Implications of the Latest Budget Announcements on Private Clients: Insights from Simon Goldring

In a comprehensive review of the impact on the latest budget announcements on private clients, Simon Goldring, a leading Private Client and Tax Partner at Excello Law, offers his expert perspective on what these changes mean. The budget includes substantial reforms to income tax, corporate tax, inheritance tax (IHT), capital gains tax (CGT), and other areas affecting individual and corporate tax structures. These reforms signal significant shifts for private clients, particularly high-net-worth individuals and expatriates with investments and assets in the UK. Below is a breakdown of the primary changes and their expected impacts.

Key Budget Announcements and Tax Changes

1. Income Tax and Corporate Tax Adjustments
   • Starting in April 2028, income tax thresholds will increase in line with inflation, a change likely designed to lessen tax burdens due to rising living costs.
   • Corporate tax will be capped at 25%, which, while relatively high, provides businesses with a fixed tax ceiling, aiding in fiscal planning.
2. Capital Gains Tax (CGT) Increases
   • CGT Main Rate Adjustment: From 30 October 2024, the main CGT rate will rise from 10%/20% to 20%/24%. This sharp increase underscores a government strategy to capture more revenue from capital gains, impacting asset disposals in particular.
   • Business Asset Disposal Relief (BADR) Rate Increase: Effective 6 April 2025, the CGT rate on assets qualifying for BADR or Investors Relief will increase to 14%. This rate will further rise to 18% from April 2026. However, the lifetime limit of £1 million remains in place, maintaining some relief for qualifying disposals.
   • Residential Property CGT: Rates for residential property remain unchanged at 18%/24%, allowing property investors some stability in tax planning.
   • Carried Interest: From 6 April 2025, CGT on carried interest will increase from 28% to 32%, affecting fund managers and investment professionals with carried interest allocations.
3. VCT and EIS Investments
   • The Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS), which offer tax benefits to investors, have had their beneficial tax treatment extended to 5 April 2030. This extension is likely to encourage long-term investments in UK startups and high-growth companies.
4. Inheritance Tax (IHT) Reforms
   • Nil Rate Band Freeze: The IHT nil rate band and residential nil rate band will be frozen until April 2030, limiting the tax-free threshold for estates.
   • Relief Caps: From 6 April 2026, assets eligible for agricultural or business property relief will only qualify for 100% relief up to £1 million, with relief dropping to 50% for amounts above this cap.
   • Reduction of AIM Shares Business Property Relief: AIM shares will qualify for only 50% relief starting April 2026, down from 100%, affecting portfolios structured around AIM investments.
   • Inheritance of Pensions: Effective from April 2027, inherited pensions will become subject to IHT, a significant change for clients holding pension wealth.
   • Shift to Residence-Based IHT Regime: From April 2025, the basis for IHT will shift from domicile to residence. Worldwide estates will fall under UK IHT once an individual is a UK resident for 10 out of the last 20 years.
5. Stamp Duty Land Tax (SDLT) Increase
   • As of 31 October 2024, SDLT on additional homes will increase by 2%, impacting buy-to-let investors and clients with second properties.
6. New Foreign Income and Gains (FIG) Regime
   • Replacing the remittance basis from 6 April 2025, the new FIG regime offers 100% relief for certain foreign income and gains for the first four years of UK residence. After this period, income will be taxed on an arising basis, with strict implications for settlors of offshore trusts.

Opportunities Arising from the Budget Announcements

These changes create both challenges and strategic opportunities for private clients, particularly those with international or offshore financial interests. Here are several planning strategies for mitigating increased tax burdens:

• Non-Residents Establishing Foundations: Expatriates who have been non-resident for over ten years may set up foundations to hold wealth outside of their UK estate, avoiding UK IHT and probate complications.
• Pre-Arrival Planning: Clients planning to move to the UK should consider generating foreign income or gains in the first four years of residence to maximize tax relief under the FIG regime.
• Repatriation Facility: Long-term UK residents who have relied on the remittance basis can benefit from the temporary repatriation facility for three years, allowing funds to be brought into the UK at reduced tax rates, provided funds are carefully segregated overseas.
• Review of Offshore Trusts: With stricter taxation on offshore trusts, long-term residents should reassess the benefits of these structures in light of potential exposure to UK taxes.
• Alternative Investment Vehicles: Clients may consider restructuring offshore investments to reduce income or gains, with tax-efficient options like International Investment Bonds potentially providing a strategic alternative.

The recent budget delivers a mix of reforms designed to widen the tax net, particularly targeting high-net-worth individuals with international wealth and investments. For private clients, proactive planning will be crucial in navigating the new tax landscape. With higher CGT rates, adjustments to IHT, and a shift towards a residence-based taxation model, UK and non-UK residents alike will need to assess how these changes affect their tax obligations.