UK Autumn Budget 2024 – Key tax measures for business

Corporation tax rate

In line with prior confirmations from the Government, the main rate of corporation tax will be capped at 25% for the duration of this Parliament. The small profits rate (at 19%) will be maintained as will the current thresholds for marginal relief.

Investment reliefs

The key announcements made in respect of investment reliefs were as follows:

• Capital allowances:
  • The full expensing regime – the Government will maintain the 100% first-year allowances for companies on qualifying new main rate plant and machinery and the 50% first-year allowances for companies on qualifying new special rate plant and machinery.
  • The Annual Investment Allowance, which gives 100% first-year relief for plant and machinery investments up to £1 million, will also be maintained.
• R&D reliefs: the Government has committed to retaining the current rates for both the merged R&D Expenditure Credit and the Enhanced Support for R&D Intensive SMEs.
• Intangible assets: a lower rate of corporation tax for profits attributable to patents and other similar intellectual property (ie, the Patent Box regime) and the current approach to intangible fixed assets will be preserved.

Corporate Tax Roadmap

The Government aims to provide "certainty that encourages investment and gives business the confidence to grow" by setting out scheduled changes to business taxation for the duration of this Parliament, including in respect of the corporation tax rate, capital allowances, R&D reliefs, the intangible assets regime, international corporation tax issues (including transfer pricing and Pillars 1 and 2) and tax administration.

In addition to making the commitments which are set out above in the "Corporation tax rate" and "Investment relief" sections, the Corporate Tax Roadmap sets out the Government's intention to launch a consultation this year to explore the tax treatment of predevelopment costs. In spring 2025, further consultations will be launched (1) on the development of a new process that will give investors in major projects access to advance tax clearances and (2) on widening the use of advance clearances in respect of R&D reliefs. The Government will also explore extending the full expensing regime to assets bought for leasing or hiring, when fiscal conditions allow.

Further, the Corporate Tax Roadmap commits the Government to a second-round consultation on reforms to the UK's rules on transfer pricing, permanent establishments and Diverted Profits Tax, including the potential removal of UK-to-UK transfer pricing. In respect of transfer pricing, the Government will consult in spring 2025 on lowering the thresholds for exemption for medium-sized businesses and introducing a requirement for multinationals to report cross-border related party transactions to HMRC, and will review the transfer pricing treatment of cost contribution arrangements.

Finally, the Government will continue to support obtaining an international agreement on a multilateral solution under Pillar 1 (with the intention of removing the UK's digital services tax) and will ensure the UK's domestic rules reflect internationally agreed updates to Pillar 2. It is also considering opportunities to simplify or rationalise the UK's tax rules on cross-border activities in light of Pillar 2.

Employer NICs

As was widely anticipated after hints from the Chancellor in the run-up to the Budget, the Government has announced increases in employer's National Insurance contributions (employer NICs) to take effect from 24 April 2025. The rate of employer NICs will rise from the current 13.8% to 15% (roughly in line with pre-Budget predictions).

With effect from the same date, the individual salary threshold beneath which no employer NICs are chargeable will be cut by 45%, from £9,100 per annum to £5,000. The latter change will be partially offset by more than doubling the Employment Allowance (a statutory deduction against liability to employer NICs) from £5,000 to £10,500 and extending the allowance so that it is no longer only available to employers whose total annual employer NICs liability is less than £100,000.

Umbrella companies

The Government has announced that, with effect from April 2026, where an employment agency contracts to supply workers to its customers using a so-called "umbrella company", responsibility for the correct operation of PAYE and liability for employer NICs will fall on the agency (or, where no agency is involved, the customer), rather than the umbrella company itself. This change is said to be necessary in order to protect workers from "unscrupulous behaviour" by non-compliant umbrella companies, and implements proposals consulted on by the then Conservative Government last year. Where an agency outsources the operation of PAYE to the umbrella company, the agency will be liable for any shortfall in the amount of income tax and national insurance that the company remits to HMRC.

Employee ownership trusts and employee benefit trusts

The Government has announced a package of measures, taking effect from 30 October 2024, aimed at curtailing what it sees as the "abuse" of employee ownership trusts (EOTs) and employee benefit trusts (EBTs). In broad outline, the measures place additional restrictions on the circumstances in which a disposal of a controlling interest in a company to an employee ownership trust will qualify for exemption from capital gains tax, by providing: (i) that the former owner may not retain control of the company (directly or indirectly) following its transfer to the trust; (ii) that the trustees must be UK resident at the time of the disposal; and (iii) that the consideration given for the shares should not exceed market value. Related measures extend the "vendor clawback period" where the conditions for exemption are breached post-sale. Meanwhile the package includes a new relief for distributions made to EOTs that are used in defraying the trustees' acquisition costs, as well as enlarging the circumstances in which bonuses paid by an EOT-owned company qualify for relief from income tax (permitting directors to be excluded from receiving eligible bonuses).

At the same time, the Government is narrowing the circumstances in which transfers of shares into EBTs qualify for exemption from inheritance tax, notably by requiring the shares to have been held for two years prior to being transferred into the EBT (where there has been a prior reorganisation of share capital, any holding period preceding the reorganisation will be taken into account).

Reserved Investor Fund

This Government has confirmed that it will continue with the last Government's plans to introduce the Reserved Investor Fund (RIF), a new type of investment fund which is a UK-based unauthorised contractual scheme for professional and institutional investors.

The RIF is intended to have lower costs and more flexibility than the existing authorised contractual scheme, and is expected to be of particular interest to the commercial real estate sector. Secondary legislation will be brought forward before the end of the 2024/2025 tax year and is expected to contain further details, including the qualifying criteria for the fund.

Reforms to carried interest

One of the major discussion points prior to the Budget concerned the taxation of carried interest, and this is an area where the Chancellor has announced significant changes. Relative to the changes that had previously been hinted at, it appears that the Government may have taken on board some of the private equity industry's lobbying on the subject.

The changes will be brought in over time, reflecting an acknowledgement by the Government of the complexity of the carried interest rules. The headline changes are as follows:

• from April 2025, the capital gains tax rate for carried interest will be 32% (as a flat rate, increasing from 18% (for basic rate taxpayers) and 28% (for higher and additional rate taxpayers));
• from April 2026, carried interest will be subject to income tax (plus NICs), but (if certain "qualifying" conditions are met) that carried interest will be subject to a 72.5% multiplier within a bespoke income tax framework.

The Government has therefore taken a two-step approach: firstly, a 4% increase in the capital gains tax rate, but without fundamentally changing the regime; and then a more radical set of changes to come one year later. This gives time for consultation on the new regime, which is to be welcomed.

Private equity executives will be relieved that the Government has chosen not to align carried interest tax rates with ordinary income tax rates. The Government has accepted that carried interest is not to be equated with a bonus, but instead has "unique characteristics" and so merits a bespoke tax regime (as is the case in other countries).

The consultation (published with the Budget) contains responses to representations made by industry during the Call for Evidence that took place over the summer, and also proposals for the new regime post-April 2026. The Government proposes that from April 2026, carried interest will be treated as trading profits and subject to tax at the marginal rates of UK income tax and Class 4 NICs. However, where carried interest meets the "qualifying" conditions, it will be subject to a 72.5% multiplier. Assuming a top rate of income tax of 45%, the effective tax rate for "qualifying" carried interest will therefore be c.34.1% (including the NICs element).

When factoring in the additional NICs charge, even with the 72.5% multiplier for "qualifying" carried interest, the rates would put carried interest taxation (in respect of capital receipts) at the higher end of the carried interest tax rates scale, when compared with the regimes of other countries which compete with the UK in this area.

However, this will be an exclusive tax charge, which will mean that carry would no longer potentially be taxed at higher ordinary income tax rates, depending on the source of the carry. Under current rules, where the carry derives not from a capital disposal, but instead from (say) interest or dividends, the usual marginal income tax rates applicable to such receipts will apply – which will be higher than 28%, and would also generally be higher than 34.1%. Therefore, for carry in respect of interest and dividends the proposed April 2026 rules may bring a lower tax rate – and it will no longer be necessary to have to determine the underlying nature of the carry in order to establish the tax rate, which is a welcome simplification.

Some other points to note from the consultation:

• the current carried interest definition would remain;
• the tax treatment for carryholders who are employees will be equalised with that applying to those who are self-employed, removing the potential optionality of the income based carried interest rules (which currently do not apply to employment related securities);
• the existing fund-level average holding period tests will be maintained but the Government will consult on further conditions. For instance, an additional holding period for the carryholder to have held their carry entitlement prior to receiving carry, and also a co-investment requirement (which is most likely to be team-based rather than an individual-based one); and
• the Government's consultation also states that it does not propose to introduce any transitional rules in respect of the changes to bring carried interest within the income tax regime (which is not helpful for established funds, or funds in the process of being established). However, the consultation invites views on whether to introduce any transitional rules for the potential minimum co-investment condition, and has left open the possibility of transitional rules being introduced for the minimum holding period condition. It is to be hoped that any new rules of this nature will come with appropriate transitional rules, so that existing fund structures are not unduly prejudiced.

The consultation in respect of the qualifying conditions closes on 31 January 2025.

Inheritance tax on unused pension funds and death benefits

The Government has announced that, with effect from 6 April 2027, most unused pension funds and death benefits will be treated as forming part of a person’s estate for inheritance tax purposes, and that the liability for paying any inheritance tax that arises as a result will fall on the administrator of the relevant pension scheme. The new inheritance tax charge will fall both on defined contribution and defined benefit schemes, and will apply irrespective of whether the scheme is a UK registered pension scheme or a qualifying non-UK scheme. Some pension benefits, however, notably funds that may only be employed in paying a scheme pension to a dependant of the deceased, will remain outside of the scope of inheritance tax.

HMRC has opened a 12-week consultation window (running until 22 January 2025) in which to consult with the pensions industry on various technical issues that arise in the context of implementing this policy change.

Other pensions changes

The Government has announced an extension, with effect from 30 October 2024, to the overseas transfer charge (OTC) that applies when funds held in a UK registered pension scheme are transferred to a qualifying recognised overseas pension scheme (QROPS). A transfer to a QROPs established in the EEA or Gibraltar will no longer be excluded from the OTC. Additional changes involve the conditions that a pension scheme has to meet before it qualifies as a registered pension scheme, an overseas pension scheme (OPS), or a recognised overseas pension scheme (ROPS). With effect from 6 April 2025, an EEA OPS will need to be regulated as a pension scheme in the country where it is established, while an EEA ROPS will have to be established in a territory with which the UK has a double taxation agreement or tax information exchange agreement. With effect from 6 April 2026, a pension scheme will only qualify for treatment as a registered pension scheme if its scheme administrator is UK resident.

Other pensions changes that were rumoured in the run-up to the Budget, including a restriction of income tax relief for pension contributions, reduction in the tax-free lump sum, and imposition of employer NICs on employer pension contributions, did not feature in the Budget announcements.

Energy Profits Levy

In line with previous announcements, the Government has confirmed an increase in the Energy Profits Levy (EPL) from 35% to 38%, to take effect from 1 November 2024. This increase in the EPL, which is the windfall tax on the exceptional profits of oil and gas companies, brings the headline rate of tax on upstream oil and gas activities up to 78%. The EPL's 29% investment allowance for qualifying expenditure will also be abolished, and the rate of the decarbonisation allowance will be reduced to 66% (down from 80%).

However, in a departure from their previous announcement in July, the Government has helpfully confirmed that the availability of 100% first year capital allowances within the EPL will be retained. Tax relief will also be provided for payments made into decommissioning funds in relation to oil and gas assets transferred for use in Carbon Capture Usage and Storage, to maintain the tax treatment had these assets instead been decommissioned. Receipts from the sale of these assets will also be removed from the scope of the EPL.

The duration of the EPL, which was previously due to expire on 31 March 2029, has also been extended by an additional year until 31 March 2030. This end date remains subject to the Energy Security Investment Mechanism, which sets out the circumstances in which the EPL would end early. The Government will consult in early 2025 on how the oil and gas tax regime should respond to price shocks once the EPL ends in 2030.

Carbon Border Adjustment Mechanism

Consistent with the commitment in the Labour Party manifesto, the Government has confirmed that a UK carbon border adjustment mechanism (CBAM) will be introduced on 1 January 2027. The CBAM will place a carbon price on carbon intensive goods imported to the UK. The sectoral scope of the CBAM will include the aluminium, cement, fertiliser, hydrogen and iron & steel sectors, however, products from the glass and ceramics sectors will not be included as previously proposed. The registration threshold will be set at £50,000, which will remove many micro, small or medium-sized businesses from the scope of the CBAM.

Climate Change Levy

The Climate Change Levy (CCL) main rates for gas, electricity and solid fuels will be uprated in line with the Retail Price Index (RPI) in 2026-27, while the main rate for liquefied petroleum gas and the reduced rates of CCL (being a fixed percentage of the main rates) will remain unchanged. The Government has also announced amendments to the Climate Change Agreement scheme from 1 January 2026 which means that new entrants will be able to claim relief on their CCL bill before completing a target period.

Fuel duty

The Government will freeze fuel duty rates for 2025-26 and extend the temporary 5p cut in fuel duty rates by an additional 12 months until 22 March 2026.

Increases to CGT rates

Capital gains tax (CGT) rates for individuals will be increased on disposals made from 30 October 2024. The lower rate will be increased from 10% to 18%, while the higher rate will increase from 20% to 24%. The lower rate applies to gains which fall within an individual's unused basic rate band; otherwise the higher rate applies. There will be no increase in the CGT rates for disposals of residential property, which will therefore be taxed at the same rates as for other assets (other than carried interest).

The CGT rate for Business Asset Disposal Relief (formerly Entrepreneurs' Relief) and Investors' Relief will rise from 10% to 14% from 6 April 2025 and from 14% to 18% from 6 April 2026.

Investors' Relief will also be subject to a lower lifetime limit on all qualifying disposals made from 30 October 2024, reduced from £10 million to £1 million. Investors' Relief applies to investments made from 17 March 2016 in ordinary shares of an unlisted trading company or holding company of a trading group which have been held for at least three years from 6 April 2016.

Removal of non-UK domiciled tax status

The Government will proceed with removing the non-UK domicile tax regime for foreign income and gains, with effect from 6 April 2025.

The new regime will provide an exemption from tax on foreign income and gains for four years for individuals who have not been UK resident in any of the previous 10 years. From the fifth tax year, foreign income and gains will be taxable in the same way as for other UK residents.

There will be two key transitional reliefs: a three-year Temporary Repatriation Facility will be available for foreign income and gains that have accrued prior to 6 April 2025 that are subject to tax under the remittance basis, allowing individuals to treat designated income and gains as remitted and pay tax at a lower rate, which will be 12% for the first two tax years and 15% in the third tax year, ending 5 April 2028; and for CGT purposes individuals who have not been UK domiciled or deemed UK domiciled in any tax year prior to 6 April 2025 will be able to elect to rebase the value of an asset held on 5 April 2017 to its value on that date.

As part of the changes, Overseas Workday Relief will be reformed with effect from 6 April 2025, and will be available for those individuals who qualify for the four-year exemption for foreign income and gains (ie, those who have been non-UK resident in the previous 10 years). The relief will allow tax-free remittance to the UK, but will be subject to a limit of the lower of 30% of qualifying overseas employment income and £300,000 in any tax year. Qualifying individuals will be able to elect for the relief for up to four tax years.

Inheritance Tax

Domicile status will no longer be used to determine liability to inheritance tax, and will be replaced by the concept of a long-term resident from 6 April 2025, which will mean an individual who has been UK resident in 10 of the last 20 tax years. An individual who has been non-resident for 10 consecutive tax years will not be treated as a long-term resident, and individuals who leave the UK and have been UK resident for between 10 and 19 of the last 20 tax years will need fewer years of non-residence in order to cease to be within the charge to inheritance tax, applying a sliding scale.

The rules on whether non-UK assets in a settlement qualify as excluded property for inheritance tax purposes will also be changed with effect from 6 April 2025, subject to transitional rules, and the question of whether settled property qualifies for the relief will be determined by whether the settlor is a long-term resident (and so within the charge to inheritance tax) in the tax year in question, and not by the status of the settlor when the settlement is made.

The Government will reduce Agricultural Property Relief and Business Property Relief with effect from 6 April 2026. 100% relief will only be available up to a combined cap of £1 million. Any value of the qualifying agricultural or business property exceeding the £1 million allowance will receive 50% relief. Assets otherwise subject to 50% relief will not use up this allowance, and any unused allowance cannot be transferred to spouses or civil partners. The new rules will also apply to lifetime transfers made on or after 30 October 2024 if the donor passes away on or after 6 April 2026.

Shares listed on AIM will no longer benefit from 100% Business Property Relief. Currently, shares on certain designated markets of recognised stock exchanges, such as AIM, are treated as "not listed" and therefore are subject to a 100% relief. From 6 April 2026, the Business Property Relief for shares on these markets will be reduced to 50%.

As already noted in the section headed "Pensions taxation", unused pension funds and death benefits payable from a pension will be included in a person's estate for inheritance tax purposes from 6 April 2027.

Following a consultation concluded earlier this year, the Government will extend the scope of Agricultural Property Relief from 6 April 2025 to cover land managed under environmental land management agreements. It has also been confirmed that the current levels of the inheritance tax nil-rate band and residence nil-rate band will continue until 5 April 2030.

Stamp Duty Land Tax

The Government has announced an increase to the higher rates of stamp duty land tax (SDLT) for additional dwellings surcharge (HRAD). HRAD is typically charged on buy-to-let property, second homes and holiday homes acquired by individuals and residential properties acquired by companies. With effect from 31 October 2024 the surcharge will be increased by 2 percentage points from 3% to 5%. This surcharge is not expected to apply to acquisitions of six or more dwellings which fall to be treated as non-residential property for SDLT purposes.

The Government has also announced that the single rate of SDLT that is charged on the purchase of high value residential property (ie, dwellings costing in excess of £500,000) by corporate bodies will be increased by 2 percentage points from 15% to 17%. This change will take effect from 31 October 2024.

These measures differ from those included in Labour's pre-election manifesto, which had been expected to target only non-resident purchasers of residential real estate.

Additionally, the temporary increase in SDLT nil-rate thresholds and the associated maximum purchase price above which first-time buyer's relief is unavailable on residential property will be reversed with effect from 31 March 2025.

In September 2022, in order to support the struggling housing market, the nil-rate threshold for SDLT on the acquisition of residential property in England and Northern Ireland was increased. The standard nil-rate band was raised from £125,000 to £250,000, while the nil-rate threshold for first-time buyers was increased from £300,000 to £425,000. At the same time, the maximum purchase price for which first-time buyers' relief (and consequent concessional rates) could be claimed was also raised from £500,000 to £625,000. However, each of these increases will cease to have effect from 31 March 2025. After this date, the nil-rate thresholds and maximum purchaser price for first-time buyer's relief will revert to pre-existing levels.

Business Rates

The Government is set to consult on proposals which seek to introduce a new fairer system of taxation that protects the high street, better incentivises investment, and is fit for the 21st century. A Discussion Paper has been published which sets out the Government's priority areas for reform in order to achieve these objectives.

In respect of the first objective (of protecting the high street), the Government has announced that it intends to introduce permanently lower business rates multipliers for high street retail, hospitality and leisure properties in England from 2026-27. To ensure that the tax cut is fiscally sustainable, the Government intends to fund it through a higher multiplier for the most valuable properties (which it expects to include large distribution warehouses, including those used by "online giants").

During the interim period (ie, for 2025-26) the small business multiplier will be frozen and retail, hospitality and leisure business will receive 40% relief on their business rates, up to a cash cap of £110,000 per business.

Corporate Tax Roadmap

There are also certain measures announced in the Corporate Tax Roadmap which will be of interest to investors in, and developers of, real estate and infrastructure projects (being the consultations on advanced clearances for major projects and tax treatment of pre-development costs as noted in the "Business and employment-related taxes" section above).

Increased late payment interest on unpaid tax

The rate of interest charged on late payments of tax will increase by 1.5 percentage points from 6 April 2025. Currently, late payment interest runs at 2.5% above the Bank of England base rate, so the increase will take the rate to 4% above base. While the rationale set out in the Budget is to "encourage taxpayers to pay tax on time", late payment interest applies equally to all unpaid tax liabilities whether withheld intentionally, or because the tax treatment is in dispute. The higher interest rate will therefore increase the potential cost of tax disputes (and payments on account of disputed tax will continue to attract interest at 1% below the base rate if repaid by HMRC).

Compliance and anti-avoidance

The Budget announced plans to recruit significant numbers of additional staff to HMRC's compliance and debt management teams, and modernising its IT and data systems. The Budget also included a specific commitment to scale up compliance activity to tackle offshore non-compliance by wealthy individuals, intermediaries and corporates.

The Government also announced planned legislation targeting specific loopholes, including: changing the company car tax rules to put an end to contrived car ownership schemes that avoid company car tax; closing a route for the avoidance of capital gains tax when an LLP is liquidated and its assets are disposed of to its members or connected persons; and removing opportunities to side-step the anti-avoidance rules relating to loans from close companies to their shareholders.

The Budget also announced a number of measures targeted at advisers including: mandatory registration of tax advisers who interact with HMRC on behalf of clients from April 2026; considering options to strengthen the regulatory framework of the tax advice market; consulting on enhancing HMRC’s powers and sanctions to take swifter and stronger action against tax advisers who facilitate non-compliance; and consulting on a package of measures to tackle promoters of marketed tax avoidance.

The Government's information and data gathering powers

The Government is publishing a consultation on reforming HMRC’s powers to correct taxpayers' positions in previous tax years. This consultation will also consider a potential new power to require taxpayers to correct mistakes themselves. Currently, if a taxpayer discovers that they have made a mistake in a previous tax year and they are out of time to correct their tax return for that year, there is no specific requirement for them to correct that mistake (except in relation to certain offshore tax liabilities) and the onus is on HMRC to raise an assessment if they discover the mistake within a certain amount of time. A new 'requirement to correct' obligation could therefore impose a potentially significant burden on taxpayers, which may be backed up by significant penalties if they fail to comply.

Cryptoassets

As part of the implementation of the Cryptoasset Reporting Framework (CARF), cryptoasset service providers will be required to provide information on UK-resident cryptoasset service users as well as foreign-resident ones. CARF is mainly focused on the collection of information about foreign cryptoasset users and the exchange of information with the jurisdictions where they are resident. The Government did not have to extend CARF's application to UK-resident users but has chosen to do so. This means that instead of HMRC having to use their existing information gathering powers by issuing a specific notice regarding specific data, providers within the scope of CARF will have an automatic reporting requirement in relation to relevant information relating to all users.

Vaping Products Duty

Following the Government's consultation on introducing a new Vaping Products Duty, a flat-rate excise duty of £2.20 per 10ml will be introduced on all vaping liquids from 1 October 2026. As the Government wishes to maintain the incentive for smokers to switch from tobacco to vaping, this will accompanied by an increase of £2.20 per 100 cigarettes / 50g of tobacco in tobacco duty.