On October 30, 2024, Chancellor Rachel Reeves presented the UK Budget, introducing a series of significant tax changes that are likely to impact Cross Border Financial Planning’s UK resident or domiciled clients, particularly those with UK assets or business interests. Updates across inheritance tax, capital gains tax, employers’ national insurance, the non-dom regime, stamp duty, and QROPS bring new rules and rates that UK-based clients should consider as they plan their financial strategies, business costs, and tax obligations. Below, we outline what’s new in each area and the key considerations for Cross Border Financial Planning’s clients.

1. Inheritance Tax (IHT) Updates

Current Rule: Nil-Rate Bands

Inheritance tax applies to estates exceeding £325,000 (nil-rate band) plus an additional £175,000 for primary residences passed to direct descendants. The nil-rate band has been set at £325,000 since 2009/10, and the residence band has remained unchanged since 2020/21.

What’s New?
The Chancellor has extended the freeze on both nil-rate bands until 2030, instead of 2028 as previously planned. This move is expected to increase the number of estates subject to IHT.

Current Rule: Unused Pensions and IHT
Under existing rules, pensions are generally excluded from the estate’s value for IHT purposes. This exclusion allows pension funds to pass on without inheritance tax.

What’s New?
Effective April 6, 2027, most unused pension funds will be included in an estate’s value, potentially incurring a 40% IHT charge. This change may prompt some investors to consider other tax-efficient strategies, such as assets that qualify for Business Property Relief (BPR), to reduce inheritance tax exposure.

Current Rule: Business Property Relief (BPR) [1]
BPR allows qualifying family businesses to be passed on without significant IHT liabilities. The relief extends to certain private assets, including shares in qualifying private companies.

What’s New?
From April 6, 2026, 100% IHT relief on BPR-qualifying assets will apply only to the first £1 million. Assets exceeding this amount will receive 50% IHT relief instead, potentially increasing tax obligations for larger estates.

Current Rule: AIM Shares[2] and IHT
Under BPR, qualifying AIM shares can be passed on free of IHT if held for at least two years.

What’s New?
Beginning April 6, 2026, the IHT relief rate for AIM shares will be reduced to 50%, increasing the tax liability on these assets. However, AIM shares will remain exempt from the £1 million BPR cap, preserving some tax advantages over conventional stocks.

[1] Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you are unlikely to be protected if something goes wrong.

[2] Please note that AIM listed shared are high risk and can fluctuate widely in value. Your capital is at risk. Your investment can fall as well as rise in value so you could get back less than you invest.

2. Capital Gains Tax (CGT) – Rate Increases and Investor Implications

Current Rule: Capital Gains Tax Rates
Previously, CGT was charged at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. A residential property surcharge brought CGT on these gains to 18% and 28%, respectively.

What’s New?
CGT rates have increased, with the basic rate rising from 10% to 18% and the higher rate increasing from 20% to 24%. This change took effect immediately, applying to all gains realized on or after the morning of October 30, 2024. Notably, the surcharge on residential property gains remains unchanged, effectively aligning CGT on other assets, such as shares and funds, with property gains. The annual CGT allowance also remains fixed at £3,000 per person and £1,500 for trusts, providing no additional relief despite the rate increase.

Current Rule: Employers’ National Insurance Rate
The employers’ national insurance contribution rate was 13.8%, with a threshold of £9,100 before contributions are due.

What’s New?
The rate has increased from 13.8% to 15%, and the threshold has dropped from £9,100 to £5,000. This shift translates to an estimated £615 increase in annual costs for each employee, which will impact labour-intensive industries such as construction. While some employers receive some relief through the Employment Allowance, the higher rate may drive interest in cost-minimizing strategies. To counter potential avoidance, the government has allocated more resources for HMRC to investigate off-payroll workers and IR35 compliance.

Current Rule: Non-Domiciled Tax Status
The non-domiciled (non-dom) regime has allowed individuals residing in the UK to claim non-dom status, enabling them to avoid UK tax on income and gains earned outside the UK, provided these funds are not remitted to the UK.

What’s New?
The Chancellor confirmed the removal of the non-dom regime in the Budget. While UK property is subject to UK tax regardless of the owner’s residence status, the elimination of the non-dom regime may prompt some non-domiciled individuals to relocate and possibly withdraw investments from the UK. This change makes it critical for non-doms with UK assets to reassess their tax and residency strategies.

Current Rule: QROPS Transfer Exemptions
Previously, transfers from UK pension schemes to QROPS within the European Economic Area (EEA) or Gibraltar were exempt from the 25% Overseas Transfer Charge (OTC).

What’s New?
The 2024 Budget removed this exemption, so all transfers to QROPS, including those within the EEA or Gibraltar, are now subject to the 25% OTC as of October 30, 2024. This removal of exemptions aims to discourage tax-driven pension transfers and aligns with the government’s increased focus on tax revenue.

Current Rule: QROPS and Inheritance Tax
Until now, most pension funds, including those in QROPS, were excluded from the estate value for IHT purposes.

What’s New?
Starting April 6, 2027, unused pension funds within QROPS will be included in an individual’s estate for IHT purposes, potentially subjecting them to a 40% inheritance tax. This change may influence the appeal of QROPS for estate planning, as these pensions will now face IHT if left unused at death.

Current Rule: Additional Dwellings Surcharge
Under current SDLT rules, residential property investors purchasing an additional property face a 3% surcharge on top of the standard SDLT rates.

What’s New?
The surcharge on additional dwellings has increased from 3% to 5%, effective October 31, 2024. This adjustment will make secondary property purchases more costly, potentially impacting the returns for property investors with UK real estate portfolios.

 

These changes in the UK Budget 2024 bring important considerations for UK resident and domiciled clients, particularly those with substantial assets, UK-based investments, or business interests. As the tax landscape becomes increasingly complex, strategic planning is essential to manage these updates effectively, protect wealth, and maximize tax efficiency. At Cross Border Financial Planning, we are financial planners dedicated to aiding and assisting our clients with these adjustments, ensuring your financial strategies are aligned with the evolving UK tax environment.

Investments can rise and fall, and you may get back less than what you started with. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.  Your pension income could also be affected by the interest rates at the time you take your benefits.

This article is for guidance only and does not constitute individual financial advice. The Financial Conduct Authority does not regulate tax planning and estate planning. Cross Border Financial Planning are not tax advisers, and we do not offer tax advice. Tax and legislation are subject to change.

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