The Government has created a Corporate Tax Roadmap to communicate its intentions for key areas of the Corporation Tax regime for the duration of this Parliament. This is intended to provide companies with a stable and predictable tax environment, whilst encouraging long term investment, innovation and growth.

Summary

The Government published a Corporate Tax Roadmap setting out the main theme of stability, covering the major features of the tax system for companies and where changes are expected or to be explored. 
The Roadmap is intended to address the priorities raised by taxpayers of predictability, stability and certainty. 

The main commitments included:

• Capping the main Corporation Tax rate at 25% until the end of this Parliament
• Maintaining a small profits rate of 19%, the current thresholds and the availability of marginal relief
• Continuing with the current capital allowance regime and the availability of full expensing, the annual investment allowance, writing down allowances and structures and building allowance
• Maintaining the existing research and development (R&D) reliefs at the current level of generosity and improving their administration
• Continuing to recognise the importance of the patent box and intangible fixed asset scheme
• Maintaining other Corporation Tax reliefs such as the audio-visual expenditure credit and video game expenditure credit
• Launching consultations on transfer pricing, permanent establishments and diverted profits tax, including the potential removal of UK to UK transfer pricing
• Providing investors in major projects increased advance certainty of tax reliefs and modernising the technology that the Corporation Tax system relies upon

Our comment

We welcome this initiative and the sentiment behind it. The roadmap is wide ranging and a useful guide to the Government’s intentions for Corporation Tax.

It would be helpful for businesses to be provided with the promised stability, transparency and consultation on Corporation Tax matters, particularly with respect to reliefs that relate to long term business decisions, such as capital allowances and R&D tax relief. Whilst tax changes are expected, the Corporate Tax Roadmap should aid businesses decision making and encourage investment.  

Carried interest, a share in the profits of a private equity fund's investment, is currently taxed at 18% or 28%. The Government plans to change this, viewing the current regime as too generous. From 6 April 2025, the capital gains tax rate on carried interest will rise to 32%. From 6 April 2026, all carried interest will be treated as trading profits and subject to income tax as well as national insurance, with a 72.5% multiplier reducing the effective tax rate for ‘qualifying’ receipts. The new regime will build on existing rules and will apply to both employed and self-employed fund managers. 

Summary

Carried interest is a share in the profits of an investment made by a private equity fund, granted to fund managers, and is contingent on the performance of that investment. Due to its unique nature, carried interest has its own tax regime, which currently sees these distributions taxed at a rate of 18% or 28%. The Government considered this regime too generous and promised to bring in a new tax regime to close a perceived 'loophole'.

What is changing?

Changes will be introduced in two phases:

• From 6 April 2025, the existing regime will remain but the rate of capital gains tax that applies will increase to 32%
• From 6 April 2026, all carried interest will be treated as trading profit and subject to income tax and national insurance contributions. A 72.5% multiplier will apply to reduce the rate of tax for ‘qualifying’ carried interest receipts

The new regime will build on top of existing rules and definitions for carried interest. It will not displace the existing disguised investment management fee (DIMF) and income based carried interest (IBCI) rules.

The existing regime will continue to apply until 5 April 2026 to allow time for consultation on the new regime, enabling the definition of qualifying carried interest to be refined.

New regime

IBCI rules already apply to subject specific carried interest receipts to income tax and national insurance. This is the case where the average holding period of the investments, to which the carried interest relates, is less than 36 months, with a blended approach for holdings of 36-40 months.

The new regime will build on this regime and treat any carried interest that is subject to IBCI rules as trading income.

For ‘qualifying investments’, those not caught by the IBCI rules will then see the effective tax rate paid on carried interest reduced by a ‘multiplier’ mechanism.

It is intended that this will reduce the amount of carried interest subject to taxation by 72.5%. For an additional rate taxpayer, this would effectively reduce the rate of tax and national insurance to 34%.

Modification to IBCI rules

The Government plans to modify the IBCI rules, to remove an exemption for carried interest received in connection with employment and subject to employment-related securities (ERS) rules. This will broaden the scope of the rules to catch both employed and self-employed fund managers in future.

A consultation document has also been issued to seek views on further modification to these rules to broaden their application to two suggested areas:

• Requiring a minimum threshold for capital invested by fund managers and;
• Requiring a minimum period of time between the award of carried interest and its receipt

The consultation period will run until 31 January 2025 and it is not expected that further detail will be available before early Spring 2025.  

Territorial scope of carried interest

It will continue to be possible for individuals to limit the amount of carried interest that is subject to UK taxation where the investment management services leading to the carried interest were performed outside the UK. This will only apply for individuals qualifying for the new four-year foreign income and gains regime.

However, the reclassification of carried interest as trading income will create a new liability to taxation for non-UK resident individuals who receive carried interest arising in respect of duties performed within the UK.

Our comment

Private equity is a significant part of the UK economy, serving both as a source of investment for UK businesses and as a key industry within the UK’s financial services sector. Currently, London ranks second only to New York as the world’s leading private equity hub.

Senior executives are now more mobile and flexible than ever. There was concern that any overreach by the Chancellor could prompt these executives, who pay large amounts of tax at the highest tax rates, to relocate to more favourable jurisdictions. This could diminish the sector and reduce long-term capital funding for UK businesses.

Our pre-Budget wishes were for the Chancellor to balance the need for increased tax rates with maintaining the UK’s competitiveness relative to other major economies, as well as to ensure simplicity and consistency in the application of the rules.

While overall tax rates are increasing, it is at least a small consolation that they have not risen significantly relative to the main rate of capital gains tax, now at 24%. It is also helpful that the new regime will build on existing definitions and rules, with a period of consultation on modifications to the definition of qualifying carried interest. However, it is disappointing that there will be no transitional provision for existing carried interest entitlements that are yet to be received.

It also remains to be seen whether these changes, coupled with stricter tax rules and more onerous reporting requirements for individuals moving to the UK, will severely limit the UK’s attractiveness as a hub for private equity.

The Chancellor has announced that there will be an immediate increase to the rates of capital gains tax (CGT) with the basic rate rising to 18% and the higher rate to 24%.  

There will also be a staggered increase to the CGT rates for business asset disposal relief (BADR) and investors’ relief (IR), with effect from 6 April 2025.

Summary

The main rates of CGT have been increased for all disposals made on or after 30 October 2024. The tax rates will increase from 10% to 18% at the basic rate and from 20% to 24% at the higher rate. CGT rates applying to disposals of residential property will remain unchanged and are now aligned with the main rates of CGT.  

No changes have been made to the annual exempt amount and taxpayers will still be able to claim relief for capital losses and choose to offset these against capital gains in the most tax efficient way.  

BADR and IR have also been amended. The rate of CGT on disposals of assets eligible for BADR or IR will increase from 10% to 14% from 6 April 2025, with a further increase to 18% from 6 April 2026.  

The lifetime limit for IR has been reduced from £10 million to £1 million for disposals made on or after 30 October 2024. The lifetime limit for BADR remains unchanged at £1 million.

Our comment

An increase to the rate of CGT was widely expected, however there was little consensus as to what the exact rate would be or from when the changes would take effect. With the immediate changes to tax rates, 2024/25 will be a tax year of multiple CGT rates.  

The increase in rates to 18% and 24% aligns the main rates of CGT with the rates for residential property disposals, which should reduce one element of complexity in the system for taxpayers.  

Taxpayers should look to ensure that any available losses are utilised in the most tax efficient manner.  

The stamp duty land tax (SDLT) surcharge for purchasers of second homes and corporate purchasers of residential property, commonly referred to as the higher rate for additional dwellings (HRAD), will be increased from 3% to 5%. 

In addition, the higher rate of SDLT for purchases of high-value property (value exceeding £500,000) by companies, and other corporate vehicles, will increase from 15% to 17%. 

Summary

The HRAD will increase from 3% to 5% for land transactions with an effective date, usually the date of completion, of on or after 31 October 2024. In addition, for land transactions with an effective date of on or after 1 April 2025, the rates and thresholds for residential SDLT will change. The £250,000 threshold will decrease to £125,000, as planned. A rate of 0% will apply on consideration up to £125,000 and a rate of 2% on the consideration that exceeds £125,000 but does not exceed £250,000. The rates and thresholds will remain unaltered above £250,000, and the increased 5% HRAD will be applicable on top of these rates. 

The higher rate of SDLT payable by companies buying high value property worth over £500,000 will be increasing by 2% to 17%. This penal flat rate generally only applies where property is acquired for a non-commercial purpose and relief is available for most developers and investors in property rental businesses.
 
It should be noted that SDLT only applies to purchases of land in England and Northern Ireland, and the increased HRAD rates do not apply to purchases of property in Scotland and Wales, where different, devolved, land transaction tax regimes apply. 

As previously announced in the Spring Budget 2024, there will also be changes to furnished holiday lets (FHL). Currently, FHLs are treated as a business for capital gains tax (CGT), meaning favourable tax reliefs can be claimed such as a lower CGT rate of 10% under current business asset disposal relief rules. Other CGT reliefs, such as rollover relief, can also currently be claimed. For income tax purposes, full relief is currently available for loan interest.

From April 2025, the FHL regime will be abolished and the business will be treated as a normal rental business. This means the standard CGT rates of 18% and 24% on a disposal will apply and only basic rate tax relief for loan interest will be available when calculating taxable profits.

Our comment

The SDLT changes were not as expected but a change of some description was anticipated. This will increase the SDLT bill for many property owners, although, it is worth noting that relief is still available for the purchases of six or more dwellings, which will be applicable in many commercial arrangements. However, this latest change, coupled with the removal of multiple dwellings relief earlier this year, will represent an undesirable increase on land transaction costs especially for smaller investors and developers.

It is also worth observing that there were not any associated substantive changes to the HRAD legislation, other than the increase of rates. This means that cashflow problems will be exacerbated for purchasers who must pay the HRAD on the purchase of a new residence and later reclaim it.

There was no mention of any changes to the first time buyers' (FTB) relief, or the non-UK resident surcharge as had been rumoured beforehand. However, it is expected that the thresholds for FTB relief will reduce back to £300,000 and £500,000 (from £425,000 and £6250,000) with effect from 1 April 2025, as announced by the previous Government, although this was not specifically mentioned.

Alongside the main Budget documents, the Government released a discussion paper titled ‘Transforming Business Rates’. This paper aims to engage key stakeholders and invites industry dialogue on potential reforms, whilst outlining the Government’s plans to modify the current system.

Summary

The discussion paper ‘Transforming Business Rates’ outlines the Government’s plan to replace the current business rates system to ensure fairer tax revenue collection. The Government intends to consult on the potential introduction of a General Anti Avoidance Rule (GAAR) for business rates, aimed at addressing the misuse of the empty rates relief system.

The paper proposes a reduction in the antecedent valuation date to one year before a revaluation and changing the frequency of revaluations from every three years to annual assessments. The document clarifies the roll out of the new information duty beginning on 1 April 2026, phasing it in before being formally activated and mandated by 1 April 2029.

There is also a commitment to deliver the digitisation of the business rates programme by March 2028. The document hints at a review of the current transitional relief system.

The main measures announced in the Chancellor’s speech were a commitment in the longer term to lower the business rate multiplier for those in the retail, hospitality and leisure sector. A permanent lower multiplier will be introduced by the 2026/27 rate year, funded by a higher rate for those with assessments over £500,000 Rateable Value. In the interim period, for the 2025/26 rate year, the Chancellor committed to extending the retail hospitality and leisure rate relief, at a lower rate of 40%.

The Chancellor also committed to freezing the small business rates multiplier at 49.9p for the 2025/26 rate year, whilst uprating the standard multiplier to 55.5p in line with September 2024 CPI Inflation.

Finally, it was set out that charitable rate relief for private schools operating as charitable trusts would be removed from April 2025. However, the supporting Budget document sets out that private schools which are ‘wholly or mainly’ concerned with providing full-time education to pupils with an education, health and care plan will remain eligible for business rates charitable relief.

Our comment

It is welcome news that the Government will consult on how to improve the current system. However, the timescales set out in the transforming business rates paper indicate that it may take longer than one Labour term in office to achieve this. Introduction of the new information duty is planned for 2026, digitising business rates a further four years from now and an intention that the information duty will only be fully mandated by 2029.

Although the discussion paper is a step in the right direction, it is evident that the replacement of the system of business rates in England and surrounding compliance and policies are unlikely to change at the pace businesses require, with largescale change not on the horizon until 2028 and beyond.

The Chancellor has announced that the current remittance basis regime for non-UK domiciled individuals will be replaced with a residence-based regime from 6 April 2025.

Summary

Under current law, a non-UK domiciled individual (broadly someone originating from outside the UK who does not intend to remain in the UK permanently) can elect to be taxed in the UK on the ‘remittance basis’, until they have been resident in the UK for 15 out of the past 20 tax years. Individuals who use the remittance basis are only taxed on non-UK income and gains that are brought to, received or used in the UK. The Government will replace this regime with one based on tax residence from 6 April 2025.

Under the new foreign income and gains regime (FIG regime), qualifying individuals will not pay tax on foreign income and gains for the first four years of UK tax residence provided they have not been UK tax resident in the ten tax years prior to their arrival, irrespective of domicile status. Taxpayers who choose to use the FIG regime will not be entitled to an income tax personal allowance or capital gains tax (CGT) annual exemption for the relevant tax year.

The following transitional arrangements will be available to existing non-UK domiciled individuals after 6 April 2025:

• an option to rebase the value of capital assets to their value on 5 April 2017 where particular conditions are met. This will be available for individuals who are currently non-UK domiciled and not deemed-UK domiciled under existing rules, who have claimed the remittance basis
• a three-year temporary repatriation facility, which will allow individuals who have previously claimed the remittance basis to remit existing pre-6 April 2025 foreign income and gains to the UK at reduced tax rates of 12% rising to 15% from 6 April 2027

From 6 April 2025, the protection from tax on foreign income and on capital gains arising within settlor-interested trusts will no longer be available. This means that the income and gains will be taxable on the settlor unless the settlor qualifies for and claims the FIG regime. There have also been updates to rules around matching trust income and gains to distributions to beneficiaries who claim the FIG regime and to rules on onward gifts and distributions to close family members of the settlor.

Overseas workday relief rules will also be revised from 6 April 2025. Under existing rules, inbound non-UK domiciled employees can benefit from an income tax exemption on income from non-UK duties for the first three years of UK residence, subject to that income not being remitted to the UK. The new rules will extend the relief to the first four years of UK residence, whilst removing the requirement to keep the income offshore. This means that the overseas element of the employment income can be brought to the UK without a tax charge. This is subject to a limit of the lower of £300,000 and 30% of an individual’s total employment income.

A new residence-based regime will be introduced for inheritance tax (IHT). There will be a ten year exemption from IHT on non-UK assets for new ‘arrivers’ and a ‘tail-provision’ to keep a taxpayer within the scope of UK IHT on worldwide assets for a period after leaving the UK. The length of the period covered by the tail provision will depend on how long the individual was UK resident for before they left. Individuals who are within the scope of UK IHT on worldwide assets will be referred to as ‘long-term residents’.

In most cases, the IHT status of assets held in trusts will depend on the long-term residence status of the settlor at the time of the chargeable event. This means that assets held in trusts might move in and out of the scope of UK IHT depending on the status of the settlor at the relevant time. These rules will apply to all trusts regardless of whether they were created before or after 6 April 2025 and regardless of the domicile, or deemed-domicile status, of the settlor at the time of the settlement. The only exception to this rule is where a settlor has died before 6 April 2025. In such cases, non-UK assets held in the trust will continue to be excluded property for IHT purposes if the settlor was neither UK domiciled nor deemed-UK domiciled when the settlement was made.

Our comment

The previous Conservative Government had already announced some of these changes, so it was well anticipated that the Labour Government would replace the non-UK domicile regime.

The Government will hope that the new rules can still attract individuals to the UK. New arrivers will not be taxed on funds that they bring to the UK, whereas existing rules charge tax on remittances of foreign income and gains that arise after an individual becomes UK resident. Longer term UK residents stand to lose out, particularly if they had anticipated using the remittance basis beyond 5 April 2025 or if they benefit from either of the existing protected trust and excluded property regimes for offshore trusts.

Individuals becoming taxed on a worldwide basis may need to give greater consideration to international tax treaties.

The IHT and trust, in particular the IHT ‘tail’ provisions, are likely to be of significant concern to non-UK domiciled individuals and the trust changes are likely to significantly increase compliance burdens.

There is now a window of just a few months, during which time affected taxpayers should take the opportunity to review their tax affairs and plan for how the new tax regime will affect them in the future.

The Autumn Budget brought significant announcements in relation to inheritance tax (IHT) for landowners and business owners. While the existing nil-rate band and residential nil-rate band will remain unchanged, important reliefs for business property and agricultural property will be restricted from 6 April 2026. The inheritance of unused pension funds at death will also be brought within the scope of IHT.

Summary

IHT rate bands

IHT is a capital tax paid on the value of an estate on death and on certain chargeable lifetime gifts. The current rate of IHT is 40%.

An estate valued up to the nil-rate band (NRB) of £325,000 can be inherited without IHT. Any unused NRB of an individual can also be passed to their surviving spouse or civil partner. A further residential nil-rate band (RNRB) of up to £175,000 is available to reduce the value of an estate if a family home is left to direct descendants. Like the NRB, an amount of up to 100% of the unused RNRB can be passed on to a surviving spouse. A potential combined NRB and RNRB of up to £1m may therefore be available for a married couple whose joint estate is worth £2 million or less.

The Chancellor announced that the current NRB and RNRB will not change and has also frozen them at current thresholds for a further two years until 5 April 2030.

Business and agricultural property relief

Current rules allow relief from IHT for the value of trading business assets or agricultural land and property gifted during lifetime or held at the time of death. Broadly speaking, 100% business property relief (BPR) is available for a trading business, or an interest in a business, and unlisted shares in a trading company.

A 50% relief applies to some other forms of business assets, such as assets used by a trading business.

100% agricultural property relief (APR) is available for land or pasture used to grow crops or rear farm animals as well as associated property such as farmhouses and cottages. Relief can be restricted to 50% depending on the asset and tenancy arrangements.

Qualifying Alternative Investment Market (AIM) shares have historically qualified for 100% BPR, when held for more than 2 years.

Changes introduced

From 6 April 2026, the availability of BPR and APR at 100% will be limited to a total allowance of £1 million. The balance of qualifying assets will be eligible for relief at 50%. The rate of 50% applying to certain business and agricultural property will remain unchanged.

This new allowance will apply to the combined value of business property or agricultural property and will cover transfers during lifetime and the value of property in a death estate.

For example, the allowance could be divided across £750,000 of property qualifying for BPR and £250,000 of property qualifying for APR.

If the total value of the qualifying property to which 100% relief applies is more than £1 million, the allowance will be applied proportionately across the qualifying property. For example, if there was agricultural property of £6 million and business property of £4 million, the allowances for the agricultural property and the business property will be £600,000 and £400,000 respectively.

Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.

AIM shares will qualify for relief at 50%.

Anti-forestalling measures will be introduced in relation to lifetime transfers made on or after 30 October 2024 where the transferor passes away on or after 6 April 2026, meaning the £1 million limit could apply to those gifts.

The £1 million allowance also applies to trusts. Trustees of most trusts are liable to an IHT charge of up to 6% every ten years on the value of property held in a trust. There is also an exit charge when property leaves the trust. The £1 million allowance will apply to the combined value of property qualifying for BPR and APR within the trust, on each ten-year anniversary charge and exit charge. A consultation is expected in early 2025 covering the detailed application of these changes for property held in trust.

Settlors may have set up more than one trust comprising qualifying business or agricultural property before 30 October 2024, each trust would have a £1 million allowance for 100% relief from April 2026. The Government intends to introduce rules to ensure that the allowance is divided between these trusts where a settlor sets up multiple trusts on or after 30 October 2024.

Another update to IHT is that the Government will introduce legislation to extend the existing scope of APR from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK Government, devolved governments, public bodies, local authorities or approved responsible bodies.

Inherited pensions

Currently, the value of most pensions is outside the scope of IHT. From April 2027, the Government will bring unused pension funds and death benefits payable from a pension into an estate for IHT purposes.

Our comment

While changes to BPR and APR were anticipated, the precise form of any changes was uncertain and did not feature in the Labour manifesto. Amid concerns that the relief could be removed entirely, it is welcome to see commitment to maintaining the relief in some form.

These changes will have a significant impact for the owners of private businesses and agricultural assets, as well as their families. Careful thought will now need to be given to how these businesses can be continued by the next generation, as well as how families will be able to meet the IHT liabilities they are now exposed to.

As an example, the estate of a qualifying trading business owner with unlisted shares valued at £11m would now have a potential exposure to IHT of £2m, potentially without other liquid assets to pay it. This could call the long-term viability of some succession plans into question, particularly if family members are faced with a decision of selling the business to settle an IHT liability.

Understanding your IHT exposure is therefore crucial, particularly if your estate includes high value business assets, agricultural land or an inherited pension fund.

What may have previously been exempt or covered by 100% relief, may now be chargeable and be exposed to IHT at 40%.