UK Spring Budget: How will the changes impact your affairs?

Many viewed the Spring Budget as a last chance for the UK Government to move the political dial before a general election later this year. Unsurprisingly, the focus was therefore on optimistic economic forecasts and addressing the cost of living for the public.

As a result, the main headlines reflected steps to ease those pressures; reducing national insurance costs again to ease pressure on workers, some child benefit reforms and pension changes – and the abolishment of the existing non-dom regime.

Major changes for non-doms

In what was likely his last Budget heading into an election year, the Chancellor announced a radical overhaul in the UK’s taxation regime for UK resident non-domiciled individuals (non-doms).

From 6 April 2025, the new system brings with it significant changes for non-doms living in the UK that will likely prompt a chain reaction of activity in the private wealth sector over the next 12 months.

The current regime

At present, non-doms are able to claim the remittance basis, paying no, or minimal tax for the first 15 years of residence in the UK. In this period, only UK income and capital gains are taxed, while any foreign income and capital gains are exempt. After seven years residing in the UK, an annual charge of £30,000 is applied, rising to £60,000 after 12 years.

The new system

As of 6 April 2025, the new system will apply tax requirements on the basis of residence, not domicile. Non-doms will be presented with a four-year foreign income and gains regime, applicable after a period of 10 tax years of non-UK residence. Those who fall within the new rules will not pay tax on foreign income and gains in the first four years of residency, and funds transferred to the UK will be free from any additional charges. Tax will still be applied to UK income and gains.

Other key updates for private clients include:

• Capital Gains Tax (CGT) cuts: There will be a reduction in CGT on disposals of residential properties by individuals on or after 6 April 2024, from 28% to 24%.
• Multiple Dwellings Relief (MDR) abolished: Currently, MDR provides a lower rate of Stamp Duty Land Tax when two or more dwellings are acquired as part of a single transaction. This will be ceased for property transactions with an effective date on or after 1 June 2024. The regulations governing the acquisition of mixed-use properties (combining residential and non-residential components) remains unchanged and readily available. The changes do not affect contracts entered into on or before 6 March 2024, irrespective of when those transactions are finalised, providing there are no alterations to the contract post-6 March 2024.
• British ISA: A new stocks and shares ISA is set to be introduced, increasing the annual tax free threshold from £20,000 to £25,000. The additional £5,000 allowance is allocated exclusively for investment in UK assets.

Key takeaway

Whilst the reduction in CGT will be welcome news for many, the changes for non-doms is likely to impact many more than the 68,800 currently utilising the remittance basis. Additional changes are rumoured to be on the horizon in respect of immigration which may impact international families relocating to the UK with employees.

For non-doms impacted by the unforeseen rule changes, there are decisions to be made as to the long term attractiveness of the UK. However, for some, there are clear benefits to offshore trust structuring prior to April 2025. If you find yourself within that camp, please feel free to get in touch to discuss how we might be able to help.

Tax updates for businesses

This was a quieter Budget from a business perspective, and perhaps a missed opportunity to address some key tax issues as a result.

That said, key changes include:

• Increase of the VAT threshold from £85k to £90k: implemented to limit the ‘cliff edge’ effect where small start-ups stop growing their business to avoid the cost of VAT compliance.
• Extension of the scope of ‘full expensing’: a mechanism where companies obtain corporate tax relief for every pound they spend on capital expenditure. This now includes any leased assets businesses have and will reduce their corporate tax bill on a pound-for-pound basis.
• R&D simplification: the UK Government has stated it is committed to some form of simplification around R&D but failed to provide much detail at this stage or elaborate further on what it might mean for the new R&D merged scheme which is coming into effect from April 2024 (the new scheme is overly complex). They did, however, commit a package to help encourage R&D work in life sciences, pharma and cleantech.

Key takeaway

Meaningful changes might still be to come in the Autumn Budget later this year. If the Government achieve growth and inflation targets ahead of the next announcement, one could anticipate a potential reduction in corporate tax rates – watch this space.

Pensions updates – Value for Money

In respect of pensions, it’s not what the Budget contained, but what it left out. This latest Budget announcement contained very little for occupational pension schemes; unsurprising given the amount of reform underway from initiatives announced last autumn.

What we did receive, was more information on the joint Regulators’ Value for Money (VFM) proposals, expected to be released this ‘spring,’ a requirement for Defined Contribution pension schemes to disclose the amount they invest in UK equities and comments of support for a ‘lifetime provider model,’ sometimes referred to as ’pot-for-life.’

Key takeaway

For our pension scheme clients, the main takeaway from the Budget is the focus on value for money. Value for money assessments will become more rigorous and those who have been mulling over a move to master trust may need to start prioritising this analysis. ZEDRA have long been the governance specialist on value for money, and are happy to help any schemes wrestling with this issue.

In summary

As anticipated, the Chancellor delivered a Budget with wide appeal to the many individuals across the UK strained amid heightened cost of living. However, while we saw minimal changes for businesses, the radical tax reform for non-doms will significantly impact decisions in private wealth management over the course of the next 12 months.

So, as we digest the latest announcement, we keep one eye towards future adjustments in the Autumn Budget, where one expects there is more to come.

How ZEDRA can help

The team at ZEDRA are here to help you navigate these changes, whether they impact you, your business, or your clients. For many non-doms, there will be a series of decisions to make over the next 12 months to protect lasting wealth and streamline investments.

The options are many and complex. And whilst certain structures may be suitable for one client, that does not make them suitable for another.

Our highly skilled, experienced team can help you identify and set up the best structure to suit your specific needs.

Contact David Rudge or Richard Wakeham for more information.