Autumn Budget Preview: Major Shake-Up for Non-Dom Taxes

In the third of our series of articles that preview the Autumn Budget, BAND tax expert Chris Wilson looks at a significant overhaul of non-dom tax rules, potential pension reforms and changes to property tax reliefs.

In a nutshell:

• Non-Dom Tax Overhaul: Domicile status to be replaced.
• Foreign Income and Gains (FIG): Four-year rule confirmed with tweaks.
• Pension Reforms: Potential changes to tax relief.
• Private School Fees: VAT exemption scrapped.
• Furnished Holiday Lettings (FHL): Abolition of FHL tax regime.
• Carried Interest: Private equity fund manager rewards shift.

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 October 30. We’ve gathered the key takeaways from the latest policy papers and statements. 

If you have been contemplating changes to your business, assets or estate structure recently, now would be an excellent time to consider accelerating those decisions. While there is clearly some uncertainty over what changes are on the horizon, the tax rules applied until at least October 29 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 April 6, 2025. This will eliminate 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 to firm up on some limited transitional reliefs, inheritance tax (IHT) and offshore anti-avoidance rules in the coming months. 

Personal taxes and wealth management

Commitment not to increase national insurance, income tax or VAT was 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. However, it would possibly be more likely to introduce 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 retained on pension contributions, igniting some urgency for those considering pension transactions 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 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 the removal of VAT exemption for private school fees. From January 1, 2025, all educational and vocational services provided by a private school will be subject to 20% VAT. Also, these institutions can no longer claim charitable rate relief for their business rate liability. Forward payment of fees to avoid these costs appears to have been quashed, with HMRC’s view appearing to be 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 on individuals, corporations and trusts which 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 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 business assets 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 potentially 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 before March 6, 2024, for capital allowances to be claimed in 2024/25.

Winter fuel payments

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

BAND says:

The upcoming Autumn Budget could bring significant changes to taxes, pensions and wealth management. Our expert team is ready to help you navigate the shifts with tailored tax advice and wealth-planning solutions. Whether you’re looking to adapt to new tax policies, optimise your pension strategy or protect your investments, we’re here to provide clear, actionable support. Get in touch to explore how we can help secure your financial future, whatever the budget brings.