The Corporate Tax Roadmap signals the Government’s determination to introduce more stability in the corporate tax system. The Government has committed to retain key aspects of the tax system such as the substantial shareholding exemption, dividend exemption, tax relief for interest costs and innovation reliefs (R&D and patent box). In line with Labour’s manifesto pledge, they have promised to retain the 25% headline tax rate and full expensing for capital investment (although more consultation will follow on certain aspects of the capital allowances regime).

It is of little surprise that the Government has maintained its adherence to the OECD rules on Pillar Two and is committed to finding a global solution for Pillar One (on the allocation of taxing rights). Given the inherent complexities of the corporate tax system, the promise to reduce uncertainty by developing a new advanced certainty process for major projects and to simplify business tax administration more widely is welcome. 

More thoughts on the roadmap can be found in this short article. 

Following speculation about potentially wide-ranging reforms to CGT, the changes announced in the Budget are less significant than many anticipated. The basic rate of CGT is increasing from 10% to 18% and the higher and additional rate from 20% to 24%, with effect for disposals made on or after 30 October 2024.

The generosity of Business Asset Disposal Relief (BADR) and Investors’ Relief is being reined in, with their rates increasing from 10% to 14% from 6 April 2025, and then aligning with the 18% basic rate of CGT from 6 April 2026. In addition, the lifetime limit for Investors’ Relief will be reduced to £1m (down from £10m) for disposals made on or after 30 October 2024, aligning the amount of relief available with BADR.

The CGT rates applicable to residential property remain unchanged.

The Government has announced its long-awaited plans for reforming the UK’s carried interest tax regime.

When the Labour Party first announced its intention to “close the carried interest loophole” that was generally understood as meaning carry receipts would be treated the same way as other kinds of income and taxed at rates of up to 47%. However, the Budget announcement was of a moderate package of reforms that we consider a positive outcome for the private capital industry that is consistent with the approaches taken in other major European countries including France and Germany.

In overview, the Government plans to:

• initially increase the rate of CGT paid on carried interest capital gains from the existing rate of 28% (for higher and additional rate taxpayers) to 32% from 6 April 2025; 
• then introduce a new carried interest tax regime from 6 April 2026, under which carried interest receipts will be brought within the scope of income tax and subject to Class 4 NICs. Amounts which qualify for this new carried interest regime will be treated as deemed trading income and the normal rates of income tax and NICs will apply, but the taxable amount will be reduced by a “multiplier” of 72.5%. The effective rate of tax will depend on an individual’s specific circumstances, but an additional rate taxpayer otherwise subject to income tax and NICs at a combined rate of 47% would be subject to an overall effective tax rate (ETR) of just over 34%; and
• reform the Income-Based Carried Interest (IBCI) rules by removing the current exclusion for carried interest that is an employment-related security (ERS), and instead make targeted changes to make the rules work more appropriately for private credit fund managers (who typically rely on the ERS exclusion).

On 30 October the Treasury also published a summary of responses to its call for evidence on the tax treatment of carried interest and outlined next steps, which include plans to consult on possible new entry conditions, such as a minimum co-investment requirement or minimum holding period. Due to the challenges of a co-investment condition, the latter approach appears to be the front-runner. This would likely require a recipient to have held their award of carried interest for a minimum period before being able to access the preferential tax rate on any distributions made in respect of it.

Amounts that do not qualify as carried interest under this new regime will continue to be taxed as income under the Disguised Investment Management Fee (DIMF) rules.

Taxing carried interest as income is a new approach and will have consequences beyond the change in headline tax rate. For example, the tax charge under the new regime will be exclusive, so that carried interest paid out of interest or dividend income that is currently taxed at full income tax rates will be subject to the same circa 34% ETR as capital gains (which for many managers will mean the ETR increase will be smaller than it may initially seem). The UK will also assert broader taxing rights under the new regime. Carried interest received by non-residents that relates to services performed in the UK will be taxable in the UK (subject to treaty relief), which represents a stronger territorial link than under the current CGT rules.

While the finer details of the future regime remain to be worked out, we consider that the Government’s overall approach strikes a careful balance between putting the regime on a politically sustainable footing and ensuring the UK remains competitive internationally and within the European mainstream - and so should be welcomed. We also believe that, subject to the outcome of the consultations, there may be an opportunity for the new regime to achieve a degree of simplification and greater flexibility in some areas.

The Government has confirmed that the concept of domicile - and the remittance basis of taxation - will be abolished from 6 April 2025, and replaced by a new Foreign Income and Gains (FIG) regime. Individuals who opt in to the FIG regime will not pay UK tax on foreign income and gains for their first four years of UK tax residence.

You can read commentary from our private client team on this topic.

Wide-ranging reforms to inheritance tax (IHT) were announced at the Budget. Most relevant from a business tax perspective are the proposed reforms to BPR, which in its current form provides up to 100% relief from IHT in respect of trading assets (including shares in unquoted trading companies). In short, from 6 April 2026, individuals will only qualify for 100% BPR up to a limit of £1m (a combined limit with Agricultural Property Relief). Any value over and above the £1m cap will qualify for relief at a lower BPR rate of 50%. So in other words - and in very broad terms - that means an IHT rate of 20% (half the headline IHT rate of 40%) on relevant transfers.

Currently, only a policy paper is available: there is no draft legislation and the details of the proposals are subject to consultation. The final form of the changes therefore remains to be seen. 

You can read commentary from our private client team on this topic. 

The most significant tax raising measure in the Budget was the increase to the rate of employer NICs from 13.8% to 15% from April 20025. 

You can read our commentary on this, as well as a number of other employment tax measures announced at the Budget. 

Although no capital gains tax changes were announced in connection with disposals of residential property (despite fears of a rise targeted at second homes and investment properties), there are two stamp duty land tax (SDLT) announcements to report.

• First, there has been an increase to the higher rate for additional dwellings. A SDLT surcharge applies to purchases of additional dwellings by individuals where they are not replacing their main residence, and to all purchases of dwellings by companies. From 31 October 2024, the surcharge will be increased from 3% to 5%. By way of comparison, the equivalent surcharge for Welsh property is currently 4% and for Scottish property is currently 6%.
• Second, there has been an increase to the flat rate for acquisitions of dwellings by companies. Where a company acquires a dwelling with a value of more than £500,000 (subject to certain exemptions), a flat rate of SDLT is applied (rather than the usual threshold rates). From 31 October 2024, the flat rate will be increased from 15% to 17%. The surcharge for non-UK resident purchasers continues to apply on top of this flat rate, giving an aggregate SDLT rate of 19% where a non-UK resident company acquires a dwelling with a value of more than £500,000.

Draft legislation has been published that removes an exception to the targeted anti-avoidance rule (TAAR) in the close company rules relating to loans to “participators” - for arrangements made as of 30 October 2024.

You can find further details about this announcement in this article. 

Labour’s manifesto promised a renewed focus on tax avoidance by large business and the wealthy. The Budget has started to address this with over 30 measures designed to close the tax gap which will see significant investments in HMRC staff and its infrastructure over the parliament. Consultations will follow to enhance HMRC’s powers and improve taxpayers’ compliance. You can read further commentary on the Government's approach to tackling the tax gap in this article.

As a further deterrent against unpaid tax, the government has announced it will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5 percentage points. Assuming the Bank of England base rate remains unchanged this will mean a rate of 9% from 6 April 2025.