Pick up any newspaper or read any news article on social media and you’ll be quickly convinced that the country has never been in a worse state than now. However, there was a worse time and that was exactly 50 years ago.
Today, Jeremy Hunt delivered the third “fiscal event” of his tenure. These now come along so regularly that we hardly dare refer to them as a budget any more, given that that implies an annual event. The fact that Mr Hunt felt the need to introduce more changes to legislation before many of the changes announced at November’s Autumn Statement have even taken effect is probably symptomatic of the volatile times that we are currently living through, but things were much worse in 1974.
In March 1974, Dennis Healey gave the first Budget of the new minority Labour government which had defeated Ted Heath’s Conservatives a few weeks before. Dennis Healey, whose tax raising prowess was matched for its magnificence only by his eyebrows, was allegedly the first former member of the communist party to become chancellor. He raised the basic rate of income tax from 30% to 33% and the highest rate from a scarcely imaginable 75% to a frankly larcenous rate of 83%, whilst corporation tax increased from an enterprise suffocating rate of 40% to a North Korean rate of 52%. By contrast, last year’s increase in corporation tax from 19% to 25% seems positively pro-business!
Having established that things could be worse, what were the key messages from the Budget? The tax themes of this Budget were almost entirely focused on individuals, which is no surprise given that we are mere months away from a general election, and the key items of that are discussed below.
Hunt cuts 
National Insurance for the second time
In 1974, people paid a flat rate of National Insurance by having a stamp which the employer bought from the Post Office offices to their contribution card. An income related charge was only implemented in 1975, at the rate of 5.5%.
National Insurance has risen steadily since 1975, possibly because it was an easier sell than income tax rises because pensioners don’t pay it and because many people falsely still believe that it funds the NHS, rather than simply being just another form of taxation.
The National Insurance rate for employees with earnings up to £50,270 was 12% until 31 December, when it was reduced to 10%. It has now been reduced to 8% with effect from April. The self employed rate has been reduced from 8% to 6% but there is no additional impact for higher earners because the 2% rate which applies to earnings over £50,270 remains in place. Nevertheless, this may encourage some individual business owners to consider whether they should move from taking small salaries and large dividends to a higher salary and lower dividends when considering their remuneration.
Changes to CGT and Furnished Holiday Lettings
It seemed, much like the three-day-week in 1974, that things couldn’t get much worse for landlords in the UK by the time of the Spring Budget 2024. Interest relief had been slashed, mortgage rates had risen dramatically, and “Landlords4Tax” schemes had come a little bit unravelled.
Nevertheless, in response to pleas from those wishing to actually live (as opposed to holiday or profit from others holidaying) in some of the UK’s hottest staycation destinations, in a further blow to some landlords, the Furnished Holiday Lettings (FHL) regime is being abolished from 6 April 2025.
Most of the remaining tax benefits of FHLs were CGT related, as they currently qualify as a business for CGT reliefs, most notably Business Asset Disposal Relief (BADR) and holdover relief, whereby a gain could be reduced to 10% (rather than 28% on most residential property) or deferred until an onward disposal. However, there were conditions attached to FHL status, and they rarely qualified as a business for IHT business relief on death or transfer. Nevertheless, there remains a window of opportunity for those so inclined to take advantage of the FHL benefits while they still exist, provided they don’t fall foul of promised anti-forestalling rules, which seem designed to ensure sales that do not legitimately go through before the April 2025 cut-off date will miss out.
However, the three-day-week did eventually end in 1974, and so there is also a distant light at the end of the tunnel for our poor landlords. Quoting the Laffer curve (which is an economic model predicting that the optimum tax rate is not necessarily the highest), Mr Hunt also announced that, with effect from 6 April 2024, the higher rate of CGT applicable to sales of UK residential property will drop from 28% to 24%. The lower 18% rate for basic rate taxpayers will remain the same.
No more non-doms
As widely leaked, the Government has announced the abolition of the existing favourable tax regime for non-doms. Far from being introduced as recently as 1974, the non-dom regime has been around since 1799, although it
has undergone a few changes in the meantime. The largest and most recent change to the regime was back in 2008 when the ‘remittance basis charge’ was introduced- in simple terms, this was a financial charge on long-term UK resident non-doms to enable them to continue claiming the remittance basis.
And the uncertainty in that last sentence- in the definition of a ‘remittance’ and a ‘non-dom’ is what has been targeted now, in the name of simplification. And of course this has nothing to do with the beleaguered Tories trying to get the march on Labour by introducing one of their flagship policies before they get the opportunity to do so.
That said, the proposed changes are due to be introduced in April 2025, and by then, who knows who will be sitting on the Iron Throne at number 10. We also have little detail on the changes, and no draft legislation as yet, almost as if the civil servants drafting the detailed technical rules are loathe to spend time preparing documents that may ultimately end up being entirely rewritten before coming into being. Nevertheless, the main changes announced today are as follows:
- The non-dom regime will be abolished with a new scheme based on the existing Statutory Residence Test rules
- Under the new Foreign Income and Gains (FIG) regime, individuals resident in the UK for up to four years (after a period of ten years non-UK residence) may make a claim such that they will not be taxable on non-UK source income and gains. This is regardless of whether income/gains are remitted to the UK or not, so in some cases may be more favourable than the existing rules.
- Those taxed under the FIG regime will lose entitlement to personal allowances for income tax and CGT annual exempt amounts.
- Individuals UK resident for more than 4 years will be taxable on worldwide income and gains, as other UK resident individuals
- The same rules will apply to UK domiciled individuals who return to the UK after a long absence.
- Those who are currently subject to the remittance basis regime who do not qualify for FIG will be able to take advantage of transitional rules in 2025/26 whereby only 50% of foreign income (but not gains) will be taxed
- Remittance basis users who later remit pre-April 2025 income or gains may also elect to take advantage of a new Temporary Repatriation Facility in 2025/26 and 2026/27 and pay tax at a reduced rate of 12%. This is not available to trusts.
- Trusts that were previously ‘protected’ from UK tax will no longer have protection under the FIG regime. The settlor or transferor who is UK resident will be chargeable to UK tax on the arising basis
- However, non-UK assets that are settled onto non-UK trusts prior to 6 April 2025 will continue to be outside the scope of UK IHT even after the rules are changed.
- There will be a consultation to move IHT onto a similar residence-based criteria from the same date. That consultation is going to be fun.
- The idea is that individuals will be subject to UK IHT on their worldwide assets (equivalent to being UK domiciled) after ten years of UK residence. The ‘tail’ for IHT (and for FIG as above) appears to be the full ten years.
- Individuals who are neither UK domiciled nor deemed domiciled at 5 April 2025 will be able to rebase personally held foreign assets held at 5 April 2019 to that date when calculating gains subject to UK tax.
As stated above, there is currently no draft legislation for the above changes and it may take a while working a three-day week to get the lights on this project. However, there are some winners out of this, notably UK domiciled long term non-UK resident returners, and those remitting large amounts of non-UK income and gains to the UK in their first four years of residence.
The trust changes are significant, and anyone with a currently protected trust, or who is currently in a position to set up an excluded property trust owing to their non-UK domiciled status should consider very carefully whether to take action in the next 13 months. However, without legislation and an anticipated change of government before next April, it may be that the UK is playing chicken with its high value non-doms and will wait to see who squawks first.
Finally, with an emphasis on remaining competitive, it is not beyond all imagination to predict that, by the time the rules (in whatever form) become law, that there may be an high-value non-dom exemption, similar to the new Italian scheme whereby those with very large non-UK income or gains can elect to make a standalone large tax payment of say £100,000- £150,000 in exchange for immunity on the rest of their worldwide income.
Abolition of Stamp Duty Land Tax Multiple Dwelling Relief
SDLT is charged on the purchase of all properties, with the rate being determined by the value of the property. However, if more than one property is bought at a time from the same seller, the SDLT is charged and calculated on the full value of consideration paid across all of the properties. Multiple Dwelling Relief can then be claimed to reduce the SDLT to an amount based on the average purchased price.
Unfortunately, MDR has been much abused in recent years and the Tax Tribunals are full of claims for MDR by people who’ve bought large properties with outbuildings. HMRC have a success rate in these cases which would shame Pep Guardiola but they’ve obviously now decided that it’s time to stop the game and take their ball away. MDR will be abolished from 1 June 2024, but properties on which contracts have been exchanged by today will still be eligible.
This will result in increased tax charges for serial property investors.
The loss of MDR may impact those property investors who wish to incorporate property businesses or who decide that the loss of Furnished Holiday Lettings status means that they need to consider the structures of their businesses.
The Budget and the General Election
Returning to our theme, there were, of course, two general elections in 1974, with Harold Wilson winning both. Despite the dire state of the country at that time, the new Labour government apparently spent more time arguing with Harold Wilson’s personal secretary about who should have lunch with him than trying to find solutions to the rampant rate of inflation (20% and rising) or the constant strikes. Things got so desperate that senior ministers discussed whether they should plot to kill her! The Liberal party at the time was led by Jeremy Thorpe who had an obsession with hovercraft and spent as much of the campaign as he could travelling on them. He hired a hitman to kill his gay ex-lover but the hitman only succeeded in killing the lover’s Great Dane! Ted Heath lost both elections despite being the only leader not involved in murder plots!
More fortuitously*, the events of 1974 paved the way for the ascent of Margaret Thatcher and the tax cutting Budgets of the 1980s as the country recovered from its nadir. The present may not seem great but things can get better!
*This is Iain’s opinion, but other opinions are available…
