November Tax Tips & News

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Newsletter issue – November 2024

As Budget day inches ever closer, one of the leading topics at the heart of speculation continues to dominate the headlines. Namely, Capital Gains Tax (CGT).

With many tax rises ruled out by Labour (Income Tax, NI, VAT) since the General Election campaign began, and since confirmed by the new Chancellor, there have been few areas left that could be tinkered with whilst raising the kind of cash that the Treasury purportedly needs to raise.

We've heard the £22bn so-called blackhole in the public finances referenced by Ministers many times now. And it looks highly likely - from commentators' assessments and media reports - that CGT will indeed be reformed to help the cause.

Now, a group of millionaire business owners have backed the idea of increasing CGT. The group of wealthy investors said raising the tax rate on asset disposals would help to bring vital funds for public services and claimed economic growth would not be slowed.

Amongst those quoted in the mainstream media was Mark Campbell, the millionaire co-founder of Higgidy pies. He believes higher rates of CGT would not 'scare away real investors' in Britain. 'Entrepreneurs don't think about [it] when they create businesses. [It] would not have stopped us investing in Higgidy.'

He added: 'The UK needs a fairer tax system to invest in its future, and those of us who've benefited the most should contribute more so that we have a healthy society and economy for future entrepreneurs to operate within.'

The comments were also linked to a report by the centre-left IPPR thinktank, in which the group of millionaire entrepreneurs said they would be happy to see the rate levied on capital gains rising to the same levels as the higher rate of income tax.

The IPPR report argues that 'CGT is not a primary driver of investment decisions' and says: 'Entrepreneurs and investors alike focus much more on issues such as access to financing, market opportunities, and broader economic conditions.'

Chancellor Rachel Reeves has been quoted in the last year or so saying there were no plans to raise CGT, but there was virtually no mention of it in the official Labour manifesto, suggesting it could be one option to plug the gap in the Treasury's finances.

Several analysts have suggested we're likely to see a return to the policy of 1989 when Conservative Chancellor Nigel Lawson changed the CGT rules so that it was applied at whatever the taxpayer's marginal rate was.

Of course, we'll have to wait and see what is announced at the Budget on 30 October. We'll have a report and updates on the day for you.

Newsletter issue – November 2024

Gifting rules look like they could be a target as one of several options to reform Inheritance Tax (IHT) and raise extra revenue for the Treasury.

As speculation builds around potential changes to IHT in the upcoming Budget, many tax commentators are expecting significant shifts in some key areas.

Gifting rules, particularly the "seven-year rule," which allows individuals to gift assets tax-free if they pass away 7 years or more after the gift is made, is reportedly one area that could be in the sights of the Chancellor. It means if the person dies within seven years of making the gift, the value of it may still be considered part of their estate for IHT purposes. As it currently stands, gifts made less than three years before death are taxed in full, while those given between three and seven years attract taper relief, reducing the IHT rate.

According to the i newspaper, the Chancellor may extend this period to ten years or even consider abolishing taper relief altogether. Another potential change could be the complete axing of the seven-year rule so that any gifts made during a person's lifetime would be subject to IHT upon death, regardless of how long they survive afterwards. Any changes along these lines could discourage lifetime gifting, reducing families' ability to pass on assets tax-efficiently, some have warned.

The nil-rate band, the amount of an estate that can be passed on without incurring IHT, could also be a target. This band has been frozen at £325,000 since 2009/10, despite significant property and investment inflation. Some experts argue that this freeze is dragging more estates into the IHT net. Receipts from IHT have already risen by 9% this year, with the Treasury collecting £3.5 billion between April and August and with another record total looking likely.

The Residence Nil-Rate Band (RNRB) is another relief under scrutiny. Introduced in 2017, this allowance enables an additional IHT exemption when a main residence is left to direct descendants. Think-tank The Resolution Foundation has urged the chancellor to abolish the £175,000 RNRB, saying it could save the Treasury around £2 billion.

Business relief, particularly for Aim shares, could also be subject of alterations. Currently, qualifying Aim shares held for two years can receive 100% IHT relief. Critics argue that this creates an unfair loophole for some investors.

Agricultural property is another area for possible tinkering. Currently, agricultural property used for farming can qualify for 100% IHT relief, allowing land and buildings to be passed on tax-free. However, this relief has come under increasing scrutiny, and commentators suggest it may be reviewed to ensure it aligns with broader IHT reforms.

Could we also see tiered IHT rates based on estate size or the capping of reliefs? There is certainly a lot of scope for adjusting the rules around IHT and it will be fascinating to see which of these many potential options, if any, become reality on 30 October.

Newsletter issue – November 2024

Anyone who earned between £100,000 and £150,000 in the 2022-23 tax year should have received a letter from HMRC regarding changes to the requirements to fill out a Self-Assessment Tax Return for 2023-24.

Those with income within this range and who are purely paid through PAYE have been required to submit a tax return up until now. But the threshold is rising to £150,000 for 2023-24, as HMRC officials are highlighting to taxpayers in recent weeks.

So, now those with income between £100,000 and £150,000 will not have to complete Self-Assessment for 2023-24 - unless any of the following criteria applies to them. They:

• receive any untaxed income over £2,500
• are a partner in a business partnership
• have to pay the High-Income Child Benefit Charge
• are a self-employed individual with gross income of over £1,000

The 2023-24 Self-Assessment deadline is 31 January 2025. Bigger changes are afoot for beyond this. For the current tax year (2024-25), HMRC is scrapping the income threshold to complete a tax return for PAYE-only taxpayers. However, the list of criteria above will still apply, meaning Self-Assessment Tax returns will be necessary for those fitting them.

Newsletter issue – November 2024

New rules for businesses surrounding submitting data about employees' hours through the tax system are to be delayed by a whole year, HMRC has announced.

Two sets of new draft regulations laid out the way businesses will have to change the information they provide to the tax man through both Income Tax Self-Assessment (ITSA) and PAYE (Pay As You Earn) real-time returns.

The new requirements were set to take effect in April 2025. But employers will have an extra year now to prepare for the changes, with the date being pushed back to April 2026.

The postponement is 'owing to the delay caused by the General Election and the lead-in time required to prepare for implementation,' HMRC officials noted in an update.

The draft regulations that had been consulted on earlier this year, whilst the Conservative Government was in power, were the Income Tax (Pay As You Earn) (Amendment) Regulations 2024 and the Income Tax (Additional Information to be included in Returns) Regulations 2024.

Further updates on the proposals and timelines will come in 'due course', HMRC added.

Newsletter issue – November 2024

Q: I own some agricultural properties that I hope to pass on to my sons when the time comes, but I’ve heard that there might be changes in the upcoming Budget. What are the current rules for Agricultural Property Relief on Inheritance Tax, and what might change?

A: Currently, Agricultural Property Relief (APR) allows you to pass on agricultural property free from Inheritance Tax (IHT), provided the property meets HMRC's qualifying conditions. To qualify, the property must be used for agricultural purposes, such as land for crops, pasture for livestock, or certain buildings like farmhouses and cottages. The property must also have been owned and used for agricultural purposes for at least two years if farmed by the owner or their spouse, or for seven years if let out to someone else. Additionally, the size and nature of buildings must be appropriate to the agricultural activity to qualify, and the relief only covers the agricultural value of the property - not the market value if it exceeds the agricultural value, such as a farmhouse that could be sold as a residence.

The relief is generally available at 100% if the land is actively farmed or let under a qualifying tenancy, but in other cases, such as older tenancies, relief may only be available at 50%.

However, speculation about the upcoming Budget suggests there may be changes to IHT, including potentially removing the favourable treatment for agricultural and business property. If this happens, your agricultural properties could face higher IHT charges, as they may no longer qualify for this relief.

It's a good time to review your estate planning.

Q: My husband has been in full-time employment for many years and hasn’t had to deal with Self-Assessment Tax Returns until now. Recently, he started doing some freelance work alongside his job. What should he know about filing taxes for his freelance income, and are there any special considerations for someone in his position?

A: Many people are in the same boat and it's important for him to understand how to handle his tax obligations.

Since he's earning additional income from freelancing, he'll need to report this on a Self-Assessment Tax Return if his earnings exceed £1,000. This threshold allows him to earn up to £1,000 from freelancing without needing to file a tax return for that income, which can be beneficial for small side jobs.

For those in a situation like your husband's, there's a potentially helpful option if the total tax liability from self-employment is £3,000 or less. If he qualifies, he can request to have this amount collected through his PAYE tax code, allowing the tax owed to be deducted from his salary in manageable monthly instalments rather than as a lump sum.

To take advantage of this payment method, he needs to be proactive. He must complete and submit his online tax return by 30 December following the end of the tax year. Meeting this deadline is crucial for ensuring that the tax adjustment can be applied to his PAYE code for the upcoming year.

Q: I'm planning to go back to work next year after maternity leave, and I've heard about changes to the free childcare scheme. What should I expect, and are these plans still going ahead with the new government?

A:You're right to enquire because there have been significant changes to the free childcare scheme, and further expansions are planned.

Previously, working parents with children aged three and four were entitled to 30 hours of free childcare per week, though this was reduced to 15 hours if either parent had an income of £100,000 or more.

Starting from April 2024, parents of two-year-olds have qualified for 15 hours of free childcare, with the scheme expanding further in September 2024 to include children as young as nine months old.

From April 2024, working parents with two-year-olds have been eligible for 15 hours of free childcare per week. As of September, this has been extended to parents with children as young as nine months.

By September 2025, under the previous government, the plan was to roll out 30 hours of free childcare per week for working parents of children from nine months to three years during term time. However, parents earning more than £100,000 will be limited to 15 hours per week.

Labour has indicated it would continue to back this plan. However, the new government has also committed to reviewing childcare, with the new Education Secretary raising concerns about funding and capacity issues in the system. So, we'll need to keep an eye out for any potential updates or adjustments over the coming year. It's even possible something will be clarified or announced on 30 October at the Budget.

Newsletter issue – November 2024

1^st

• 1 November onwards – more details of Treasury’s Budget papers expected to be published.

7^th

• Due date for online submission of VAT return and payment of VAT for the quarter ending 30 September 2024 (if not on the Annual Accounting Scheme).

19^th

• For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you’ll owe HMRC.

22^nd

• Deadline for employers operating PAYE to pay HMRC. This is also the quarterly deadline for businesses that pay per quarter.

30^th

• Deadline for filing the Company Tax Return (CT600) for companies with an accounting period ending 30 November 2023.
• Deadline for 2023/24 tax credit claims to be submitted and for renewing tax credits (Child Tax Credit and Working Tax Credit).

Introduction

Significant changes to Employers' National Insurance Contributions, Capital Gains Tax and Inheritance Tax were among the headline announcements in today's Budget.

It was clear from early in the speech that the total rise in taxes would be very substantial, with Chancellor Rachel Reeves saying the amount would be around £40bn. This would make it the second highest increase in taxes announced in one Budget on record, according to some early analysis.

But Ms Reeves, who was making history as the first female Chancellor in UK history to deliver a Budget, said that without bringing in these tax rises the country would instead face more 'austerity'.

Aside from the headlines mentioned above, some of the other most significant announcements included:

• No rises in Income Tax or VAT
• No rise in Employee National Insurance Contributions
• Corporation Tax to be capped
• Employment Allowance to increase
• Reforms to rules for Carried interest
• 5,000 extra HMRC compliance staff
• Stamp Duty to increase on second homes
• Non-Dom tax regime to be scrapped
• Increases to National Minimum Wage

Below, we delve into more details.

Inheritance Tax changes revealed

There had been speculation aplenty about changes to Inheritance Tax (IHT), with many expecting this to be among the core announcements in terms of tax rises.

Some of the rumours around aspects of the rules like gifting didn't materialise. In fact, gifting was not mentioned at all.

One key announcement on IHT was that thresholds will remain frozen until 2030. That's two years further than the previous Government had already planned. The consequence of this is that IHT will, in effect, rise during that time.

One of the key changes was that inherited pension pots will be counted within IHT from April 2027. The Treasury stated: "This removes a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement."

The Budget papers stated that the Government will "bring unused pension funds and death benefits payable from a pension into a person's estate for inheritance tax purposes from 6 April 2027. This will restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pensions reforms."

And, as had been rumoured in the media in recent weeks, Agricultural Property Relief and Business Property Relief will be cut from 6 April 2026. With what the Treasury called a new allowance, the first £1m of combined business and agricultural assets will continue to be free of IHT but for assets over that amount, it will apply with 50% relief.

The Treasury gave an example saying the allowance will cover a "combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.

Ms Reeves also said the Government will apply a 50% relief, IHT for shares on the Alternative Investment Market (AIM) and other similar markets "in all circumstances". She said this created an effective rate of tax of 20%.

However, some key elements of IHT will remain the same. The first £325,000 of any estate will still be tax-free - or £500,000 if the estate includes a residence passed to direct descendants. The inheritance tax nil-rate bands will stay fixed at these levels for a further two years until 5 April 2030.

The nil-rate band (currently £325,000) and the residence nil-rate band (£175,000) also remain the same. Furthermore, the residence nil-rate band taper will continue to start at £2 million. The "qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability," the Budget papers also stated.

Only 6% of estates will pay IHT this year, Ms Reeves said during her speech. According to a Treasury press release, published after the Budget, more than 90% of estates each year will not pay IHT under the new rules.

Increases in Capital Gains Tax rates

One of the hot topics in the months leading up to today's Budget was Capital Gains Tax. Many different ideas were proposed by commentators and tax analysts on how it might change to raise extra revenue.

The predictions were right in the sense that we got a rise in the rates. The changes announced were more straightforward than some had imagined.

The key changes are:

• The main rates of CGT will increase to 18% and 24% respectively from today
• The lower rate increases from 10% to 18%
• The higher rate increases from 20% to 24%
• The Business Asset Disposal Relief (BADR) and Investors' Relief (IR) rate rises to 14% from 6 April 2025 and to 18% from 6 April 2026

Residential property rates are not changing.

According to the official Budget papers, released after the speech, CGT is only paid by "fewer than 1% of adults each year."

The Budget papers also explained: "Phasing in the BADR and IR rate increases demonstrates the government's commitment to a predictable tax system."

Ms Reeves said that the UK's CGT rates would still be the lowest of any European G7 economy after her alterations. The OBR says the CGT changes will raise £2.5bn by the end of the forecast, she added.

NI Employer Contributions (NICs) to rise next year

Arguably one of the most contentious policy areas in the lead up to the Budget surrounded NI Employer Contributions. With Labour pledging no rise in NI during the General Election campaign, critics said it broke the promise. But Labour said its pledge related to employee contributions not rising.

Employer NICs will rise from 13.8%, as it stands now, to 15% from 6 April 2025.

Changes were also revealed for the Secondary Threshold - the point at which employers become liable to pay NICs on employees' earnings. This will go down to £5,000 a year from 6 April 2025 until 6 April 2028, dropping from the current rate of £9,100 a year. From 2028, it will increase in line with the Consumer Price Index (CPI).

Employment Allowance more than doubles

Alongside the Employers' NI announcement, Ms Reeves revealed she is increasing the Employment Allowance from £5,000 to £10,500. The desire to protect smaller businesses is the reason behind it, she told MPs. This means that 865,000 employers will not pay any NI at all. The Government is also scrapping the £100,000 threshold for eligibility, expanding it to all eligible employers with employer NICs bills from 6 April 2025.

Income Tax thresholds to rise again from 2028

Some commentators had expected an extension of Income Tax thresholds beyond 2028 - the date set by the previous Government. But Ms Reeves announced the freeze would not go on. From 2028, they will be uprated again, in line with inflation.

Extending the threshold freeze would "hurt working people", she told Parliament, adding: "So there will be no extension of the freeze in Income Tax and National Insurance thresholds beyond the decisions of the previous government."

Income Tax, VAT, and NI for employees remain the same

Ms Reeves confirmed today that she would commit to the Labour manifesto commitments to avoid raising NI for employees, Income tax, and VAT. All remain at the existing levels.

Corporation Tax to be capped for Parliamentary term

The Chancellor today committed to cap Corporation Tax at 25% for the duration of this Parliament. The small profits rate and marginal relief will also stay as they are. As will R&D reliefs.

The existing capital allowances system, including permanent full expensing and the £1 million annual investment allowance, will also remain unchanged.

After the speech was over, the Treasury published a document called the 'Corporation Tax Roadmap'. In this, it stated: "There is a high appetite for policy stability on Corporation Tax following several years of significant change. The roadmap is designed to give businesses the certainty they need without compromising on competitiveness, maintaining the UK's position as the most attractive major economy to invest in."

This also stated plans to monitor 'international developments' to ensure the UK's regime remains 'competitive'.

The roadmap also pledged further work on: clarifying eligibility for different capital allowances; the 'simplification' of capital allowances law; and the tax treatment of 'predevelopment costs'. Several consultations will be published in coming months.

National Minimum Wage to increase

A significant rise for the National Living Wage was announced. It will rise by 6.7% to £12.21. The current rate stands at £11.44. The National Minimum Wage for 18-20 year-olds will rise 16.3% to £10 an hour.

Reform to tax on Carried Interest

One area of potential tax reform that we had expected to hear more about today surrounded the tax treatment of 'carried interest'. This tax break enables private equity fund managers to pay a reduced rate of tax on their earnings.

The Chancellor Rachel Reeves has been quoted in the past as calling it 'absurd'. In its General Election Manifesto, Labour claimed that it would raise £565million through closing this 'loophole'.

Today, Ms Reeves confirmed reforms in how carried interest is taxed. She said the Government will increase CGT rates for carried interest to 32% from April 2025, with further reform from April 2026 to make it 'fairer' and 'better targeted'.

The Budget papers outlined the details, saying: "From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. As an interim step, the two Capital Gains Tax rates for carried interest will both increase to 32% from 6 April 2025."

Stamp Duty goes up for second homes

Stamp duty is to go up for second homes, with the new rules taking effect from 1 November. The Treasury will increase the Higher Additional rate to 5% for second homes. It was previously 3%.

It applies to anyone buying second homes, buy-to-let residential properties and companies purchasing residential property. Anyone who exchanged contracts prior to 31 October 2024 is not affected by the change.

VAT for Private Schools confirmed

One of Labour's long-stated policies, going back into their time as the Opposition, was to remove the exemption on VAT for private schools. There had been calls to delay the introduction of the plans, which some had said would cause chaos ahead of a January implementation date. But the Chancellor confirmed today that the 20% VAT on private school fees will go ahead from January 2025. This will apply to all training, boarding and education services provided by private schools, HM Treasury said.

Another move confirmed surrounded schools in England with charitable status. They will no longer get Business Rates Charitable Rate Relief from April 2025. The two combined policies will raise an estimated £1.8 billion a year by 2029/30, the Government claimed.

DWP counter-fraud team expanded

Reforms to the health and disability benefits system were announced, with an extra £110 million pledged for counter-fraud and error funding for 2025-26. That will include an extra 3,000 DWP fraud and error staff.

Ms Reeves spoke in Parliament of "a crackdown on fraud in our welfare system, often the work of criminal gangs".

DWP will get new legislative powers to "recover debt alongside requiring banks and financial institutions to undertake checks to identify incorrect benefit payments."

These changes will bring £4.3 billion in savings in 2029-30, according to the Budget documents.

Reforms to Business Rates

Immediately after the Budget, the Treasury released a 'discussion paper' called 'Transforming business rates'. It will soon begin asking for views.

The paper stated: "Over the parliament, the government will create a fairer business rates system that protects the high-street, supports investment, and is fit for the 21st century."

Today, Ms Reeves announced an intention to introduce "permanently lower business rates for retail, hospitality and leisure properties from 2026-27 to level the playing field for the high-street."

In further documents, the Government said it is providing £1.9 billion of support to small businesses and the high street in 2025-26 by "freezing the small business multiplier and providing 40% relief on bills for RHL properties, up to a £110,000 cash cap".

More compliance officers for HMRC

HMRC will get the resources to hire 5,000 extra compliance officers, update their IT systems and enhance their app, "improving the user experience for millions of taxpayers", HMRC said.

The Budget papers also referenced the Government's commitment to "taking stronger action on the most egregious tax fraud, including by expanding HMRC's criminal investigation work and legislating to prevent abuse in non-compliant umbrella companies."

State Pension to rise

The Basic and New State Pension will be uprated by 4.1% next year, giving pensioners an extra £470 a year from April 2025. The Treasury said more than 12 million pensioners will benefit from the rise - going up from £221.20 a week, to £230.25 a week.

The full basic State Pension will increase from £169.50 to £176.45 per week, worth an extra £360 annually.

Furthermore, the Pension Credit Standard Minimum Guarantee will also increase by 4.1% from April 2025. That equates to an annual increase of £465 in 2025-26 in the single pensioner guarantee and £710 in the couple guarantee, according to the Treasury.

Non-Dom Tax Regime

An issue spoken about for a long time - and legislated for by the previous Government soon before the General Election - was the axing of the so-called Non-Dom tax regime. Ms Reeves confirmed its abolition from April 2025. She said the Government would close what she described as 'loopholes' in the Conservative administration's plans, published earlier this year.

Increase to Energy Profits Levy

Also known as the windfall tax on energy giants, the Chancellor announced the Energy Profits Levy (EPL) rate will rise by 3%, going up to 38%. This kicks in from 1 November 2024. The levy will end in March 2030.

Fuel Duty frozen

Good news for motorists came with the announcement that fuel duty would be frozen for next year, despite the substantial cost for the Treasury. "There will be no higher taxes at the petrol pump next year," Ms Reeves said.

Air Passenger Duty to rise

Air Passenger Duty (APD) is to increase from 2026-27. Higher rates for private jets will increase by 50%. According to the Treasury, the APD rise equates to "£1 more for passengers taking domestic flights in economy class, or £2 more for those flying to short-haul destinations in economy class, £12 for long-haul destinations".

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