Income Tax and NICs

Income tax rates and allowances

The basic rate of income tax will remain at 20%. Other rates will also remain unchanged. The personal allowance and higher rate threshold are fixed at their current levels until April 2028. The income tax additional rate threshold was lowered from £150,000 to £125,140 from 6 April 2023.

The government has previously announced that it would reduce the dividend allowance to £500 from April 2024. The 1.25% increase in rates of tax on dividends have been maintained (despite the scrapping of the Health and Social Care Levy which was its justification) so that the ordinary rate will continue to be 8.75%, the upper rate 33.75% and the additional rate 39.35%.

For a table of the main tax rates and allowances for 2024/2025, see here.

National insurance contributions

Few taxes have suffered as many rate changes as NICs in the last few years. From the heady highs (or lows depending on your perspective) of the increase to 13.25% in anticipation of the introduction of a Health and Social Care Levy to the scrapping of that increase by Kwasi Kwarteng and then a 2% reduction in employee NICs from 6 January 2024. Now the Chancellor has announced a further 2% cut to come into effect from 6 April 2024. The so-called "tax on jobs" has taken on the appearance of the Big Dipper!

As a result, the main rate of Employee National Insurance (Class 1 NICs) will be cut by a further 2% from 10% to 8% from 6 April 2024. The 2% rate of NICs for higher earners is expected to remain unaffected as will other rates, including employer Class 1 NICs.

The Chancellor announced at the 2023 Autumn Statement a reform and simplification of NICs on the self-employed, involving abolishing Class 2 NICs and cutting the main rate of Class 4 NICs by 1% from 9% to 8% from April 2024. The Spring Budget went further and announced a further cut of 2% in the rate to 6%, so that the rate will fall from 9% to 6%. The government will consult on how it will deliver Class 2 NICs abolition later this year.

At the 2023 Autumn Statement, the government announced the removal of the requirement to pay Class 2 National Insurance contributions from 6 April 2024 and committed to abolishing Class 2 entirely.

The NICs Primary Threshold (PT) and Lower Profits Limit (LPL) are aligned with the personal allowance at £12,570 and the government has previously announced that they will be maintained at this level until April 2028. The Class 2 Lower Profits Threshold (LPT) will also be fixed until April 2028 to align with the LPL. The NICs Upper Earnings Limit (UEL) will remain at £50,270. The government has also previously announced that it will fix the level at which employers start to pay Class 1 Secondary NICs for their employees at £9,100 from April 2023 until April 2028.

Taxation of non-doms

The Spring Budget 2024 announced that a new four-year foreign income and gains regime (FIG regime) will be introduced for individuals who become UK tax resident after a period of 10 tax years of non-UK residence on 6 April 2025.

Current non-dom regime

Individuals who are resident but not domiciled or “deemed domiciled” in the UK may elect to be taxed on the remittance basis, where foreign income or gains are only taxable in the UK if they are remitted to the UK.

Individuals who have been resident in the UK for at least seven of the nine fiscal years before the relevant tax year will be taxed in the UK on their worldwide income and gains, unless they pay a minimum flat-rate charge of £30,000 annually to be taxed on the remittance basis.

Individuals resident in the UK in at least 12 of the last 14 fiscal years before the relevant tax year must pay a higher remittance basis charge of £60,000 annually in order to access the remittance basis.

Broadly, non-domiciled individuals would be treated as “deemed domiciled” and lose the remittance basis once the individual has been UK tax resident for at least 15 of the immediately preceding 20 tax years (unless certain conditions are met).

New FIG regime

Under the new FIG regime, qualifying individuals will not pay tax on foreign income and gains arising in the first four tax years after becoming UK tax resident and will be able to remit them to the UK free from any additional charges. The UK Statutory Residence Test will be used to determine tax residence for any one tax year. Treaty residence/non-residence and split years will be ignored.

If an individual elects to be taxed under the FIG regime, they will lose entitlement to personal allowances and the capital gains tax annual exempt amount.

If an individual leaves the UK temporarily during the four-year period they will be able to make a claim under the FIG regime for any of the qualifying tax years remaining on their return to the UK. For example, a UK resident in year 1 who is non-UK resident in years 2 and 3, but is UK resident again for year 4 will be able to use the FIG regime for year 4.

Existing UK tax residents, who have been UK resident for fewer than four tax years and are eligible for the scheme, will also benefit from the relief until the end of their fourth year of UK residence.

Any individual who has been tax resident in the UK for more than four years will pay UK tax on any foreign income and gains, effectively falling out of the FIG regime and being taxed on their worldwide income and gains on an arising basis (in line with other UK residents), with the complexities of claiming double tax relief for any overseas tax paid.

Overseas Workday Relief (OWR) is being updated and will continue to be available for employees under the FIG regime, providing relief on earnings for employment duties performed outside the UK. The new OWR will be available for the first three tax years of UK residence. Employees who are eligible for OWR in 2023/24 for their first year since returning to the UK should still be able to claim OWR for the full three years. However, those re-entering from 2025/26 will not be able to claim OWR if they are not eligible for the FIG regime.

Protection from taxation on future income and gains as it arises within trust structures (whenever established) will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the FIG regime. Foreign income and gains arising in non-resident trust structures will be taxed on the settlor or transferor (if they have been UK resident for more than four tax years) on the arising basis.

Unlike the non-dom regime, the FIG regime does not look to the domicile status, but instead focuses on the more rigid tax residence of an individual to determine their eligibility. The FIG regime is also significantly shorter than the non-dom regime, reducing the duration of potential tax savings on foreign income and gains from 14 tax years to 4 tax years.

The new regime will take effect on 6 April 2025.

Transitional arrangements

Certain transitional arrangements will be put in place on 6 April 2025.

Individuals who move from the remittance basis to the arising basis on 6 April 2025 and are not eligible for the FIG regime will pay tax on 50% of their foreign income for 2025/26. Such reduction does not apply to foreign chargeable gains. From 2026/27 onwards, tax will be due on all worldwide income in the normal way.

Individuals who have claimed the remittance basis will, on a disposal of an asset held personally at 5 April 2019, be able to elect to rebase that asset to its value as at that date. This rebasing will be subject to conditions which are still to be determined.

Individuals who have been taxed on the remittance basis will be able to elect to pay tax at a reduced rate of 12% on remittances of pre-6 April 2025 foreign income and gains under a new Temporary Repatriation Facility (TRF) that will be available for tax years 2025/26 and 2026/27. TRF will not apply to pre-6 April 2025 foreign income and gains generated within trusts and trust structures.

While protections on non-resident trusts for all new foreign income and gains that arise within them after 6 April 2025 are being removed, foreign income and gains that arose in protected non-resident trusts before 6 April 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been UK resident for more than four years.

The last year for which a remittance basis claim can be made will be the 2024/25 tax year. Foreign income and gains that arise to a remittance basis user prior to 6 April 2025 will be taxed if they are remitted on or after 6 April 2025, subject to the TRF above.

Proposed inheritance tax changes

Inheritance tax (IHT) is currently a domicile-based system, relying on domicile status and location of assets. Under the current regime, no inheritance tax is due on non-UK assets of non-doms until they have been UK resident for 15 out of the past 20 tax years. In line with the FIG regime, the government intends to move IHT to a residence-based system from 6 April 2025, subject to consultation.

Transfers of assets abroad

The government intends to amend the Transfer of Assets Abroad (ToAA) legislation to ensure that individuals cannot use a company to bypass the legislation. The changes follow the judgment of the Supreme Court in Fisher v HMRC [2023] UKSC 44, which held that liability under the ToAA legislation was restricted to the transferor of assets and that the ToAA charge therefore did not apply to an individual in relation to a transfer made by a company in which they are a shareholder.

The amendments will deem individuals who are participators in a close company, or a non-resident company that would be close if they were UK resident, as transferors to address situations where transfers are made by such companies. In other words, the change will ensure that a transfer made via a company, in which the individual is an owner or has a financial interest, will be considered a ‘relevant transfer’ by that individual for the purposes of the ToAA legislation.

The government confirms that the measure will not impact transactions where there is no tax avoidance purpose or where the transactions are genuine commercial transactions, as set out in Income Tax Act 2007 s736 to s742.

Abolition of Furnished Holiday Lettings tax regime

The Spring Budget 2024 announced that the government will abolish the Furnished Holiday Lettings tax regime, eliminating the tax advantage for landlords who let out short-term furnished holiday properties over those who let out residential properties to longer-term tenants. This will take effect from April 2025.

Draft legislation will be published in due course and include an anti-forestalling rule. This will prevent the obtaining of a tax advantage through the use of unconditional contracts to obtain capital gains relief under the current FHL rules. This rule will apply from 6 March 2024.

High Income Child Benefit Charge

The Spring Budget 2024 announced that the government will introduce legislation in the Spring Finance Bill 2024 to increase the High Income Child Benefit Charge (HICBC) adjusted net income starting threshold to £60,000, from 2024/2025 onwards.

The charge will apply at a rate of one per cent of the full Child Benefit award for each £200 of adjusted net income between £60,000 and £80,000, halving the rate at which HICBC is charged. The charge on taxpayers with income above £80,000 will be equal to the full amount of Child Benefit paid.

For new Child Benefit claims made after 6 April 2024, any backdated payment will be treated for HICBC purposes as if the entitlement fell in the 2024 to 2025 tax year if backdating would otherwise create a HICBC liability in the 2023 to 2024 tax year.

However, the Chancellor also announced plans for a wider reform of the charge to end the significant unfairness in the way it operates. However, since those changes will require significant reform to the tax system including allowing HMRC to collect household level information, the government plans to carry out a consultation on moving the High-Income Child Benefit Charge to a household-based system first. The proposal is that this change would be introduced by April 2026.