Autumn Budget 2024
15%
Employers’ National Insurance Contributions Rate18% and 24%
Capital Gains Tax Rate32%
Carried Interest RateThe first Budget by a Labour government in 14 years was presented as a Budget to “fix the foundations” of the economy and deliver change.1 Against that backdrop, a large number of tax measures were announced. With a commitment not to raise taxes on “working people,” increases were instead announced to taxes on business, wealth, estates and carried interest, as well as to a range of indirect duties.
Key business developments announced include:
- An increase in the rate of employer National Insurance Contributions (“NICs”) from 13.8% to 15% from 6 April 2025;
- Increases in the rates of Capital Gains Tax (“CGT”) – the lower rate from 10% to 18%, the higher rate from 20% to 24%, the rate for Business Asset Disposal Relief (“BADR”) from 10% to 18% on a phased basis and the rate for carried interest from 28% to 32%;
- Abolition of the UK non-domiciled regime from 6 April 2025, to be replaced with a new regime based on tax residence; and
- A commitment to retain the current rates of corporation tax, as well as fundamental elements of the corporation tax regime, for the duration of the parliament.
Employment Tax
Increase to Employer National Insurance Contributions The rate of NICs paid by employers (Class 1 secondary...
Increase to Employer National Insurance Contributions
The rate of NICs paid by employers (Class 1 secondary contributions) will increase from 13.8% to 15% of earnings whilst the threshold from which these are payable will reduce from £9,100 per employee per year to £5,000 per employee per year. This will apply from 6 April 2025.
Increase of the Employment Allowance
Each business (or group) is exempt from employer NICs on a set amount of earnings per year, in total across all employees. This is achieved by giving each business (or group) an employment allowance which reduces the employer NICs bill. The exemption amount from employer NICs will increase from £5,000 to £10,500.
FTI CONSULTING COMMENT:
Whilst the increase in the employer NICs rate is significant, the increase in the employment allowance will mean that some of the very smallest businesses will escape some of this additional cost. Even after this increase, the UK remains competitively placed for employers compared to employer contributions payable in other European countries and beyond — for example Italy at 30%, France at 45% and Singapore at 17%. However, there are plenty of jurisdictions which either cap contributions at relatively low ceilings or have lower rates including, the United States at 7.65%.
Many employers will be subject to the Apprenticeship Levy on top of their employer NICs bill, leading to an effective rate of 15.5%.
Raising employer National Insurance may have unintended consequences of increasing the use of self-employed contractors, or businesses seeking ways to turn income into capital through complex tax avoidance arrangements. Nevertheless, the cost of employment for employers will rise and could discourage recruitment and impact employees through smaller pay increases and decreased bonuses as employers attempt to offset increases.
Private Equity: Carried Interest
Increase of Capital Gains Tax Rate The CGT rate applying to carried interest (currently 28%) will increase...
Increase of Capital Gains Tax Rate
The CGT rate applying to carried interest (currently 28%) will increase to 32% from 6 April 2025.
Future Reforms
The Chancellor also announced further reforms to the taxation of carried interest, to be brought in from 6 April 2026.
These reforms will treat carried interest as trading income subject to income tax and NICs, but at a reduced income tax rate which will lead to an effective income tax and National Insurance rate of just under 35%, compared to 47% for other trading income.2 There will also be further qualifying conditions introduced.
The exclusion from income based carried interest rates for carried interest acquired as employment related securities will be removed.
FTI CONSULTING COMMENT:
A rise in the rate of CGT relating to carried interest was widely expected, having been referenced in Labour’s election manifesto. The 32% landing point is likely to be seen by most as a good compromise, allowing the UK to remain internationally competitive amongst fund managers whilst still raising revenue for the Treasury. It is likely that the effective rate of just under 35% from 6 April 2026 may be deemed suitable for many, but is likely on the edge of acceptability for some. Some fund managers may seek to exit investments earlier than initially anticipated in the hope to capitalise on lower carried interest tax rates, prior to any increases coming into effect.
There is a stated aim of simplicity in the new rules which would be very welcomed. However, we note that the existing Disguised Investment Management Fee rules will remain, which unfortunately in their current form are anything but simple.
Given the wide difference in rates between carried interest which is capital in nature (now to be 32%) and that which is dividend in nature (currently 39.35%) or income in nature (currently 45%), fund executives will need to continue to take care to ensure they correctly understand the nature of their returns and tax returns correctly.
There will remain a wide difference in the CGT rates applying on the sale of shares (now to be 24%) and carried interest (32% for 2025/26 and just under 35% from 2026 onwards), which may encourage some firms to implement alternative and potentially more creative reward schemes, looking beyond carried interest and into alternative structures, such as growth shares. Accessing potential tax savings may no longer be a key driver in the design and implementation of reward schemes, particularly amongst fund managers. Nevertheless, we can continue to expect the valuation of any such share arrangements to be subject to continued scrutiny by HMRC.
Footnotes:
1: This assumes a 45% income tax rate multiplied by 72.5% plus 2% employee NIC.
Capital Gains Tax
Increased Rates of CGT The rates of CGT will increase for disposals made on or after 30 October 2024.
Increased Rates of CGT
The rates of CGT will increase for disposals made on or after 30 October 2024. The rate payable by basic rate taxpayers will increase from 10% to 18%, with rates paid by higher and additional rate taxpayers increasing from 20% to 24% – both matching the rates already applicable for residential property, which will not increase.
Continuation of Business Asset Disposal Relief
BADR will remain, with a lifetime allowance of £1 million. The lifetime limit for Investors’ Relief will also be reduced to £1 million from 30 October 2024 for qualifying disposals to align with the BADR allowance.
Disposals qualifying for BADR will continue to be taxed at 10% for the current year, increasing to 14% from 6 April 2025 and rising to 18% (matching the CGT rate payable by basic rate taxpayers) from 6 April 2026.
FTI CONSULTING COMMENT:
Many feared more extreme increases in CGT rates and the announcement is likely to be seen as a positive by many, despite the increased rates.
Continued support for entrepreneurs through the availability of BADR will be good news for small business owners. The eventual increase to 18% will match the current policy intent – that the rate of tax is kept at the same level as that paid by basic rate taxpayers.
Employers who are eligible to grant tax-advantaged Enterprise Management Incentives (“EMI”) options will be particularly pleased that BADR remains, given that participating employees in qualifying companies can continue to benefit on a future exit of the company at a much-reduced tax rate.
Non-Domicile Status
Abolition of Non-Domicile Status
As previously announced, it was confirmed that the UK’s non-domiciled status will be abolished effective from 6 April 2025.
A new regime will be introduced from the same date, which will be based on tax residence, but will retain incentives for newcomers to the UK such that they will be able to exclude non-UK income and gains from tax in the UK. In a significant change from the current regime, non-UK income and gains which are exempt from UK tax during this transitional period can be invested or spent in the UK. This regime will apply for the first four tax years of tax residence.
It has been considered that the new regime will include the end of offshore trusts being used for inheritance tax sheltering purposes.
Overseas Workday Relief
Overseas workday relief will be retained, but reformed. Under the new rules the relief will be available for the same period as the new regime (a maximum of four tax years, increased from the current three) and there will no longer be a requirement to keep the income relating to non-UK workdays outside of the UK. However, the relief will be limited to the lower amount of 30% of the employee’s net employment income or £300,000.
FTI CONSULTING COMMENT:
There will be a huge amount of detail to unpack here. However some of the measures, such as the removal of the remittance basis and the replacement with a straightforward exemption, provide much needed simplicity. In addition, the ability for those eligible for the new regime to bring their non-UK income or gains to the UK without incurring additional taxes – as they would currently under the remittance basis – should enable more investment and spending in the UK which is helpful for the economy.
The fiscal impact is likely to depend on the assumption that the wealthiest and most mobile individuals would prefer to live in the UK with potentially increased tax, rather than escaping this tax and finding somewhere else to live. This will be particularly relevant for those with material inheritance tax considerations who will no longer be able to protect their estate through the use of offshore trusts.
Corporate Tax Roadmap
Corporation Tax Rate of 25%, Full Expensing and R&D Incentives Maintained The Chancellor announced a roadmap...
Corporation Tax Rate of 25%, Full Expensing and R&D Incentives Maintained
The Chancellor announced a roadmap providing certainty to companies on fundamental aspects of the corporation tax regime. For the remainder of this parliament, the corporation tax main rate will be capped at 25%, with marginal relief and the 19% small profits rate also retained. However, the capital allowances full expensing regime, Annual Investment Allowance, patent box regime and research and development tax credit rates will be retained.
The Chancellor also announced that:
- Further measures implementing OECD Pillar II will be introduced in Finance Bill 2024-25, including the introduction of an Undertaxed Profits Rule (“UTPR”) with effect for accounting periods beginning on or after 31 December 2024;
- As a corollary of the UTPR, the existing Offshore Receipts in Respect of Intangible Property rules will be abolished in respect of income arising from 31 December 2024;
- 100% first year allowances for qualifying expenditure on zero-emission cars and electric vehicle charging points will be extended for a year until 31 March 2026;
- It will explore extending full expensing to assets bought for leasing or hiring, and attempt to improve guidance on areas of uncertainty in the capital allowances system; and
- A consultation will be launched in spring 2025 into the effectiveness of Land Remediation Relief.
FTI CONSULTING COMMENT:
Whilst employers’ NICs will increase to 15%, businesses will be relieved that the Chancellor has provided certainty on key aspects of the corporate tax regime. After a sustained period of uncertainty brought about by a combination of ‘Brexit’, political upheaval and global crises such as the COVID-19 pandemic and wars in Ukraine and the Middle East, a commitment to maintain the fundamental elements of the corporation tax regime for the duration of this parliament will be a welcome boost for investors and businesses craving certainty.
Tax Administration and Collection
Closing the ‘Tax Gap’ The Chancellor announced measures to raise six and a half billion of additional...
Closing the ‘Tax Gap’
The Chancellor announced measures to raise six and a half billion of additional revenue by 2029-2030 through reducing the so-called ‘tax gap.’ These measures include:
- Investing £1.4 billion to recruit an additional 5,000 HMRC compliance staff;
- Investing £262 million in 1,800 HMRC debt management staff;
- Increasing the interest rate charged on unpaid tax liabilities by 1.5% from 6 April 2025;
- Tackling perceived non-compliance in umbrella companies by moving PAYE obligations to recruitment agencies or end client businesses from April 2026;
- Mandating the reporting of benefits in kind via payroll software from April 2026;
- Reforms to the taxation of Employee Ownership Trusts and Employee Benefit Trusts from 30 October 2024;
- Reducing opportunities to circumvent anti-avoidance rules to the close company loans to participators regime from 30 October 2024;
- Changing the way capital gains are taxed when a Limited Liability Partnership is liquidated and assets are disposed of to a contributing member or connected person from 30 October 2024; and
- Increasing collaboration between HMRC, Companies House and the Insolvency Services to tackle use of “phoenixism” to evade tax.
FTI CONSULTING COMMENT:
Seeking to close the tax gap is seen as one of the fairest ways to raise revenue, ensuring that all pay what is due.
Businesses will need to ensure they keep on top of ever-changing tax rules and the minutiae of complexity given an increased focus on compliance. There is always a balance to be struck between getting the right amount of tax from everyone but not overly penalising those who have made inadvertent mistakes. For example, at the moment, voluntary disclosures by employers can take a year to be dealt with by HMRC — hopefully with additional compliance officers, this will help speed up processes such as these.
Energy Profits Levy
3% Increase, Extension of Levy and Abolition of Investment Allowances The Chancellor confirmed that the temporary...
3% Increase, Extension of Levy and Abolition of Investment Allowances
The Chancellor confirmed that the temporary Energy Profits Levy (“EPL”), applicable to the upstream production of oil and gas, will increase from 35% to 38% from 1 November 2024 and will be extended by a further year to 31 March 2030. In addition, the 29% investment allowance will be abolished, and the decarbonisation investment allowance will be reduced from 80% to 66%.
FTI CONSULTING COMMENT:
These changes are a further blow to the oil and gas industry, which was already taxed at a total headline rate of 75% prior to today’s announcements. However, the £2.3 billion in additional tax forecast to be raised by the measures until the EPL ends, now in 2030, will provide a welcome boost to the Exchequer, and if the money is used to support the transition to clean energy as stated, will be welcomed by green campaigners.
Stamp Duty Land Tax
Increases to Surcharges on Acquisitions of Additional Properties and by Non-Natural Persons The Chancellor...
Increases to Surcharges on Acquisitions of Additional Properties and by Non-Natural Persons
The Chancellor announced that the Stamp Duty Land Tax (“SDLT”) surcharge paid by purchasers of additional residential property will increase from 3% to 5%. The SDLT rate charged on purchases of residential property costing more than £500,000 by “non-natural persons” will also increase from 15% to 17%. Both increases will apply to transactions with an effective date ending on or after 31 October 2024.
FTI CONSULTING COMMENT:
These measures follow on from regular changes made under the previous government to discourage investment in residential property by increasing the tax paid on purchases by corporates, buy-to-let landlords and certain other investors. Buy-to-let investors, who have been selling up in recent years where they consider investment in UK residential property has become increasingly uneconomic, will feel particularly aggrieved.
Key Contacts
Euan Sutherland
Senior Managing Director, Head of EMEA Tax Advisory & Real Estate
United Kingdom
Paul Pritchard
Senior Managing Director
United Kingdom
Emma Donnelly
Senior Managing Director
United Kingdom
Toni Dyson
Senior Managing Director
United Kingdom
Richard Turner
Senior Managing Director
United Kingdom
Lewin Higgins-Green
Senior Managing Director
United Kingdom