The new Chancellor of the Exchequer, Rachel Reeves made a bold statement to Parliament today which signals how the Starmer government intends to proceed.
The following measures were announced – some with immediate effect:
VAT on Private School Fees starts from 1 January 2025
As of 1 January 2025, all education services and vocational training supplied by a private school, or a “connected person”, for a charge will be subject to VAT at the standard rate of 20%. Boarding services closely related to such a supply will also be subject to VAT at 20%. The concept of a “connected person” is set out in the legislation.
We will publish a separate article on this policy which says that the intention of the policy is that fees from private nurseries will remain exempt.
There is immediate anti-forestalling legislation introduced as of 29 July 2024. This applies where parents endeavour to pre-pay school fees from today. The policy document says “Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT”. This implies that school fees paid now for the September term will not be subject to VAT, as expected.
Private Schools and Charitable Relief from Business Rates
The briefing released today says “The government will legislate to remove eligibility of private schools in England to business rates charitable rates relief”.
This is subject to a consultation where the government recognises some pupils have special educational needs that can only be met in a private school. Therefore, the government will consider how to address the potential impact of these changes in cases where private school provision has been specified for pupils through an Education, Health and Care Plan (EHCP) – a plan given to children and young people who need more support than is available through special educational needs (SEN) 8 support.
This abolition of Charitable Business Rates relief will be effective from 1 April 2025.
Abolition of Winter Fuel Payments for Pensioners – other than those on means-tested benefit
This is a startling move and will raise £1.4 billion in saved benefit payments starting from the Autumn. This will be deeply unpopular with the country’s pensioners. Only those pensioners on pension credit and other means-tested benefits will remain eligible for Winter Fuel Payments from now on
Changes to the taxation of non-UK domiciled individuals
From 6 April 2025, the current rules for non-UK domiciled individuals will end. The concept of domicile as a relevant connecting factor in the tax system will be replaced by a system based on tax residence. This was announced by the previous government at the Spring Budget and will continue to be implemented.
The new regime for personal foreign income and gains (FIG) will be available to individuals for the first 4 years of UK tax residence after a period of 10 years of non-UK tax residence. Eligible individuals will not pay tax on FIG and non-resident trust distributions arising in the first 4 years, where a claim is made, and will be able to remit these funds to the UK free from any additional charges. Where an individual has been a tax resident in the UK for more than 4 years, they will pay UK tax on all worldwide income and gains as they arise.
The policy announced by the previous government, provided a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime, will not be introduced. Transitionally, for Capital Gains Tax (CGT) purposes, current and past remittance basis users will be able to rebase foreign assets they hold to their value at the rebasing date when they dispose of them. The government is considering the appropriate rebasing date and will set this out at the Budget. There will also be a review of offshore anti-avoidance legislation, which includes the Transfer of Assets Abroad and Settlements legislation. A new Temporary Repatriation Facility (TRF) will be available to bring existing offshore income and gains into the UK. The rate and the length of time that the TRF will be available has not yet been confirmed. This is also now to be expanded to include stockpiled income and gains within overseas structures.
A form of Overseas Workday Relief (OWR) will be retained. Further details will be confirmed at the Budget.
Inheritance Tax (IHT) will also move to a residence-based system from 6 April 2025. The government envisages that the basic test for whether non-UK assets are in scope for IHT will be whether a person has been resident in the UK for 10 years prior to the tax year in which the chargeable event (including death) arises, with provision to keep a person in scope for 10 years after leaving the UK. IHT charges arising on death occurring before 6 April 2025 will be unaffected.
The government will end the use of Excluded Property Trusts to keep assets out of the scope of IHT. They intend to change the way IHT is charged so that everyone who is in scope of UK IHT pays their taxes here. They are considering how these changes can be introduced in a manner that allows for appropriate adjustment of existing trust arrangements. Confirmation of these new rules and their detailed application, including transitional arrangements, will be published in the Budget.
These rules are more stringent than those announced by the last government, as would be expected under Labour Party policy.
Public Sector Pay rises
The government will give junior doctors pay rises equivalent to 22% over two years.
Other public sector workers in the NHS, including doctors, as well as teachers, will receive a pay rise of 5.5% starting from the Autumn – well above the current rate of inflation of 2%.
These are stated as costing £1.2bn more than was budgeted for already.
First Labour Government budget to be held on 30 October 2024
The Chancellor made it very clear that more tax rises are on the way, although pledged to keep tax rates the same for working people. This means that we should be prepared to see changes to CGT and IHT, as well as other taxes.
Your M+A Partners team will keep you updated and if you want to talk through any of these issues with your service team please let us know and we will be pleased to discuss them with you. As more information becomes available on the above measures we will let you know.