Autumn budget day confirmed and latest tax changes announced
Over recent months in the run up to the general election it has, in tax terms, been ‘all quiet on the Western Front’. Monday's announcement that the UK budget will be on 30 October and the release of draft tax legislation for Finance Bill 2024-25 changed all of that and what is clear is Labour are following through on pre-election pledges.
Key points announced include:
VAT on private education
Standard Rate VAT: All education services and vocational training provided by private schools or associated persons will be subject to the standard 20% VAT rate. The Finance Bill will retroactively apply VAT to fees paid from July 29, 2024, for terms starting January 2025 onwards. HMRC will look to challenge the validity of some schemes designed to avoid VAT by pre-paying fees before the tax point. Private schools without current VATable supplies can register from 30 October 2024, while those with existing VATable supplies can register voluntarily now. HMRC will provide resources and guidance on GOV.UK ahead of 30 October to assist schools with registration.
Boarding and lodging: These services, when closely related to education, will also incur a 20% VAT.
Exemptions remain: Nurseries, pre-schools, and kindergartens will continue to be exempt from VAT.
Sixth forms included: Education and vocational training at sixth forms attached to private schools or standalone private sixth form colleges will be subject to VAT.
Goods and services: Items closely related to education (e.g., school meals, transport, books, and stationery) will remain VAT-exempt, excluding boarding.
Childcare services: Before/after school childcare and childcare-based holiday clubs that do not fall within the definition of education will remain exempt.
Private tutoring: Private tutors teaching subjects ordinarily taught in schools will continue to be exempt from VAT.
Special Educational Needs (SEN) provisions
Local Authority funded fees: Local authorities (LAs) can reclaim VAT on fees for pupils whose needs are best met outside the state sector.
Parent funded fees: Parents and carers who choose private schooling for SEN children, whose needs could be met by the state sector, will incur VAT on fees.
For more information on this please contact our specialist VAT team.
Abolition of Furnished Holiday Lettings Tax (FHL) regime across personal and corporation tax
The tax advantages that short term holiday lets could tap into versus longer terms residential lets are coming to an end. As of 6 April 2025 (1 April for Companies) the income and gains from an FHL will be treated in line with other property income and gains.
Four key areas impacted as follows:
Finance cost restriction rules will apply going forward so loan interest restricted to basic rate for income tax.
Removal of capital allowances rules for new expenditure – allowing replacement of domestic items instead. Some transitional rules around capital allowances treatment for those already in the middle of an ongoing project. Capital Expenditure from April will be under normal property business rules.
No longer relevant UK earnings which can be considered for pension annual allowance purposes.
No longer qualifying for capital gains reliefs such as rollover, holdover, business asset disposal relief, reliefs to loans to traders.
Whilst there is an anti-forestalling rule in place, this will apply in limited circumstances. There is opportunity for potential CGT planning pre-April 2025 should FHL operators wish to exit or re-structure at lower tax rates. Please get in touch with our Private Client Tax team.
Changes to Non-UK domiciled individuals from April 2025
The concept of domicile status will be removed from the UK tax system and instead a new residence-based regime will be introduced. From 6 April 2025 the Government will remove preferential tax treatment based on domicile status for all new foreign income and gains. Replacing what is referred to as the remittance basis of taxation will be a residence based regime. This will give 100% UK tax relief to foreign income and gains for new arrivals to the UK in their first four years, provided they haven’t been UK tax resident in any of the previous 10 year before arriving here.
Changes will also be applied from 6 April 2025 to settlor interested trust structures so that these cannot be used to shelter income and gains after the four year period. A review will also be undertaken of the offshore anti-avoidance rules with changes being proposed on these areas from the start of 2026/27.
From 6 April 2025, the Inheritance Tax (IHT) rules will also change with the Government envisaging the test to determine whether you are within the scope will be if you have been UK tax resident for 10 years prior to the tax year in which the chargeable event (i.e. death or transfer to a Trust or Company) occurs.
Any individual living in the UK who is domiciled elsewhere should consult a tax specialist in order to understand the likely impact.
Five week consultation into carried interest
Carried interest is currently taxed to capital gains tax at a maximum 28% rate. In the run up to the general election, Labour said they’d look to raise over £1/2bn a year by increasing taxes on performance fees. The Government issued a call for evidence, on one hand wanting to attract such business to the UK but consider the tax treatment unfair and too generous as it currently stands. Responses are requested by 30 August 2024 and Johnston Carmichael will submit a response. For more information please contact Jordan Brown, Tax Partner, at jordan.brown@jcca.co.uk.
Increase of Oil & Gas Profits Levy
The levy currently set at 35% will increase to 38% from 1 November 2024, bringing the headline rate of tax on upstream oil and gas activities to 78%.
The period for which the levy applies has also been extended to 31 March 2030.
Generous investment allowances are being reduced, to include abolishing the levy’s main 29% investment allowance for qualifying expenditure incurred on or after 1 November 2024.
The decarbonisation investment allowance remains.
Get in touch
For more information or to discuss any of the announcements, please don't hesitate to get in touch with me or your usual Johnston Carmichael contact.
