Labour's First Drop: All You Need to Know

After much speculation, Rachel Reeves has made the first moves of her chancellorship ahead of this year’s Autumn Statement, which has now been confirmed for 30 October.

We’ve gathered the key takeaways from the latest policy papers and statements – if you have any questions or concerns about the possible implications for you or your business, please get in touch with our team for a chat:

Chris Wilson – Head of Tax

Laura Train – VAT Manager

Dom Marley – Head of Wealth Management

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If you have been contemplating changes to your business, assets or estate structure in recent months, now would be the time to consider accelerating those decisions. Whilst there is clearly some level of uncertainty in what changes are on the horizon, the tax rules applied until at least the 29th October are known and can be planned within to deliver optimal results in the current tax landscape.

Tax Treatment for Non-Doms

One of the most anticipated areas for clarification was how this government would tackle the taxation of non-UK domiciled individuals. Some changes are still to be confirmed but the latest update has set out the government’s intention for a new residence-based regime to be implemented from 6 April 2025, doing away with the notion of ‘domicile’ from the tax system altogether.

Confirmed was the go-ahead with their predecessor’s basic ‘four-year foreign income and gains’ (FIG) regime, but with some tweaks. Consultations will continue in the coming months to firm up on some limited transitional reliefs, inheritance tax (IHT) and offshore anti-avoidance rules.

Personal Taxes and Wealth Management

Commitment not to increase national insurance, income tax or VAT were reinforced by Reeves, leaving open questions regarding IHT and Capital Gains Taxes (CGT) to be answered in the autumn, including those regarding the use of offshore trusts for avoiding IHT.

Speculation persists as to whether Labour will change the CGT rules surrounding a death, perhaps making it a chargeable event. This could theoretically create a ‘double hit’ scenario, activating both IHT and CGT – though perhaps more likely would be the introduction of some kind of rollover relief claim, but this would effectively remove the CGT free uplift on death which is currently available.

Uncertainty remains over the level of tax relief which will remain on pension contributions, igniting some urgency for those considering pension contributions transactions to complete ahead of any potential changes.

A report is also set to be published looking to close tax loopholes and tax avoidance to bolster public finances.

Carried Interest

This performance-related reward granted to private equity fund managers has been confirmed to be under review, with proposals to switch to becoming subject to an income tax treatment rather than the current (lower) capital gains tax application.

Private School Fees and Charity Relief

Hotly-speculated ahead of the general election, the new government has confirmed removal of VAT exemption for private school fees. From 1 January 2025, all educational and vocational services provided by a private school will be subject to 20% VAT, as well as these institutions no longer being able to claim charitable rates relief for their business rates liability. Forward payment of fees to avoid these costs appears to have been quashed, with HMRC’s view appearing that if the fees for the terms to which they relate have not yet been set, these would still be liable for VAT.

Furnished Holiday Lettings (FHL) Abolition

We now have more clarity on the abolition of the furnished holiday lettings tax regime and its impacts upon individuals, corporates, and trusts who operate or sell FHL accommodation.

The amendments are made to create parity so all income from property will be treated the same for tax purposes.

The key points to note are:

• These properties will no longer receive full relief on interest, instead a 20% tax credit for finance costs will be available (same as buy to let).
• Owners will no longer be able to claim ‘new’ capital allowances; but pre-existing pools can continue to be written down. There will be no need for balancing charges/adjustments on cessation of the FHL regime.
• Any losses which would be brought forward can be amalgamated with losses from any residential properties in the portfolio and offset against these. We are also still seeing a distinction being made between UK and non-UK properties.
• These properties no longer qualify as a business asset for capital gains tax reliefs. However, there are some transitional rules in play, for example, if the property is sold within three years of the regime ceasing, it could potential qualify for Business Asset Disposal Relief (BADR).
• Income from these properties will no longer count as earnings for pension contribution purposes.

Also worth noting are the anti-forestalling rules on capital allowances being brought in, therefore contracts must have been entered into before 6 March 2024 for capital allowances to be claimed in 2024/25.

Other Things to Note

Among a lot of chatter around planning permission reform and pay rises for public sector workers, we also learned that winter fuel payments are to be scrapped for those not in receipt of means tested benefits or pension credit. This, alongside some likely investment in HMRC’s operations and Reeve’s confirmation of an anti-corruption probe will attempt to plug gaps in public finances.