Inheritance Tax (IHT)
Individuals
- The concept of tax domicile will be abolished from 6 April 2025.
- IHT will be based on a residence test rather than domicile, to determine whether non-UK assets are within the scope of IHT.
- An individual will fall within the scope of IHT if they are considered a long-term resident of the UK. This status is defined as having been a UK tax resident for 10 out of the last 20 years. This rule provides a substantial period for new arrivals before they become subject to IHT. However, those who leave the UK will remain within the scope of IHT for a ‘tail’ period of 10 years. However, there is tapering relief on this tail period for leavers who were UK resident for less than 20 years.
- If a settlor has died before 6 April 2025, the excluded property status of the trust will depend on the old rule of the settlor’s domicile position at the date of creation.
Trusts
- Going forward for trusts, excluded property status will depend on the residence position of the settlor.
- There is a grandfathering provision for trusts settled prior to 30 October 2024, in that the assets within these trusts will not form part of a UK resident settlor’s estate on death. These trusts will however be subject to the ongoing IHT charges if the settlor is a long-term resident of the UK.
- If a settlor is a long-term UK resident and their trust is a relevant property trust for IHT purposes, an exit charged will be triggered if they leave the UK ,and the trust becomes an excluded property trust on the change of the settlor’s residence status.
- Two of the main reliefs for IHT, Business Property Relief and Agricultural Relief, have taken a hit. The 100% relief is now capped at a value of £1 million, and for property worth more than £1 million, a relief of 50% applies. For AIM shares, the relief is even less, being 50% with no £1 million allowance. If property is owned over several trusts, the £1 million allowance is shared although each trust will have its own separate nil-rate band.
Income Tax
- The income tax and national insurance thresholds will be frozen until 2028/29, meaning more individuals will be brought within the scope of income tax and pushed into higher rate brackets.
- The current protected settlement provisions for trusts (where income is not taxed on a UK resident settlor on an arising basis), will be removed from 6 April 2025. We have reverted to the pre-2017 situation where UK resident settlors are taxed on trust income as it arises.
Capital Gains Tax (CGT)
- From 30 October 2024, CGT is increasing from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher rate taxpayers.
- There has been no alterations to the CGT rates (18%/24%) for disposals of UK residential property.
- The annual exempt amount, which is the amount of gain that is exempt from CGT, remains unchanged at £3,000 for individuals and £1,500 for trusts.
Stamp Duty Land Tax (SDLT)
- Effective 31 October 2024, the surcharge on buying UK residential property as a second home or by a non-natural person, such as a company, has risen from 3% to 5%.
VAT
- VAT to be introduced on private school fees from 1 January 2025.
Corporate Tax
- No changes here – the main rate is unchanged at 25%, and the small profits (less than £50,000) rate remains at 19%.
As a reminder Alex Picot Trust does not offer advisory services on matters of U.K. taxation.
