The Labour Party’s first budget was delivered on 30 October 2024 by Chancellor Rachel Reeves.
In this article we highlight three main areas to consider should you or family members have investments or other interests in the UK:
- Tax residence minus domicile status
Currently UK tax residents are differentiated by determining whether or not they are UK domiciled or not. This is determined by considering where the taxpayer’s permanent home is and in two specific ways:
- Domicile of origin: If the taxpayer was born in a different country from the UK, or if his / her father came from a different country; and
- Domicile of choice: If the taxpayer is over 16 and chooses to leave the UK and live indefinitely in another country.
A person who is UK tax resident, but non-domiciled (“non-dom”) can then elect to apply the remittance basis for taxation (i.e. only taxed on what is either earned in the UK, remitted onshore to the UK or both at the relevant income tax rates). This means that foreign income and gains are then excluded from the UK tax net.
Chancellor Rachel Reeves confirmed the government will remove the tax resident “non-dom” status with effect from 6 April 2025 meaning that these exemptions will no longer apply.
The new regime will provide an exemption from tax on foreign income and gains for four years for individuals who have not been UK resident in any of the previous 10 years. From the fifth tax year, foreign income and gains will be taxable in the same way as for other UK residents.
- Capital gains tax
A few years ago when the Tories announced the significantly reduced capital gains tax (CGT) rates, investors regarded the UK to be a friendly jurisdiction to trade and invest in.
With the 2024/2025 Budget, CGT rates for individuals will be increased on disposals made from 30 October 2024 as follows:
- The lower rate will be increased from 10% to 18%,
- The higher rate will increase from 20% to 24%.
No increase were announced in the CGT rates for disposals of residential property, which will therefore be taxed at the same rates as for other assets (other than carried interest).
Investors’ Relief was also amended with a significantly lower lifetime limit on all qualifying disposals made from 30 October 2024, i.e. reduced from £10 million to £1 million. This relief applies to investments made from 17 March 2016 in ordinary shares of an unlisted trading company or holding company of a trading group which have been held for at least three years from 6 April 2016.
- Inheritance Tax
3.1. Domicile status no longer applying
As stated above, domicile status will no longer be used to determine a taxpayer’s liability to inheritance tax. It will now be replaced by the concept of a “long-term resident” effective from 6 April 2025, i.e. an individual who has been UK resident in 10 of the last 20 tax years.
An individual who has been non-resident for 10 consecutive tax years will not be treated as a “long-term resident”, and individuals who leave the UK and have been UK resident for between 10 and 19 of the last 20 tax years will need fewer years of non-residence in order to cease to be within the charge to inheritance tax with a sliding scale applying.
The abovementioned is relevant for estate planning purposes if you or family members residing in the UK are considering to relocate elsewhere in the near future.
3.2. Pensions included
Historically, pensions have been excluded from inheritance tax. The 2024/25 Budget’s effect is that most unused pension funds and death benefits will now be included in a person’s estate, making them potentially subject to a 40% inheritance tax rate on amounts over the current nil-rate band of £325,000. This change will affect the inheritance tax threshold in the UK, especially for larger estates.
3.3 General nil-rate band
The UK government announced that the nil-rate band at £325,000 will be fixed until 5 April 2030.
Given significant changes announced in the 2024/25 Budget, and if you or family members have significant interests in the UK, it would be prudent to review current planning.
General
Should you have specific questions or wish to obtain UK tax advice, we can assist in introducing you to our trusted UK tax specialists who are also acquainted with the South African tax and exchange control landscape.
While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein. Our material is for informational purposes.