In our 2024 Budget Question Time webinar, some of the Goodman Jones tax team were joined by Garry White of Charles Stanley to unpack the Budget announcements.

Graeme Blair: Welcome to the Goodman Jones budget webinar. We’re just going to give everyone a few seconds to join. Well, I think I’ll start there.

I’m delighted you’ve all joined us for this session. We’ll be looking at some of the key announcements that came out of the budget and addressing some of the questions that we’ve already received from our client base. Thank you for those who’ve put questions in.

First, let me introduce you to the panel. We’ll start off with Garry White. He’s the Chief Investment Commentator at wealth management firm Charles Stanley. We’ve also got Reena Bhudia, Richard Verge and Fiona Clark, who I know you all know well from the Goodman Jones team. Some housekeeping, if I may. If you’ve got any questions, please put them in the question and answer panel. We’re recording the webinar, as you’ll appreciated, and we can send you a copy of it in due course. And so, without any further ado, I hand over to Garry to give us a bit of context about maybe why the announcements were made, and then we can look at some of the announcements in more detail. So, Garry?

UK Economic Outlook

Garry White: Yeah. I think this might be the third or fourth time that I’ve done this webinar, and I can safely say that economically, there’s more to be optimistic about this year than in previous years. That doesn’t mean that we’re going to have a terrific year as far as growth concern is concerned, we’re probably going to be banging along the bottom.

We had a technical recession in the last six months of 2023, but it looks like that that might be over now. Even Andrew Bailey, Bank of England governor, has sort of hinted so because he’s been looking at the figures and there seems to be a pickup in retail and even in the housing market in January. So we could be slightly positive on that front.

But the economy in Britain isn’t going to fire away. And that was sort of the context to this budget, really. We’ve got some growth problems, some productivity problems, and also a general election later this year, which obviously a lot of the TP giveaway, national insurance was really a focus on.

So let’s have a look at some of the difficulties or the challenges that could lie ahead in the UK economy for the rest of this year, because, like I say, we can afford to be bright. Inflation is falling. The Bank of England’s medicine is working. Interest rates going to well there are people working in the city that haven’t seen money costs this much before in their career. It’s been a long time since we’ve had interest rates this high and that has had an impact on the economy, and that’s why we slipped into recession last year. We’ve had the cost of living crisis and then mortgage payments going up. So this really hits the key services and the construction parts of the economy, which are the most essential. So any recession likely to be shallow, is probably over. The biggest danger going forward economically lies in the consumer, because Britain and America, we’re both consumer driven economies. Household consumption is 60-61% of our economy. So the confidence of the average Briton to go out and spend really, really matters to our economic outlook. There are two factors that really sort of support this. That’s the household level of income and the reliability of this income. So if you think your job is secure, you will spend money. If your wages are going up, matching inflation, which a lot of people have done over the last twelve months, then you feel more confident. The time when consumers really roll back is when they fear that they could potentially lose their job.

Employment

Now unemployment is low here and it’s low in the States. Economic growth is high over there, it’s exceptionally high in America. So why hasn’t unemployment risen sharply on both sides of the Atlantic? Well, there’s a theory that after the COVID-19 pandemic, employers found employees very difficult to find. This was part of the inflationary spiral that we’ve seen, where they will have to pay more and more for staff. So they’ve been a bit reluctant to shed staff in this downturn, which they only see as temporary because it’s difficult and costly to find new staff. They’ve just recently gone through that whole process. If things deteriorate, then that could change as well. So what we’re looking at really is employment statistics and wage growth statistics are really vital for central banks, Federal Reserve and the bank of England on both sides of the Atlantic.

So we’ve got this situation where we can be slightly positive. Interest rates won’t be coming down really quickly, even though there’s some economic issues going on, because wage growth is still slightly high. We had some data out this morning which showed slightly lower than expected in the UK. That’s pleasing. And we had some jobs growth out last Friday in the US, which showed there a slight weakening in employment, but nothing significant, but just enough to let the Fed ease into maybe considering cutting interest rates. But don’t expect anything on that side of the Atlantic til June. And we’re probably looking at similar sort of thing on this side of the Atlantic as well, mainly because central bank forecasters didn’t spot this inflationary spike coming. They got it wrong and they cannot afford to get the economy mess up, getting the economy out of this situation. So they will keep it just that extra bit longer, just to be sure. But yeah, we’ve got disinflation.

Inflation

Inflation is going back to target. Interest rates are coming later this year. So that’s all fairly positive. We have issues that are going to be ongoing and threatening growth, such as war, and know they’ve got the technology tensions with China where they’re trying to stop them getting cutting edge technology. So there’s a lot of changing around our supply chains and reshoring of manufacturing activity, especially in some of the really important strategic areas such as semiconductors. But the economy is in a pretty reasonable condition. Governments are indebted, so there’s not going to be a lot of fiscal stimulus, but we’re in a reasonable place compared to where I was looking down on the optics twelve months ago.

Stock markets

So now we come to markets, stock markets. Investors have seen this and SP 500 continuing to hit record highs. We sort of believe that valuations are a little bit stretched at the moment. We had a good earnings reporting season. We probably not going to get a recession in America, they’re going to get a soft landing. And the economy is still growing well over there as well. So that’s why investors have been really pushing money into markets. But there’s also the fear of missing out as well, which is driving this because a lot of the gains have been driven by a very small cohort of stocks. We’re talking about the so called magnificent seven, which stocks like Microsoft, Amazon, Apple, Nvidia, Tesla, all the same names showing these fantastic gains. And if you look at on Friday, Nvidia added 18% last week for retracing down about 8%. There’s a lot of volatility expected in the next few months and until we get to the next earnings reporting season, because earnings are going to be very important this year because they need to support these valuations. So the FTSE 100 has been lagging for many years now and there are a number of reasons put forward for that. One of them is that we don’t have any exciting growth stocks.

British ISA

So one thing that the government tried to do in the budget was try and give sort of a boost of square mile by introducing the British ISA, which is an extra £5000 allowance on top of your normal allowance just to invest in UK stocks. Participation in the stock market by UK investors is really low compared to the US. I think the latest government figure showed about 10.8% of the population owning British equities. Owning equities in the UK, in America, it’s like 60% of people. I mean, people talk about equities and stock markets all the time over there. It’s a different sort of culture. So, in order to try and get the market performing, we need to get more interest. And this is one measure in that way. I don’t think it’s going to move the dial, though. They’ve passed over cutting stamp duty by stamp duty is 0.5% when you buy equities. If they’d have done that, that could have targeted institutions as well, but it would have been a very costly move. Really what they need to do is get more IPOs. There’s a de-equitization problem going on in the City in London, where companies have been bought and taken out because they’re trading on cheap multiples. Wincanton was an example of that recently, and there’s not enough IPOs coming in the bottom. We do great on funding startups, agribusiness and artificial intelligence, but there’s lots of stuff going on down in the lower end, but it’s getting them onto the stock market. There’s printed private capital out there. In order for companies not to have to go through all these regulatory loopholes and all the onerous documentation that comes with having it becoming a listed entity, I don’t think the British ISA is going to solve that, although it’s a genuinely positive thing and we should be encouraging more British people to own stocks and shares. But yeah, it’s an interesting move in the right direction and it’s showing that the government is aware of this issue, but more needs to be done, particularly on attracting new companies into the market.

Housing market

Other things that were in the budget on the property front, interesting to notice what there wasn’t in there, rather than what there was. There no stamp duty relief for downsizers, which would be a good thing to release large properties. The 99% mortgage was talked about prior to that for first time buyers, we didn’t get any of that. Instead they took away multiple dwellings release and the capital’s gains tax on second homes, or multiple homes was cut to 24% from 28%, with the belief that that will encourage more transactions and raise more taxes and free up more homes, potentially in tourist hotspots where the local people are finding difficulty getting on the property ladder. And that’s my thoughts on the budget.

Graeme Blair: Thanks, Garry. Just before we hand over to a question that came in previously that is related to property. We’ve had one come in whilst you were speaking that your commentary really implied that the US was a steady ship. The question that came in said

There was an article suggesting that a number of us billionaires are offloading their shares in anticipation of a downturn. Is there any truth in this? Do you have any views on that, Garry?

Garry: A downturn sounds very dramatic. They may be offloading them because they see I can name a lot of companies where I think their valuation is pretty full. One of my previous occupations was at the questor editor at the Daily Telegraph. I told people what shares to buy and hold on a daily basis and there’s quite a lot of companies that I would say time to bank profits on. So just because billionaires are rejigging their portfolio doesn’t necessarily mean that we’ve got a big fall coming. But saying that, I’m saying that I do think that equity markets are valued pretty fully at the moment, too.

Graeme: Brilliant. Thanks, Garry. That was certainly a comprehensive look at the state of the economy and the UK in the context of the world economy. You finished off with a comment about property, and that’s a lovely segue into one of the questions that came in previously, and I’ll put this one to Richard, if I may. It says, I’m about to exchange on a property purchase involving more than one dwelling, but completion may be delayed beyond the 1 June.

Will the abolition of the stamp duty land tax multiple dwellings relief affect me?

Richard Verge: Thank you, Graeme. Yes. Let’s just remind ourselves to start with what’s happened here in the budget to prompt this question. As Garry just mentioned, Multiple Dwellings Relief is being abolished with effect from the 1 June. So what is that?

It’s currently a relief available when you’re buying two or more residential properties in a single transaction or a linked transaction. And the way it works is it divides the overall purchase price by the number of dwellings. So rather than looking at the individual value of each bit you’re buying, it just simply takes an average of the number of properties and the total price, and then you work out the stamp duty land tax based on that average price and then multiply by number of units. Now, if you’ve got a situation where all the units are broadly similar, then that works very well. But it doesn’t work at all well.

When you have a situation where there’s a very inexpensive property and a cheaper one bought with it and it can dramatically reduce the amount of stamp duty land tax, you’re going to pay, and that happens quite a lot. For example, if you’ve got a big townhouse four or five stories, and someone’s converted the basement flat to self contained flat, you’ve got an expensive upper building and a cheaper lower one, and you’d end up paying a very different stamp duty land tax value on that, compared to the property next door, where the basement flat isn’t converted and it’s a single unit. And just give you an example of how different it can be. Say you’ve got a £2 million house. The difference between being able to claim Multiple Dwellings Relief on a basement flat and not is like £70,000 in stamp duty. So it’s very significant and it’s really slightly surprising that the relief hasn’t been looked at and changed or abolished sooner.

So if you go back to the actual question, will it affect you? Yes, in this particular instance, it will do. And the relevant point here is that for stamp duty land tax, the tax point is the date of completion. And that is very different to capital gains tax, where it’s the date of exchange. And it’s a feature of stamp duty legislation that is very self contained. It has a lot of rules that apply only for stamp duty land tax. For example, it’s got its own separate definition of UK residence, which is completely different to the statutory residence test, which applies for other taxes, such as income tax and capital gains tax. So just a sort of word of warning there. If you’re looking at something that involves stamp duty land tax, don’t necessarily assume that the normal kind of rules that apply to other taxes will apply to stamp duty.

Stamp Duty Land Tax

And whilst I’m just on the subject of stamp duty land tax, just quickly mention that something that didn’t happen in the budget, there was a consultation that looked at both multiple dwellings relief, which has been abolished, but also the mixed use rules, which haven’t been. And the mixed use rules are where you have a purchase that involves a residential part and a non residential part, and the rates for stamp duty land tax for residential and non residential are very different. And when you have a mixed purchase, it’s the non residential rates which will apply, which are usually cheaper. So you get a situation where people have been trying to sort of put together artificially residential and non residential parts to try and get into the non residential rates, and that hasn’t been looked at or changed, despite it being in the consultation. So that relief remains for a while.

Graeme : Okay, brilliant. Thanks, Richard. And yes, I understand your comments about what hasn’t been brought in about the residential and non residential because it’s certainly my observation, there’s been a number of cases recently in the first year tribunal about, do you really have a non residential use in a residential setting? You spoke so eloquently there, Richard. I’m going to put the next question to you, really, because it is property again, and the question is the income from furnished holiday lets is my main source of income, and the abolition of the special treatment is going to affect me badly.

Why aren’t furnished holiday lets treated like any other business?

And I think when you answer that, Richard, to be fair to the audience, you should just remind them, what is the special treatment for furnished holiday lets? Because certainly the author of the question is appreciative, but maybe the wider audience isn’t.

Richard: Absolutelly. Quite right. So what is this furnished holiday letting treatment? Essentially, it treats furnished holiday lettings. It gives them the sort of treatment that businesses in general tend to expect, and that will include, for example, the full expenses of interest payments. At the moment, if you’ve got ordinary lettings, you can only get up to 20% relief on interest payments, but with furnished holiday lets, you can get the full interest cost regardless of what rate of tax you pay. So up to 45% if you’re a 45% taxpayer, very valuable capital allowances generally aren’t available for ordinary letting, but they are available for furnished holiday lettings. Again, important if you’re furnishing your properties expensively,.

Access to business asset disposal relief,  now, this is a capital gains tax relief, which gives you a preferential 10% rate if you’re selling business assets. Now, again, that’s not available to the sale of ordinary lettings properties. But if it qualifies as a furnished holiday let, then you would get the preferential 10% rate on a sale up to the cap of that million pounds. And the final item is that you get earnings. It’s treated as earnings, the profits from furnished holiday lets for the purpose of calculating your maximum pension relief. So in other words, it’s really treating a furnished holiday let as a proper business, whereas the revenue strongly believe that ordinary lettings income, the passive letting of property, is not a business, and hence you don’t get these particular beliefs we’ve just been talking about. Okay, so perhaps the question starts with why isn’t it treated as an ordinary business? Well, there’s been a lot of case law about this, and it really all comes down to how much are you actively involved in doing what you’re doing? And there’s a particular case that’s become really the benchmark for this. This is a Ramsey case. It involved, it was in a slightly different context. It was someone incorporating a business. But in that case, one of the key features was that the individual concerned managed to demonstrate that they spent at least 20 hours per week actively involved in the managing and running of their property business. And because of that, the revenue accepted, or the courts accepted that that actually constituted a business for this particular purpose. And the revenue have sort of picked up on that and they’ve used that almost as their benchmark for establishing is this a business or is it just passive letting of property and what it means. Going back to the question, if this is your main source of income, that may imply that you do actually spend a lot of time running your business, your lettings business, and hence you may actually be able to argue that this is a business rather than just passive lettings of properties, in which case you may get back to where you started from. But in a lot of instances, particularly if you’ve only got one property, it’ll be quite hard work to persuade the revenue that actually this is more than just a lettings income, it’s actually a full blown business. And therefore you get the special rules which are being now taken away for this particular class of lettings, the furnished holiday lets.

Graeme : Yeah, that makes perfect sense. And I guess Garry highlighted the reduction in capital gains tax on property sales, and maybe that’s a push to release some property into the market, and you’re highlighting the elimination of the 10% rate. So maybe that’s a pull for people to release some property onto the market. Maybe that is the wider idea here.

Richard : Well, I certainly think so. And interestingly, if you look at the policy costings that were released with the budget, they’re expecting to get money in from this tax reduction, which seems to be counterintuitive, but that must be because they’re expecting a lot of people to suddenly take advantage of the reduced rate and sell. I think the figures showed that they’re expecting over 300 million over the next two years, each of the next two years to come in from this. So that’s quite a bold assumption that a lot of properties are going to be sold, but maybe they’re right.

Graeme: Thanks, Richard. I’m going to have chairman’s prerogative here, and I’m going to answer the next question that came in myself. The question is,

I did not pick up on any material announcements in respect of company profits tax. Did I miss anything?

And the answer to the question is, no, you didn’t. We had some technical changes, but no big ticket announcements. So the small company profit rate stays at 19%, for profits up to 50,000, and the main rate for profits over 250,000 is 25%. The other thing that had been pre announced and therefore we expect to be implemented without any further changes, is the merged R d scheme, the research and development tax credit scheme. Really? I won’t go into that, because on the Goodman Jones website, Andy Royce of Keen Partners, the R & D tax credit boutique, has done a very informative half an hour webinar that I would suggest people have a look at if R d tax credits is of interest to them. And that’s all specifically about the merge scheme. So I’ll move on. And Fiona, this is your turn. Next question is,

I’ve heard that the non domicile regime has been abolished. What does this mean for me? I came to live in the UK last September.

Fiona Clark: Our enquirer is absolutely right. The non-dom regime has been abolished, or will be with effect from April 2025. The Chancellor’s announcement of this last week is going to mean the end of a regime dating back as far as 1799, and that has historically allowed people to come to the UK from overseas and live here with the benefit of a favourable approach. That doesn’t apply to those born and bred in the UK, and the new rules are going to put an end to that. So, just to recap about the current regime, as a quick reminder, that applies in broad terms to those with an overseas heritage, generally a father, sometimes a mother, who is or was not domiciled in the UK. So people like this are what are referred to, who are referred to as non-doms. And when non-doms come to the UK under current rules, they’re able to choose either to pay tax in the UK on their worldwide income and gains as they arise, in the same way as an ordinary tax UK resident taxpayer like you and me.

Remittance Basis

Or they can opt to use what’s called the remittance basis of taxation. So the remittance basis of taxation allows non-domiciles to pay tax in the UK on their UK income and gains as they arise in the same way as the rest of us. But it then allows them to pay tax in the UK on overseas income and gains only if they bring those overseas income and gains to the UK, either directly through bringing money here or indirectly, possibly by bringing goods here or paying for UK services overseas. So for the first seven years after someone has, a non-dom has, come to the UK, at the moment, there’s no charge for them to access this favourable remittance basis of taxation.

Although they do lose the benefit of their income tax and CGT allowances as a result of making a claim for the remittance basis from the 8th year of residence, they pay £30,000 per annum as a charge simply to access the remittance basis. And then they pay either income tax or CGT at their prevailing marginal rates on any overseas income and gains they bring here. From the start of their 13th year of residence, they pay £60,000 to access remittance basis, plus again tax on income and gains, the overseas income and gains they remit here.

And then once that our remittance basis user has been here for more than 15 out of the last 20 years, at the moment, that’s the point when they become what we call deemed domiciled income tax and CGT purposes. So at that point, our non-dom is now taxed on his worldwide income and gains. Worldwide income and gains as they rise, they can very long shelter them with the remittance basis. In addition to that, from the 16th year of residence, our non-dom is subject to inheritance tax on their worldwide assets, previously having only been subject to income tax inheritance tax on their UK assets.

So, to give this a little bit of context, this regime over the last few years has become increasingly unpopular. Labour announced in 2022 that they intended to abolish a non-dom regime and replace it with a new, simpler regime base, which would give favourable tax treatment to short stayers. And at the time, Jeremy Hunt said that he didn’t agree with Labour’s figures about how this would benefit the UK. He said that the treasury weren’t sure about the figures that Labour were quoting, and they weren’t certain that a move like this would actually help the economy. Rishi Sunak also said at the time that he thought scrapping non dom status would end up costing Britain money. So we’ve had a bit of a U turn, haven’t we? This appears to be a politically driven enticement to voters to fund tax cuts and steal a march on Labour ahead of an upcoming election. It’s interesting that from the new proposals, which I’ll talk through in just a second, we have got no element of consultation for income tax or CGT changes that are proposed, only some possible consultation regarding inheritance tax.

And this really is a big departure from previous changes to the non-dom regime in 2008, 2015, and then in 2017, where we did have quite a lot of consultation between the professions and HMRC, which did result in some tweaks to what was originally proposed that were beneficial to taxpayers in the end. Now, the figures that confirm the level of tax revenues that these moves are likely to raise do rely on a relatively small proportion of non-doms leaving the UK for the country to be a winner. From what’s proposed looking about who might stay, it’s well recognized that the UK has a very attractive educational system. So those who want to bring their children to be educated here may well stay. Those who are in employment may well stay, or who are currently involved in businesses that they’re getting going may well stay. But those who are more mobile, those with fewer ties, those who are not employed, may just decide that they want to go and that they don’t want to be subject to the new regime.

So, under the new regime, the current remittance basis regime will no longer be available to individuals, with effect from April 2025. So we’ve got, for our individual who’s recently arrived could potentially be a beneficiary of our new regime. It is a residence based regime. And so, for the first four years of residence, following a period of non-residence for at least ten years, individuals can opt to make a claim, and under this claim, their foreign income and gains for those four years following their arrival will be exempt from UK tax. The regime will also apply to distributions or benefits from offshore trusts that were received in the first four years of residence. So, in order for our individual to work out whether he can benefit from this regime, has he been here for less than four years with effect from April 2025? Yes, he will have been. If we assume that he’s resident for the current 23-24 tax year, then that’s going to be year 24-25 will be year two. So potentially, he’s going to have two years following April 2025, when he can benefit from the new regime and not pay tax on any of his overseas income and gains, as long as he has not been resident in the UK for any of the ten years prior to his arrival in 23-24.

Statutory Residence

So in practice, that’s going to mean looking at his residence position, going all the way back to 13-14 under our statutory residence test, to check whether he’ll be able to benefit. If he does benefit, he would need to make a claim for this beneficial treatment. The claim is made for each year that he wants to use it. There’ll be no charge to access this regime, but our taxpayer will lose their income and CGT personal allowances.

But, by contrast, the benefit will be that they will be able to bring any foreign income and gains from years when they use this regime or trust distributions to the UK without bringing any tax on that. So that’s going to be potentially of interest to them.

Now, if our individual has been resident in the UK in any of the ten years prior to their arrival in 23-24, then unfortunately they’re not going to be able to benefit from the regime. There will be some transitional provisions that they can benefit from. So if the individual has used the remittance basis of taxation prior to the changes in 2025, but can’t benefit from the four year favourable period following their arrival, they will be taxed in the UK on 50% of their foreign income in the 25 26 tax year doesn’t apply to capital gains, it’s income only for 25-26, and we’ll be waiting for details of exactly how that will work. Again, if our individual has claimed the remittance basis but can’t access this favourable regime from 2025, they would have been able to potentially benefit from a revaluation of personal assets for CGT purposes. As long as they owned the asset at 5 April 20, 2019, they can benefit from an uplift of the original acquisition cost.

We’re not really clear why 2019 has been chosen as a date for the uplift. There is some discussion about whether it might have been a high point in the equity market. Certainly everything fell off a cliff during the pandemic, so that wouldn’t have been a good date to choose. A further transitional provision, which our individual could potentially benefit from if they don’t get the full benefit of the four year regime is what’s being called a temporary repatriation facility. Again, our individual would have had to have used the remittance basis either in the current tax year 23- 24 or the next tax year 24- 25 prior to the changes. And then that would enable them to benefit in 25 -26 and 26- 27 from being able to remit foreign income and gains that they sheltered prior to 25 -26 when they use the remittance basis. If they bring those remittance basis income and gains from the earlier years to the UK, they can do that at a favourable reduced rate of 12%. After 2027, they want to bring in income and gains from their remittance basis years. They’ll have to pay their marginal income tax rates for those years. So our caller could potentially benefit from the four year period that would be very favourable for them. But we do need to look at their residence history in order to know whether that would be the case or not.

Non-dom tax regime abolished: what’s next? (goodmanjones.com)

Graeme: Brilliant. Thank you. Fiona, we’ve had a question come in live while you were speaking and I’m going to do chairman’s prerogative and I’m going to answer it myself. And then if you’ve got any further observations, maybe tack them on. The reason for that is because we’ve had yet another question which I think is up your street, and I think it’d be slightly unfair to have you answer too many questions. So the question that came in live was,

Will the non Dom rules make the UK more unattractive to foreigners?

And, of course, there is a state and assumption there that it is presently unattractive. I’m not convinced on that myself. And the way it was always explained to me many years ago by a well known private client tax partner is non-doms don’t come to the UK either for our tax regime or our weather. They come to the UK for other reasons, for example, our political stability, freedom of speech, good education. As you’ve already mentioned, Fiona, the pound being a relatively stable currency. So lots of non tax reasons. So, yes, I’m sure there will be some genuinely international, mobile people who may or may not come to the UK after these changes, but I don’t necessarily myself believe that it will be the massive groundswell of a shift of views that maybe some of the papers have suggested. Do you have anything to add to?

Fiona: I think I would add to that, obviously, it’s been a very attractive financial centre and it sits geographically between the States and Europe, so is a convenient location from that point of view. So, yes, tax is certainly not the only reason that people come here. It can be one of the reasons. I think the main concern, which perhaps we’ll come on to a bit later, is inheritance tax for long stayers, and that can be a driver for people to leave. People can leave if they’ve got children here in education, once their education is up. I think it has been in the past a favourable jurisdiction for people to come and set up businesses due to well established and well recognized labour laws and favourable, stable legal system as well.

Graeme : Yeah, that’s fair comment. That is absolutely fair comment. So you mentioned two things there, Fiona. There was an inheritance tax. And yes, we’ve had a question come in on an inheritance tax, but I’ll maybe leave that to Reena in a minute. I’ll stick with you, Fiona, for the time being, because you did mention a couple of trigger years and clearly someone’s picked up on that, because the question has come in that’s very specific about being in the UK for a number of years.

So the question is,

I have been in the UK for eight years. I set up an offshore trust before I arrived and I’m a beneficiary. How will the changes affect me?

Fiona: Okay, so our individual at the moment, who has been here for eight years, if they want to claim the remittance basis, will be able to do so, subject to a charge of £30,000. And on the basis that they have set up an offshore trust at the oh, they’ll be subject to income tax in respect of any UK income that arises to the trust in the year when it arises, because they’re a settler and a beneficiary. But in terms of foreign income and in terms of capital gains, at the moment, our individual is only going to be subject to tax on the foreign income and gains of the trust if the income and gains are distributed to them, or they receive a benefit if they are claiming a remittance basis, if the distribution is made to them overseas and they don’t receive any benefit in the UK, or the distribution is not brought to the UK at the moment, they will not be required to pay tax in the UK, either on the value of the benefit that they receive or on the distribution they receive. They have a UK benefit, then obviously they would pay tax on that. So for our individual, on the basis that they’re using the remittance basis, they’ll be able to benefit from the proposed taxation of 50% of their 25 -26 overseas income based on the length of time they’ve been here, they will be able to rebase assets held, as at 5 April 2019 for capital gains tax purposes on the basis, again, that they own the assets at that point, and they will be able to bring to the UK in 25- 26 and 26 -27 income from their remittance basis years prior to 25- 26 at the 12% beneficial rate that we’ve talked about.

So there are some attractive transitional offers for our individual. However, for the offshore trust. Although foreign income and gains that have arisen to the offshore trust will remain protected prior to April 2025 as they are at the moment with effect from the 6 April 2025. Under the current proposals, income and gains arising to the trust will be accessible on our inquirer in the year when they arise to the trust. So that’s a significant change to the current system. Any pre 2025 income or gains that are retained within the trust will remain available to be matched against benefits or distributions that are received either by our individual or by other beneficiaries from the trust. At the moment, we don’t have any detail about exactly how the matching rules will work there has been some discussion about how exactly they will apply and how the income and gains from post 25 will be dealt with. When you look at how distributions and benefits are matched, whether though the income and gains that are taxable on the arising basis on the settle will simply be disregarded and you just match to earlier year income and gains that are sitting in the trust, or whether you take account of the arising basis income and gains and only match later, we don’t know. So it’s a bit of a mire at the moment, but there is going to be a significant change to the income and gains position for our Inquirer. But I would say that it’s important for both of our enquirers and anyone listening to bear in mind that these are proposals only. We have got no draft legislation. We will have a general election before April 2025, when these proposals are due to come in. The election has to happen before then under the fixed term parliament act, so it can’t be delayed. The Conservatives have attempted to steal a march on Labor’s proposal here. It seems unlikely that if Labour are elected, that they would implement the current proposals in exactly the same form. There are bound to be changes, and it also has to be borne in mind that the scrapping of the non-dom regime will mean far reaching changes to current legislation across two or three taxes acts, at least, and there’ll be a lot of detail that will have to be rewritten, and that’s going to take a lot of time to prepare. So depending upon the timing of the election, we may well see any changes that do come in not being implemented until 2026, for example. So it’s wise to have a look at your situation and be prepared to take action and when the time is right. But at the moment, we just don’t know what’s going to come in when. But this is where we’re sitting at.

Graeme:  Fiona, as a tax adviser, whether one likes the legislation or not, at least certainty gives a bit of an ability to pre plan. I think the message is you’re obviously looking at a lot of non-dom structures at the moment and you can only comment on what we know about, and certainly the message is loud and clear. What we have today may not be what we end up with in tomorrow. I promise. I’ll bring Reena in because we’ve got a question on inheritance tax.

What are the new inheritance tax rules, and how will this affect estate succession planning?

Reena Bhudia: Thank you, Graeme. So, at the moment, inheritance tax largely revolves around a person’s domicile, which, in most cases is dealt with either under general law or if you’re long- term resident in the UK, then under the deemed domicile rules. One of the biggest problems with domicile being based under general law is trying to prove your domicile status. The test can be very subjective, so it’s really difficult to prove your domicile position. Also under general law, which is a surprise to many that even if you leave the UK, you’re still considered to be deemed domicile for the last three years, even after having left the UK.

With the deemed domicile rules, the rules are slightly easier to navigate because it’s based on residency and how long you’ve been living in the UK. But again, to lose your deemed domicile status, it does require you to be non resident for at least four tax years. So those are the current rules. The new IHT regime is planning to move to a more residence based system, the details of which are being consulted on over the course of the year, and it’s intended to be introduced from the 6 April 2025. The good thing about moving to a residence based system is that it does make it more objective, so I’d say it’s probably a more sensible basis for taxation. Under the new rules, UK situs assets will still continue to remain taxable for it purposes. The differences in the treatment of the foreign situs assets. So whether you fall within one of the two criteria. So the first criteria is the residence criteria, and what that basically means is if you’re resident in the UK for ten years, then the residence criteria has been met and as a result, your foreign assets will be subject to IHT as well as your UK assets. So under the new rules being proposed, your foreign assets could potentially be within the IHT net a lot sooner compared to if you compare it to the 15 out of 20 deemed on rules. The second criteria is called the Tell provision. And under the Tell provision, once you’ve left the UK, you’ll still continue to be deemed UK Dom for another ten years. So if you compare this to the current regime, where you could potentially lose your domicile status after three or four years with the new rules under the tell provision, you’ll be within the IHT net for a much longer period, even after you’ve left the UK. So it does make it more difficult to lose your domicile status.

The good thing about the new proposals is that unlike domicile status under general law, it does make it easier to establish your position under the residence criteria or the tell provision I think the ten year period under the Tell provision is probably a bit harsh and I think it would have been or is more sensible to introduce a more tapering system. So, for instance, under a tapering system you could have the current IHT rate starting at 40% and then potentially reducing by 4% for every year that you’re not resident in the UK. Or instead of the ten years I would have thought a seven year provision would have been more appropriate. So it’s mirroring the current tapering provisions in the same way you would with failed gifts. And at the moment it doesn’t seem to mention any tapering provisions, but that could be something that’s considered in the consultation.

Offshore Trusts

The other thing that I want to mention is with regards to offshore trusts. So the technical note was very vague when it considered the IHT position in terms of offshore trusts. And what it does say is that if a settlement has been created and is in existence prior to the 6 April 25, the excluded property status will still continue to apply for foreign assets settled by non- doms. And also if the settler then subsequently becomes UK domicile, then the protection from the gifts with reservation of benefits will still continue to apply. The difference is any new trust settled after the 6 April will depend on the set law’s residence or tell provision status not only when the assets are settled, but also potentially at the time of the chargeable event, such as the ten year or the exit charges. So what the policy document does seem to suggest is that the domicile status of the set law would not only be looked at the time of the initial settlement, but also when the chargeable event arises. And if that’s the case, it’s not really clear what the domicile status of the trust will be once the settler has passed away. So I think we do need some clarity on that.

The other thing that the policy note states is that the existing legislation for excluded property trust won’t be touched, provided the trust is created before the 5 April 2025. And what this might do is it might encourage non-doms to consider setting up excluded property trust before the 5 April 25, although it might also be best to wait and see what comes up after the election in case there’s a new government and they might retract or amend those proposals.

Graeme : Brilliant. Thanks Reena. So I think the key takeaway there is certainly inheritance tax will be changing in some shape or form, and for the non-doms it might be appropriate to do some action between the budget, sorry, the election and the 5 April, and there might be a window of opportunity there. That’s brilliant. I’m just conscious that we’ve got three more questions to get through in eight minutes, so maybe for the next three we could just keep the answers brief. So, Richard, this one’s for you.

Will the cut in national insurance and CGT outweigh the increase in allowances and rate bands?

Richard: Okay, very briefly, this has obviously been talked about a lot in the press. We’ve got for national insurance, we got another reduction of 2%, down to 8% for employees and 6% for self employed, which comes in from the 6 April 24. Yet offsetting this is the effect of fiscal drag, with allowances and rate bands not increasing. Again, if you look at the policy costings published with the budget, it’s quite clear that the effect of fiscal drag is going to more than outweigh the drop in national insurance contributions.

But there will be winners and losers. Again, a lot of speculation in the press about who those will be, but broadly speaking, earners with between about 30,000 to 54,000, I think it is, are likely to be better off under with this cut, whereas all other workers are likely to be slightly worse off. So, yeah, overall, who’s best off is actually the government. We’ve already talked about CGT, so I won’t cover that off since we’re short of time. That’s all I had to say there.

Graeme: Brilliant. Thanks, Richard. The next one I’ll take myself. It says,

I understand that there are to be changes to the benefiting kind administration for employers. What are those changes and when do they commence?

Well, certainly this is a question for the future, because there are some changes from 2026 under the current process, and this is administration more than anything else. Under the current process, employees who get benefits in kind get a P11D at the end of the year. That’s their statement of benefits, that they then put that number or those numbers on their tax return, and that’s how the tax is collected on the benefit.

And effectively from 2026, the government are saying, no, what we want is the monthly payroll to collect these benefits. And you might say, well, so what? And the so what, which is probably why the question was asked, is actually the practicalities for the employer and the employee. So the practicalities for the employee is that whilst they won’t necessarily be needing to do a tax return, actually for the tax year 26- 27, they’re going to suffer, really, a net reduction in pay because something that they would pay the tax on at a later date is being collected through the payroll and now, obviously, we don’t know what inflation will be like in those years, and therefore, I think there just needs to be message management for the employers and acceptance by the employees that actually their monthly take home pay will be less, but they then don’t have to have the same outlay at a later time. It does lead to a question about systems and processes, because we got a new system here. And of course, it’s going to take time for software developers to develop the software that track this and even just tracking it. As one commentator said recently, firms don’t renew their gym membership on the 6 April. So, for example, halfway through the year, the benefit to an employee might change as the gym membership is renewed.

So there’s some real practical points. And the other thought I’ll leave is maybe this is an opportunity for employers to look across the piece, look at the benefits that they offer, and if they’re finding that there are benefits with low or no uptake, actually remove them from the benefit pool, because it’s just one less thing that one’s going to need to track in the future. And of course, if you remove benefits from the benefit pool, there needs to be a bit of message management and a misfit explanation to explain maybe why you’re doing this, rather than employees feeling slightly aggrieved that somehow their employment package is made worse. Yeah. So a bit of administration from 2026 onwards, and so a good question for something that’s happening in the future, and I think we’ll have one more question, and this is Reena for you. And it goes,

What are the significant changes to the overseas workday relief, and what does this mean for individuals coming to work in the UK?

Reena: So, overseas workday relief largely revolves around how earnings are taxed in the UK when you also have foreign earnings, and as it stands, someone working in the UK will be taxed on their income in the UK. However, if a person is UK resident but non-dom, they will still have to pay UK tax on their UK earnings, but have the option to claim overseas workday relief on their foreign earnings, which broadly means that you’ll only get taxed on your foreign earnings if it’s remitted to the UK. In order to be able to access the overseas workday relief under the current rules, you can only claim it in the first three years of UK residence and only if you’ve been UK resident in the three years prior to your UK residence. So the policy document states that the existing rules will continue to apply for the current tax year. So 23-24 as long as 23-24 is your first year of UK residence.

The new rules, which are being introduced on the 6 April 2025, are intended to be a simplified version of the current rules and the details are going to be consulted on. But in essence, the rules state that if you enter the UK on the 6 April 25, you can claim overseas workday relief if you fall within the foreign and income gains regime. So if you’re non res for the previous ten years and you’re within your first year, four years of UK residence, but you can only claim the overseas workday relief for the first three years. So I don’t know why they didn’t consider extending it to four years to align it with the foreign income gains regime, but, yeah, they didn’t do that.

Also, under the new rules, there will be relief available so that any foreign earnings arising in the first three years can be brought to the UK free of tax. So this is great, because not only do you get to bring your foreign income to the UK free of tax, but you also don’t have the administrative burden of having to keep track of your foreign income overseas. However, in practice, if you compare the existing rules to the current rules, under the current rules, you have to be non-resident for three years before being able to access the overseas workday relief. Under the new rules, the non-residence period is being extended to ten years. So, yes, it’s great that you can potentially bring foreign income to the UK free of tax, but in reality, you’ll only be able to do this every 13 years because of the ten year non residence period. So it could actually make this claim more difficult and could actually put people off coming to work in the UK.

Having said that, though, it is a more fairer system because those who are UK domiciled and have periods of working abroad have to pay UK tax on those earnings. So it does seem to close the gap, albeit not fully, between UK doms and non-doms. There’s also a bit of a gap in the policy document as well, because it doesn’t make it clear as to what happens in the 24- 25 tax year. So it’s not clear whether the current rules will apply and then the new rules will take place 25-26, or if it’s going to be legislated retrospectively, or if there’s going to be a transitional arrangement. So we’ll have to wait and see for further technical updates.

Graeme: Brilliant. Thanks, Reena. So I think we have that conundrum between simplicity and fairness, don’t we? And this maybe is another example of that dynamic. Look, it’s 12:00 I think we’ll wrap up there. So I think the first thing for me to do is thank the panel for the excellent insights and thank you for the audience joining us. If you have any specific questions, please don’t hesitate to get in touch with your normal Goodman, Jones partner or any of the Goodman, Jones panelists for today, or Garry himself. And thank you, Garry, for taking time out of your busy day. So thank you and goodbye.