You may have already heard that the Chancellor, Jeremy Hunt, has announced an end to the preferential tax treatment that non-domiciled individuals (non-doms) currently receive.

At the moment, a non-dom – someone living in the UK but domiciled in another country – has two options when it comes to taxation.

They can opt to be taxed on the remittance basis, where they only pay UK taxes on foreign income and gains that are brought into (remitted to) the UK.

They do not need to pay UK tax on their foreign income and gains that are kept outside the UK.

However, once an individual has been resident in the UK for seven out of the previous nine years, they must pay a Remittance Basis Charge (RBC) of £30,000.

If they have been resident for 12 of the previous 14 years, they must pay an RBC of £60,000.

Alternatively, non-doms can choose to be taxed on the arising basis, where they are taxed on their worldwide income and gains, regardless of whether the money is brought into the UK.

They might choose this option if their overall tax payments would be less than having to pay the respective RBCs.

However, the new rules for non-doms change everything.

The Spring Budget 2024 specifically targeted non-doms

The Chancellor targeted non-doms in his Spring Budget speech on 6 March, saying: “We will abolish the current tax system for non-doms, get rid of the dated concept of non-doms and we will replace the non-dom regime with a modern, simpler system from April 2025 based on residency.”

The Government plans to effectively end the current non-dom system in favour of a new residence-based regime.

New residents of the UK will remain as non-doms for the first four years of their residency, after which they will become domiciled and be required to pay UK taxes on their worldwide income.

Before, an individual could remain non-domiciled for 15 years – with careful planning.

This four-year rule only applies if the individual can demonstrate a consecutive period of 10 years as a non-resident of the UK before their arrival.

Crossing over to the next regime

For those individuals currently deemed as non-doms, there will be a transition period to the new scheme.

Non-doms who do not qualify for the new regime will only be required to pay tax on 50 per cent of their foreign income for that year, though this does not extend to profits from the sale of foreign assets.

Additionally, those owning foreign assets will have the option to adjust the base value of these assets to their market value as of April 5, 2019, for any sales occurring after April 6, 2025, meaning tax will only be due on any increase in value from that date.

To encourage the movement of overseas wealth into the UK, a temporary repatriation facility will allow current non-doms to bring pre-April 2025 foreign income and gains into the UK at a reduced tax rate of 12 per cent for the years 2025/26 and 2026/27.

A quick note on changes to Overseas Workday Relief (OWR) 

The OWR currently provides a tax advantage for non-doms working in the UK, as it allows them to claim relief on income tax for earnings related to their duties performed overseas.

Starting in April 2025, the Overseas Workday Relief (OWR) framework will also see significant simplification, introducing an accessible four-year scheme for those who qualify.

This development aims to make the UK more attractive to international talent by offering more straightforward tax relief opportunities.

While full details are still pending, it has been confirmed that eligible individuals will benefit from income tax relief on the portion of their salary related to duties performed abroad during the first three years of UK residency.

Moreover, the existing barriers to repatriating these earnings to the UK will be eliminated, further enhancing the appeal of the OWR scheme to overseas professionals.

What should you do now?

If you are currently classified as a UK-based non-dom when it comes to your global taxes, you’ll need to reconsider your strategies.

If you wish to remain in the UK, you will need to work out whether you are eligible for any of the transitionary schemes available and if you will be required to pay full UK taxes once the legislation comes into effect.

You might have to adjust the way you structure your current finances and plan for future liabilities in the years to come.

You will also need to:

• Review and possibly restructure your investments: Analyse your investment portfolio to identify opportunities for tax-efficient structuring under the new rules.
• Explore gifting and Inheritance Tax planning: To mitigate potential tax liabilities, review your gifting strategies and inheritance planning. Transferring wealth to non-domiciled partners or heirs under the current rules might offer tax advantages.
• Reinvestment in UK-based assets: The changes might provide an impetus to reassess your investment focus. Reinvesting in UK-based assets or your business could not only align with the new tax regime but also potentially benefit from certain tax reliefs and incentives for UK investment. Incidentally, the Chancellor announced the addition of the British ISA during his Spring Budget speech, which might allow you to make £5,000 of tax-free investments in British companies.
• Diversify your income sources: Diversifying your income sources, especially by increasing the proportion derived from UK sources or tax-exempt investments, could reduce your overall tax burden under the new regime.
• Re-evaluate your residency status: For some, it might be worth reconsidering your residency status in the UK and moving elsewhere if necessary. This is a complex decision with far-reaching implications, not just for taxes but also for your personal and professional life.

In any case, you should always discuss your tax liabilities with a qualified and experienced tax adviser.

We can help you mitigate your taxes, reduce your liabilities, and save money.

Please do not hesitate to get in touch with one of our team for more information or tailored guidance.

The Chancellor delivered his 2024 ‘Budget for long-term growth’ in the face of an upcoming general election.

Although the headlines have been dominated by the news that employee National Insurance Contributions will be cut further to eight per cent, Mr Hunt also announced several measures, which changed how certain property taxes will be applied.

Largely impacting owners of second or additional homes and Furnished Holiday Lets, the new measures attempt to balance individual tax cuts and bolster The Treasury in other areas.

Capital Gains Tax

From 6 April 2024, higher-rate taxpayers will be subject to a lower rate of Capital Gains Tax (CGT) on the sale or disposal of second or additional residential properties that they own.

Currently, gains made on the sale of these properties are subject to a special rate of CGT of 28 per cent for those who pay tax at the higher rate (with an income of £50,271 or more).

The Chancellor’s new measure will bring this rate down to 24 per cent, with the basic rate unchanged at 18 per cent.

This policy aims to encourage and incentivise disposals of second homes and buy-to-let properties and enhance the residential property market for homebuyers.

Multiple Dwellings Relief

A key relief for Stamp Duty Land Tax (SDLT) has been abolished in the Spring Budget.

Multiple Dwellings Relief (MDR) will cease on 1 June 2024. This means that anyone purchasing two or more properties in a single or linked transaction will no longer be eligible for SDLT relief on this basis.

The Chancellor said that little benefit has come from MDR under its original goal of reducing barriers to investment in residential and rental properties.

Furnished Holiday Lets tax regime

Following consultations with a number of MPs from key constituencies, the Chancellor outlined the abolition of the Furnished Holiday Lets (FHL) tax regime.

The measure comes as those in holiday hotspots raise concerns over the supply of residential homes in areas such as Devon, Cornwall and the South Coast.

Previously, owners of qualifying properties were eligible to be taxed under special rules that carried significant tax advantages, including:

• Plant and machinery allowances on items of fixtures, furniture, furnishings and equipment, including the Annual Investment Allowance and Full Expensing
• CGT benefits, such as Business Asset Rollover or Disposal Reliefs
• Profits counted as earnings for pension purposes.

From 6 April 2025, the FHL scheme will be abolished, ostensibly saving The Treasury around £245 million per year.

The implications for holiday let owners could be wide-ranging, including making owning a holiday let financially unviable for those without significant reserves to cover additional costs.

In collaboration with a lower level of CGT for higher-rate taxpayers, the Chancellor hopes to encourage early disposals of holiday homes or second properties, thereby enhancing the housing supply in certain areas.

We understand that changes to property taxes can be complex, so we’re always here to offer advice to those who own property or are considering investing.

For expert, tailored advice, please get in contact with us today.

The latest Budget was an important speech for the Chancellor, Jeremy Hunt, and his Government, as he laid out key measures likely to affect his party’s success at the ballot box later this year.

Although a date for the next general election is still yet to be set, this is likely to be the last time that Mr. Hunt will have a chance to introduce significant changes to taxation and funding and so he didn’t hold back.

Before his announcement, it was unclear exactly what direction the Government would take, following caution from several think tanks about the dangers of significant tax cuts.

While the speech began by outlining the ongoing challenges of the cost-of-living crisis and its main driver, inflation, it soon turned to measures that would boost the economy and personal finances – both in the short and longer term.

The raucous noise from both benches only sought to highlight the importance of the measures announced by the Chancellor.

Mr. Hunt went on to declare that this would be a “Budget for long-term growth” and began outlining measures in the following areas:

• Growth outlook and inflation
• Tax relief for businesses
• Funding for enterprise and key projects
• Property tax
• Personal tax
• Closing thoughts

Growth outlook and inflation

Inflation has been a double-edged sword for the Chancellor, both feeding the rising costs experienced by businesses and the general public, while also filling up The Treasury’s coffers through fiscal drag.

When he stepped into the role, the nation was experiencing one of its highest inflation rates in recent history – at more than 11 per cent – the Chancellor was pleased to announce in his speech that things were back on track.

Measures taken by the Bank of England and the Government, as well as improving global economic conditions, mean that the nation is now on target to hit the all-important two per cent in ‘months’, according to Jeremy Hunt.

The growth statistics produced by the Office for Budget Responsibility (OBR) were also more positive than expected following the Autumn Statement.

According to the OBR’s latest report, GDP growth is expected to reach 0.8 per cent – up from 0.7 per cent growth expected in November 2023.

Similarly, forecasts for 2025 and 2026 show growth will increase to 1.9 per cent and 2.2 per cent respectively. These rates are both higher than previous estimates from the Autumn Statement.

While this will be looked at as a step in the right direction, the reality remains that the UK’s long-term growth outlook remains relatively weak.

Tax relief for businesses

Previous Budgets and Statements have seen the introduction of new reliefs and reforms to existing allowances and thresholds for SMEs.

However, this latest speech seemed far more subdued. The headline increase to the VAT registration threshold to £90,000 will help some smaller businesses, but it comes after a seven-year freeze.

This means that this increase, while useful, will be largely wiped out by the impact of inflation during this period.

The newly permanent Full Expensing capital allowance will also be amended to include expenditure on leased assets, “when fiscal conditions allow”. This will create additional opportunities for businesses to reduce their Corporation Tax liabilities in future.

No further changes were announced to the R&D tax relief scheme, but businesses are already preparing for the previously announced merger of the SME and R&D expenditure credit (RDEC) scheme from 1 April this year.

The Chancellor also singled out the UK’s creative industries with a series of new tax reliefs worth £1 billion.

Eligible film studios in England will receive a 40 per cent relief from business rates for the next 10 years.

Additionally, the introduction of a new UK Independent Film Tax Credit is set to take place, alongside an increase in the tax credit rate by five per cent and the elimination of the 80 per cent cap on visual effects costs under the Audio-Visual Expenditure Credit.

Funding for enterprise and key projects

The Chancellor also unveiled a plan to bolster investment in UK firms with the introduction of a new 'British ISA', allowing individuals to invest an additional £5,000 annually in UK equities, beyond the existing ISA limits.

This initiative aims to foster a new generation of retail investors and position the UK as a global innovation hub akin to Silicon Valley.

Hunt also proposes changes to pension fund regulations, requiring disclosures of UK equity investments to promote domestic investment.

Furthermore, the Government will explore ways to simplify the process for individuals to transfer their pension funds when switching jobs.

This strategy includes compelling local authorities and defined contribution pension funds to reveal their investments in UK stocks, highlighting that currently, only four per cent of pension fund assets are invested in UK shares.

Initially outlined in the Advanced Manufacturing Plan in November 2023, the Government pledged to make the UK the premier global location for starting, expanding, and investing in a manufacturing business.

This commitment is being actualised, with the Budget detailing the next stages of implementing the £4.5 billion funding package for these sectors. This funding includes over £2 billion for the automotive industry and £975 million for aerospace, available for five years from 2025.

Property tax

It quickly became apparent during his speech that the Chancellor wanted to tackle key property issues in the UK.

He first announced that the current Furnished Holiday Lettings (FHL) tax regime would be abolished from April 2025 to encourage holiday homeowners to dispose of their properties and discourage future purchases of homes in areas of high demand.

He then went on to confirm plans to adjust Capital Gains Tax (CGT) for second and additional home sales for higher and additional rate taxpayers to bolster the housing market by reducing their CGT rate from 28 per cent to 24 per cent.

The lower rate will continue at 18 per cent for gains within an individual's basic rate band. This move aims to motivate landlords and owners of second homes to sell their properties, thereby increasing availability for various buyers, including first-time homebuyers and is expected to generate additional revenue throughout the forecast period.

Starting 1 June 2024, the Government will eliminate the Multiple Dwellings Relief, which currently provides a discount for bulk purchases under the Stamp Duty Land Tax system.

Personal tax

The individual taxpayer was very much the focus of Mr. Hunt’s speech, and he dedicated a substantial amount of his time to outlining new tax measures that would focus on putting more money into the hands of working families.

However, to fund this, the Chancellor announced that those with broader shoulders would have to bear the expense.

With this preface, he announced that the current non-dom tax rules would be replaced with a new residence-based regime.

The new regime will be implemented from 6 April 2025 and will introduce a transitional process for existing non-doms to move them on to the new system. The Government also plans to shift towards a residence-based system for Inheritance Tax (IHT).

This, and the cushion provided by higher Treasury revenues due to fiscal drag, meant that the Chancellor could once again cut National Insurance Contributions for employees and self-employed workers.

From 6 April 2024, the Government will reduce the primary rate of Class 1 employee National Insurance Contributions (NICs) from 10 per cent to eight per cent.

Additionally, it will implement an extra 2p reduction in the main rate for self-employed National Insurance, adding to the 1p reduction announced in the Autumn Statement.

Consequently, starting from 6 April 2024, the primary rate of Class 4 NICs for self-employed individuals will decrease from nine per cent to six per cent.

Reforms to the High Income Child Benefit Charge will also see the thresholds based on total household income, rather than the highest earner.

Meanwhile, the current £50,000 threshold will increase to £60,000 from April 2024 as taxpayers transition to the new system. The rate of the charge will also be halved so that Child Benefit is not repaid in full until you earn £80,000.

Closing thoughts

The Spring Budget was packed with measures that were focused more on the individual. While the Autumn Statement that preceded it offered more for businesses.

Together, they provide a framework for the upcoming election. While many may accuse the Government of trying to buy votes, many of the measures will help taxpayers with the cost-of-living crisis and support further economic growth.

This also includes further measures to extend the household support fund, freeze alcohol and fuel duty and a one-off adjustment to rates of Air Passenger Duty (APD) on non-economy passengers.

If you take the politics out of the equation (if you can) and look at the measure presented there are plenty of opportunities for businesses and individuals alike to reduce their tax bills and seek out new opportunities.

The next question on most people’s lips will be when the general election shall be called and what will the opposition’s economic measures look like.

For now, however, there are plenty of actions to take away from this Budget in the coming weeks and months.

Link: Spring Budget 2024

Are you a sole trader or a member of a partnership? Here is what you need to know about the upcoming tax basis period reforms.

HM Revenue & Customs (HMRC) is introducing changes to how it assesses and collects business taxes relating to the basis period.

At the end of the 2023/24 financial year, these changes will come into effect – altering the way that sole traders, partnerships and other unincorporated businesses pay tax.

Basis period reform – What you need to know

If you are a business owner or self-employed worker, you will use or have used a traditional basis period.

This is a specific period used to calculate taxable profits for a particular tax year, meaning the basis period is typically the corresponding accounting period to the financial year.

Under current regulations, established businesses and sole traders pay tax on qualifying profits in the 12-month accounting period which ends in that tax year – regardless of whether it corresponds to the financial year.

For example, if your accounting period starts on 1 January and ends on 31 December, the financial year would end the following April. This means that your tax return for this period would be due in January two years afterwards.

Under new regulations, from 2024/25, all unincorporated businesses will be taxed on profits from each financial year – 6 April to 5 April the following year.

This will apply regardless of an individual business’ accounting period.

For the example above where the accounting period ends on 31 December, this change means that the business will have to assign profits from two accounting periods to fit into the 6 April to 5 April timeline.

If the accounts are not completed by the tax return submission deadline, it will be necessary to use estimated profits in their place for the three months to 5 April.

At the end of the 2023/24 financial year, the transitional year for the basis period ends.

Businesses will then be taxed on this longer tax period ending in April 2024 to bring their tax years in line with the financial year.

HMRC has introduced regulations to allow tax liabilities accrued during this period to be paid over a period of five years to reduce the burden of additional tax payments.

Navigating your opening year

The rules are slightly different if this is your first year trading as a business. Instead of paying tax on a full year of earnings, your business will be taxed on qualifying profits earned between the date you began trading and 5 April (the end of that financial year).

This means that you’ll have ‘overlap profits’ for your first one to two years of trading. Your profits earned between the end of the financial year and the end of your accounting period will be counted in two tax returns.

These new rules will also apply to new unincorporated businesses.

Preparing for 5 April

As explained, the new regulations mean that businesses with an accounting period that is different from the financial year will need to divide profits between two different tax payments, where their accounting period doesn’t already align with tax year-end.

This could increase the room for error in your tax calculations, resulting in penalties or a heavy tax burden at a later date.

Aligning your accounting period with the financial year could help you streamline your finances and stay on top of your tax calculations in future.

You can shorten your company’s financial year to achieve this, by a minimum of one day and as many times as you like.

Staying on top of your accounts and financial records can help you stay in good fiscal health and maintain tax compliance.

We can help you to understand your tax obligations and make your accounting period work for you.

Need help understanding the changes to the basis period? Contact us today.

Businesses may be able to reclaim significant amounts of National Insurance Contributions (NICs) and plan for future savings because of a recent Tribunal ruling on how car allowances are taxed.

Brought by Wilmott Dixon and Laing O’Rourke in their capacity as employers, the Tribunal upheld the firms’ argument that car allowance payments should qualify for Class 1 National Insurance relief.

HM Revenue & Customs (HMRC) subsequently repaid approximately £146,000 to these businesses as a result of the Tribunal.

It has further stated that it will not appeal the decision – an announcement which carries significant implications for other employers that provide a car allowance.

What is the car allowance?

A car allowance is a type of benefit that may be provided to employees in place of a company car.

It is typically a monetary benefit on top of an employee’s salary to allow them to lease or buy a car for work purposes or to maintain the one they own owing to additional, work-related use.

An employer can provide a car allowance to any employee, but most are given to those who spend a lot of time travelling, such as sales staff or managers who oversee more than one site.

It may also be given as an attraction and retention benefit.

Is the car allowance taxed?

Because they are paid as part of an employee’s salary, car allowance payments are normally subject to tax and NICs – for both the employer and employee.

However, work-related travel is also subject to a fuel or mileage allowance.

This is a reimbursement which is not subject to tax if paid at or below the ‘approved amount’ – 45p per mile for the first 10,000 miles and 25p after that.

What decisions have been made?

The Tribunal ruled that a car allowance should be defined as ‘relevant motoring expenditure’ (RME) and can, therefore, be used to offset below-standard mileage reimbursement.

For example, if your company car policy states that employees will be reimbursed at 20p per mile and an employee drives 500 miles, this leaves a difference of 25p per mile – totalling £125.

When you come to pay the car allowance for this person, the first £125 will be taxable as part of the employee’s salary but will not be subject to National Insurance.

This could represent a significant saving for employers that provide a car allowance in place of a company car.

How will this affect me?

If you offer mileage reimbursement and a car allowance to your employees, you could stand to save a substantial amount on your employer NI contributions.

It could also open the door for business owners to reclaim overpaid NICs under this latest clarification.

The Tribunal also accepted that, if your business policies state that a certain number of miles are not reimbursable, then these miles must also be offset against other RMEs.

Benefits all round

The Tribunal’s ruling could make car allowances an attractive benefit to both employers and employees over, for example, a company car.

Tax regulations regarding benefits and NICs can be complex and are likely to change further as these new precedents take effect.

To stay compliant, it is important to remain updated on your tax obligations and work with your accountant to ensure you are paying the correct amount of National Insurance.

For tailored advice on benefits, company cars, travel allowances and tax, please contact us today.