Labour fulfils election promises as new rules announced for Non-Dom’s and Private Schools
Labour fulfils election promises as new rules announced for Non-Dom’s and Private Schools
Chancellor of the Exchequer, Rachel Reeves delivered her first major statement on 29 July 2024, confirming several new tax initiatives that had been outlined in Labours election manifesto, releasing policy papers and draft legislation.
Domicile
The government has confirmed that it intends to remove the concept of domicile from the tax system and replace it with a residence-based regime impacting both remittance basis users and Inheritance Taxe (IHT).
Remittance Basis
From 6 April 2025, foreign income and gains (FIG) of new arrivals to the UK will benefit from 100% relief for their first four years of tax residence. After this they will be subject to UK tax on world-wide income and gains.
This four-year FIG regime will also apply to settlor interest trusts and the government has announced it intends to review and tighten the offshore anti-avoidance rules including the Transfer of Assets Abroad and Settlements legislation.
By way of transitional measures, existing remittance basis users can avail of a “Temporary Repatriation Facility” with a reduced rate of tax applying for a limited period, details of which are still to be decided.
There will also be some protective measures with respect to capital gains tax (CGT) with an option to rebase the value of foreign capital assets and the government is to announce this rebasing date.
Inheritance Tax
IHT rules will also rely on a residence-based test which will apply when a person has been resident in the UK for ten years prior to the IHT chargeable event (including death) and ten years after leaving the UK. However, the government intends to consult stakeholders to finalise this test.
New rules for Excluded Property Trusts will prevent IHT advantages being obtained by any person who is within the scope of UK IHT and consideration is being given how to transition these new rules for existing trust arrangements.
Furnished Holiday Lets
Ms Reeves also announced the abolition of the rules that allowed Furnished Holiday Lets (FHL) to be taxed as a trade. FHL income will now be subject to the rental property rules losing a number of tax benefits such as an exemption from the interest restriction rules, beneficial capital allowances, and access to CGT relief as business trading assets. This measure will take effect from 1 April 2025 for corporate tax and 6 April 2025 for income tax and CGT.
Pillar 2 – Country by Country Reporting
Amendments are being made to the current Multinational and Domestic Top-up Tax rules to ensure that UK legislation remains aligned with the Global anti-base Erosion rules agreed by members of the OECD G20. This change will affect the transitional “Country-by-Country Reporting” safe harbour anti-arbitrage rule.
Removal of VAT exemption from Private School Fees
As expected, Labour have issued a technical note and draft legislation regarding VAT on private school fees. From 1 January 2025, all education services and vocational training supplied by private schools will be subject to the standard rate of VAT. Boarding services will also be subject to VAT, as they’re considered to be ‘closely related’ to the educational supply.
Seeking to ensure that various schemes are not implemented to avoid the VAT on such fees, HMRC have highlighted that these rules also apply to ‘connected persons’ of the private schools. They have also have introduced anti-forestalling rules, ensuring that any fees paid from 29 July 2024 onwards which relate to terms commencing in January 20215 onward will be subject to VAT.
Private schools will need to consider VAT registration (for those not already registered), modelling the impacts of the new rules (from both an output tax and an input tax perspective, as there will be the opportunity to reclaim input tax which relates to their new taxable supplies), and the partial exemption provisions, given that some of their supplies will continue to be exempt – to name but a few issues.
The technical note also relates to business rates for private schools that are charities – however, as business rates policy is devolved, the current announcements only apply to England. Any changes to business rates in Northern Ireland will be a matter for the NI Executive.