Advantaged Employee Share Plans. In other words, Details on Save As You Earn and Share Incentive Plan, therefore, remain pending. We will provide any further update when the response details become available.
Author: Liz Hunter
Abolition of Multiple Dwellings Relief
The Government previously consulted on possible changes to the SDLT treatment of mixed-property purchases and multiple dwellings relief in 2021-2022, and although this consultation did not contemplate the abolition of MDR in its entirety, this move is arguably not a complete surprise. Importantly, no changes have been announced to either the SDLT treatment of mixed-property purchases, or to the ability to calculate SDLT on purchases of six or more dwellings in a single transaction on the basis of non-residential/mixed-use rates.
Author: Ceinwen Hayes
Abolition of the Furnished Holiday Lettings Tax Regime
Currently, individuals with properties qualifying as 'furnished holiday lets' (FHL) can benefit from a preferential tax regime that, in essence, treats their FHLs as a separate business, giving them advantages for income tax, capital gains tax (CGT), pensions and financing purposes. The Government has today announced a deliberate intention to level the playing field and abolish special treatment for this form of property letting. This is partly a response to concerns that the proliferation of FHLs accompanying the growth of Airbnb and similar platforms is depleting the stock of long-term rental properties and, in some cases, changing the nature of the neighbourhood.
From 6 April 2025, holders of FHL will need to account for income received from the business of letting them in the same way that long-term lets are accounted for. Income from FHL will need to be aggregated with any other income received and taxed in the usual way. The draft legislation implementing these changes has not yet been released, but operators of FHL may no longer be able to benefit from the reliefs offered by the FHL regime.
Author: Ceinwen Hayes
Reduction of Capital Gains Tax on Residential Property
Currently, disposals of residential property by higher rate taxpayers are subject to Capital Gains Tax (CGT) at 28%.
From 6 April 2024, disposals of these assets will be subject to CGT at 24%, which will provide a significant saving and an incentive for landlords and second homeowners to sell.
Author: Ceinwen Hayes
Read more on the abolition of the UK's "non-dom regime" in our article: Non-dom no more? What do the Spring Budget's announcements mean for the UK taxation of non-UK domiciliaries?