The headline announcements delivered by Rachel Reeves in Wednesday’s Budget provided few surprises after the numerous leaks over the past weeks – intentional or otherwise. But, as always, the most interesting and concerning changes were contained in the array of policy documents, consultations and draft legislation published after the Chancellor’s speech. Spear’s asked leading tax and legal experts for their first reactions on the Budget’s impact on HNWs and entrepreneurs.
Non-dom: tidbits and icebergs
Attempts to persuade the government to adopt a lump sum tiered tax system to replace the current Remittance Tax Regime have fallen on deaf ears. The Remittance Basis, which enables those with foreign domiciles – non-doms – to pay no tax on foreign income that is not brought into the UK, disappears in April 2025. There will also be only limited ‘grandfathering’ for excluded property trusts.
David Lesperance, managing director of tax advisers Lesperance & Associates, points out that ‘one tidbit thrown to non-doms’ is the Chancellor’s decision to extend the Temporary Repatriation Facility (TRF) from two to three years. This means those who have previously claimed the remittance basis can remit foreign income and gains (FIG) that arose before 6 April 2025 and pay a reduced tax rate on the remittance for three years. The TRF rate for the first two years is 12 per cent, and 15 per cent in year three.
Peter Ferrigno, Director of Tax Services at Henley & Partners, agrees that the FIG rules ‘are remarkably good by international standards. They provide a very straightforward clarity that all income earned abroad in the first four years is not subject to UK tax – even if it is remitted to the UK.’ He adds: ‘If this money was already taxed elsewhere, nothing seen so far seems to preclude double-tax relief being claimed, and so the net tax cost of repatriating may be small.’
One other bright spot for non-doms is that the TRF will apply to distributions from formerly protected trusts. This will allow them to extract historic income and gains at a bargain rate.
[See also: From capital gains to inheritance tax, what the budget means for Britain’s wealthy]
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Inheritance tax
While reform to Business Property Relief and Agricultural Property Relief was expected, the cap of 100 per cent relief on the first £1 million of agricultural and business assets is unlikely to provide much relief for most medium to large family farms and businesses, argues Nick Warr, Senior Partner at Taylor Wessing.
‘It is likely to result in material inheritance tax charges arising to the owners of these farms and businesses in due course, and, therefore, logically to the break-up and sale of these farms/businesses to discharge such inheritance tax liabilities.’ He predicts that over time large non-family-owned corporates are likely to be the beneficiaries of these changes since they will have the opportunity to acquire farms and businesses in distressed scenarios.
Personal Pensions had fallen out of Inheritance Tax when the requirement that they be invested into buying an annuity was removed. Bringing them back into Inheritance Tax ‘rights that wrong,’ Ferrigno says, ‘although that will be expensive for anyone who has the lifetime allowance invested in their SIPP.’ Fears that the lifetime gifts rule may be amended to 10 years rather than seven were not realised.
After the Budget, many UHNWs will be looking closely at the concept of the ‘long-term resident’ (LTR) – someone who has been resident in the UK for 10 of the last 20 years. If you are an LTR, any foreign trusts holding foreign property (ie ‘excluded property trusts’) will no longer enjoy perpetual exemptions from IHT. If you are not a LTR, then the trust will exclude property.
Leslie MacLeod-Miller, Chief Executive of Foreign Investors for Britain, says the budget contains ‘a bombshell’ for entrepreneurs on Business Property Relief, in that they will pay 20 per cent Inheritance Tax. ‘As drafted, these changes will drive the international community to Switzerland, Italy etc, and they will take their expenditure and investments with them,’ he warns.
[See also: A Labour olive branch to non-doms?]
Exit tax
UK taxpayers with significant capital gains dodged a bullet as no Exit Tax (or deemed disposition for capital gains purposes) was announced. This means UK taxpayers can still leave the UK without incurring a large capital gains levy. However, an Exit Tax may still be a target of the Chancellor in future budgets, warns Lesperance.
Carried interest
The rate on Carried Interest goes up from 28 per cent to 32 per cent from April next year. The headline increase is not as bad as originally envisaged although, in practice, Warr points out that the rate is 34 per cent from April 2026 due to an additional national insurance charge. Worse, the increase is combined with confirmation that the government will introduce a revised tax regime for carried interest at a later date, which could impact both rates and the circumstances under which payments will qualify for carried interest treatment. ‘In the longer term, remuneration that is currently taxed as carry could, at least partly, be subject to income tax at a rate of 45 per cent,’ Warr warns.
[See also: New Labour government unveil crackdown of non-dom regime — as it happened]
Capital gains
Among the greatest fears of UNHWs before the budget was that capital gains tax rates would be aligned with income tax rates. An increase in the lower rate from 10 per cent to 18 per cent, and the higher rate from 20 per cent to 24 per cent, which aligns with the rates already existing on residential property, ‘was much less than expected,’ Ferrigno points out.
Will more UHNWs leave Britain?
Ferrigno says: ‘The general mood music was that the Budget was going to be a lot worse, it represents a balanced response to how to deliver the investment that the government was elected to provide, without scaring away the biggest contributors.’
It will be ‘interesting’ to see how many of those high profile figures who threatened to leave the UK decide to remain – ‘although Rachel Reeves’ decision to double Air Passenger Duty for private jets will doubtless not have figured in their overall calculations,’ he adds.
[See also: Can an educational trust help families to pay off higher private school fees?]
Most likely to leave will be those concerned about the capital gains tax rate rise. Ferrigno points out that ‘they may have done some research in the past few months and found that places such as the United Arab Emirates don’t tax at all. Rather than stay and pay, the ability to reduce that 20 per cent down to zero remains tempting.’
Lesperance says: ‘The Damocles Sword of a possible future Exit Tax, combined with a significant increase in capital gains tax, will result in an exodus as taxpayers look to avoid not only higher rates, but any capital gains hit.’
Robert Brodrick, chairman at Payne Hicks Beach, described Reeves’s Budget as ‘an iceberg to the non-dom’s Titanic’.
‘Barely a mention in Rachel Reeves’ lengthy speech, but beneath the surface lay a 37-page Technical Note and 103 pages of draft legislation both of which contain some nasty surprises.
‘The Technical Note makes it clear that it is all based on draft legislation and could be subject to change by Parliament, but at first glance I do not see anything that will prevent the exodus that has already started and persuade long-term resident non-doms to stay in the UK. The Inheritance Tax consequences of becoming long-term resident will be enough to put many people off staying for more than 10 years.
‘Will the regime for “new arrivers” be attractive enough to fill the hole left by departing non-doms? The new regime will enable individuals arriving in the UK after at least 10 years of non-UK residence to claim exemption from tax on their foreign income and gains for up to four consecutive years but unfortunately, I think this is unlikely to do enough to encourage people to bring wealth to the UK or to put down deep enough roots to stay here and invest for the long term.’
