On 29 July 2024, the Chancellor of the Exchequer delivered a statement to Parliament on the government’s public spending inheritance. In the statement, the Chancellor confirmed that the Budget would be delivered on 30 October 2024, and repeated the Labour Party’s manifesto commitment to not increase income tax, national insurance contributions or VAT. The government also provided an update on key tax measures.  

VAT and private school fees 

The government has published draft legislation which charges VAT at 20% on education and boarding services provided by private schools for a fee. However, the government says that the changes will not impact pupils with the most acute special educational needs, where those needs can only be met in private schools. 

The measure will apply to fees paid from 29 July 2024 in relation to the term starting in January 2025 and future terms. The government has set out the design, scope and expected impact of the policy in a technical note. The government has also published guidance for private schools on registering for VAT. 

The government has invited comments on the draft legislation and technical note by 15 September 2024. Please send any comments to ed.saltmarsh@icaew.com.  

The technical note also provides an overview of the government’s plans to remove the eligibility of private schools in England to business rates charitable rates relief. It is expected that this measure will apply from April 2025.  

Abolition of FHL tax regime 

The government has confirmed that it will proceed with the abolition of the furnished holiday let (FHL) rules from April 2025, and has published a policy paper and draft legislation. 

An anti-forestalling rule will apply from 6 March 2024 to prevent the use of unconditional contracts to obtain capital gains tax relief under the current FHL rules.  

The documents include some further information about transitional rules. These include: 

• that where an existing FHL business has an ongoing capital allowances pool of expenditure, it can continue to claim writing-down allowances on that pool; and
• losses on FHL properties can be carried forward and used against the UK or overseas property business in which the properties will be included. 

Changes to the taxation of non-UK domiciled individuals 

The government has published a policy paper, confirming that it will implement the four-year foreign income and gains (FIG) regime announced by the previous government. It will take effect for all foreign income and gains arising from 6 April 2025.  

However, the previous government’s policy of providing 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. A temporary repatriation facility will be available for individuals who have been taxed on the remittance basis, and a form of overseas workday relief will be retained. Further details will be provided at the Budget. 

The government intends to replace the current domicile-based inheritance tax (IHT) system with a new residence-based system from 6 April 2025. The basic test for whether non-UK assets are in scope for IHT from 6 April 2025 is expected to 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. 

The government will end the use of excluded property trusts to keep assets out of the scope of IHT.   

Confirmation of the new rules and their detailed application, including transitional arrangements for affected settlors, will be published at the Budget, following external engagement (but not formal consultation). 

The taxation of carried interest 

The government has published a call for evidence on the tax treatment of carried interest. Carried interest is a form of performance-related reward received by fund managers, primarily within the private equity industry. The government believes that the current tax regime (under which such interest can be taxed at capital gains tax rates) does not appropriately reflect its economic characteristics, nor the level of risk assumed by fund managers in respect of it.  

The government will engage extensively with all interested parties, with written submissions encouraged by 30 August.  

The government would be particularly interested in feedback on the following areas: 

1. How can the tax treatment of carried interest most appropriately reflect its economic characteristics?   
2. What are the different structures and market practices with respect to carried interest?
3. Are there lessons that can be learned from approaches taken in other countries? 

A further announcement on this measure is expected at the Budget on 30 October. If you have any views you would like to be reflected in ICAEW’s Tax Faculty response, please send them to richard.jones@icaew.com. 

Pillar 2: new anti-arbitrage rule 

The government plans to introduce an anti-arbitrage rule designed to prevent avoidance transactions that exploit differences between tax and accounting rules. Such transactions could allow groups to qualify (where there wouldn’t otherwise do so) for the transitional country-by-country reporting safe harbor included in the Organisation for Economic Co-operation and Development’s Global Anti-Base Erosion (GloBE) rules. The GloBE rules were implemented in the UK as the multinational and domestic top-up tax rules.  

The government’s Pillar Two team is seeking comments on the draft legislation at PillarTwoConsultation@hmtreasury.gov.uk. 

Changes to the energy profits levy 

The government has announced that the energy profits levy will increase from 35% to 38% from 1 November 2024 and the levy will now apply until 31 March 2030 (it had been due to expire on 31 March 2029).  

The government is also abolishing the levy’s main 29% investment allowance for qualifying expenditure incurred on or after 1 November 2024. The government will also reduce the extent to which capital allowances claims (including first year allowances) can be considered in calculating levy profits.  

Further details on these changes and the future direction of the levy will be set out at the Budget. The government says that it recognises the importance of giving the oil and gas industry certainty on its tax position and will work with the industry and others to develop a successor regime for responding to energy price shocks after the levy ceases. 

Closing the tax gap 

In a statement to Parliament, the Exchequer Secretary to the Treasury, James Murray MP, provided an update on the government’s efforts to close the tax gap. Work has begun on recruiting 5,000 more HMRC staff, and the government is committed to investing in HMRC’s technology infrastructure. A further update will be provided at the Budget. For further information on the tax gap, see ICAEW’s short guide.  

Further information 

• King’s Speech includes VAT on private school fees
• What might we see in the next Budget?