The financial services sector has not been the focus of policy changes in recent fiscal events, and this pattern held with the 2024 Budget. It is likely that any significant change for the sector driven by the current Government will continue to come in the form of reforms to reporting, rather than material changes to tax policy.
The financial services sector has not been the focus of policy changes in recent fiscal events, and this pattern held with the 2024 Budget. It is likely that any significant change for the sector driven by the current Government will continue to come in the form of reforms to reporting, rather than material changes to tax policy.
There were several headline-grabbing measures in the budget - the reductions in the national insurance contribution rates, the replacement of the ‘nom-dom’ regime and an increase in the threshold for the high-income child benefit charge, for instance. We have further commentary on these measures on our Budget hub. There were also a number of regulatory and operational measures impacting the financial services sector, which flew more under the radar.
The long-trailed UK ISA introduces a seventh variant of the retail investment account. Businesses will need to decide whether or not they want to offer this, and will need to consider the operational implications of administering a separate allowance and a new class of permitted investments.
The Government launched a consultation to seek views on the implementation of the amendments to the common reporting standard (CRS) and the crypto-asset reporting framework (CARF). The consultation runs until 29 May 2024 and the intention is that these regimes will go live on 1 January 2026, with first reporting by 31 May 2027. Included in the consultation is a proposal to introduce domestic CARF and CRS reporting by making the UK a reportable jurisdiction.
These new and expanded regimes intend to plug a gap by bringing digital assets, such as e-money and crypto assets, into the scope of tax information reporting. This will lead to a significant increase in due diligence and reporting requirements for the financial institutions that deal with these products. With a little over a year and half until the go live date, impacted organisations will need to consider how they operationalise these requirements.
The proposal to extend CARF and CRS reporting to domestic residents was unexpected. There are certainly potential benefits. This would streamline reporting requirements and retire the 1970s-era bank and building society interest regime. This would, however, lead to a significant increase in reporting volumes for UK-focused financial institutions. These organisations may well want to contribute to the consultation.
The salaried members rules, a perennial source of confusion, were not changed in the Budget. The guidance was however changed in February, which you can read about in our article here.
The economic crime levy, introduced in the 2020 Budget, will double from £250,000 per annum to £500,000 for the largest businesses. This is intended to make up a shortfall in the levy, which has not been the raising the £100 million per year anticipated.
The Government will begin legislating for the reserved investor fund (RIF) a new UK unauthorised contractual scheme fund aimed at reserved, i.e., professional and institutional, investors.
The RIF is expected to be a suitable vehicle to hold illiquid ‘alternative assets’, such as real estate. Asset managers focusing on UK real estate have largely praised the measure, although Government has confirmed that RIFs will be able to invest in a wider range of asset beyond real estate. The Government has also confirmed that the non-resident capital gains tax rules will apply to investors in certain “UK-property rich” RIFs, and that stamp duty land tax seeding relief will apply for contributions of UK real estate to newly established RIFs.
The new structure is clearly aimed at increasing the UK’s competitiveness as a fund domicile location for unregulated retail fund vehicles.
The Chancellor has affirmed the UK’s commitment to the common reporting standard (CRS) 2.0 and the cryptoasset reporting framework (CARF) by launching a consultation in advance of draft regulations expected later this year. This consultation also floats the prospect of domestic CRS reporting.
The Government is launching a consultation to seek views on the implementation of the CARF and the amendments to the CRS. The consultation runs until 29 May 2024 and the intention is that these regimes will go live on 1 January 2026, with first reporting by 31 May 2027.
Included in the consultation is a proposal to introduce domestic CARF and CRS reporting by making the UK a reportable jurisdiction.
The UK, along with several other jurisdictions, declared its intention to adopt CARF and the CRS amendments in November 2023, and this consultation was expected as a preliminary step in advance of the publication of draft regulations later in the year. Requests from the industry for at least 18 months of lead time ahead of systems changes appear to have been taken on board.
Less expected, however, is the proposal to extend CARF and CRS reporting to domestic tax residents by making the UK a reportable jurisdiction. The intention is that this would supersede Bank and Building Society Interest and Other Interest reporting. There are potential benefits here, such as streamlining reporting requirements. This would also represent a dramatic increase in reporting volumes, particularly for UK-focused financial institutions. We expect that such financial institutions will be keen to provide input on this proposal.
Finally, HMRC is proposing to introduce mandatory registration for UK financial institutions, regardless of whether reporting is required. This would align UK requirements with other CRS jurisdictions.
A further 2% reduction in national insurance contributions (NIC) rates for employees and the self-employed over and above the reductions included in the 2023 Autumn Statement has been announced.
From 6 April 2024, the main rate of class 1 employee NIC will fall from 10% to 8%. This follows the recent reduction from 12% to 10% that took effect from 6 January 2024.
A further 2% reduction to the class 4 NIC main rate has been announced, bringing the rate down to 6% from 6 April 2024.
The rate of class 1 employee NIC and class 4 self-employed NIC paid by those with earnings or profits above the upper limit will remain at 2%. Employers' NIC has not been cut and remains chargeable at 13.8%.
These cuts represent a relative saving for workers compared to those who receive income by other means. Middle earners will benefit most from this cut. In real terms, however, they only provide partial relief against the continuing freeze in income tax and personal allowance thresholds that is expected to remain until April 2028. The Chancellor has also decided not to cut the burden on employers, which is unsurprising given the continuing cost of living pressures faced by employees.
The Government will introduce a new ISA, focussed on encouraging investments in UK companies. The Government has also confirmed that it will bring forward legislation to allow fractional share investments through ISA platforms.
The new UK ISA product will provide an additional annual £5,000 allowance over and above the current £20,000 allowance, to be used for investments in UK companies. The Government released a consultation inviting views on the design and implementation of the new UK ISA with responses required by 6 June 2024.
The Government will provide further details of this new product at a later date. The Government also previously announced, at the 2023 Autumn Statement, that it intended to legislate to allow fractional share investments in ISAs. The Chancellor has now announced that the Government intends to bring forward legislation by the end of summer 2024 regarding this.
Fractional share investments are allowed by some ISA platforms and mean that investors are able to invest in companies without needing to own a whole number of shares. This can benefit investors, particularly where the price of a company share is high. There has been some uncertainty around whether or not a fractional share is a ‘share’, which is an allowable investment under existing ISA legislation, or a form of derivative contract, which is not. The new legislation seeks to address this issue.
The new UK ISA encourages investment into UK companies. Investors will, however, welcome the fact that there will been no changes to rules for existing ISA products, so individuals retain the opportunity to diversify their investments on a global basis, should they wish to.
The clarity around fractional shares is also good news for investors, as it will allow them continued flexibility with their investment strategy.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2023/24.
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