Listen to our Instant Insights – 2024 Autumn Budget

Barely a Budget ever goes by these days without there being a change to SDLT tax rates and the Autumn 2024 Budget saw no change there. This time the target was not the non-resident SDLT, which had been mentioned in the Labour Party manifesto, but instead the higher rates for additional dwellings, sometimes called the surcharge for second homes.

These rates, with effect from the 31st of October 2024 have now gone up by a further 2%, i.e. from 3% to 5%. This means that taking into account the NRSDLT rate of 2%, that one is now at a top SDLT rate on the most expensive properties of 19%, very close in my mind to the 20% current VAT rate.

If a contract was exchanged on or before the 31st of October 2024, it will be possible to argue that the contract is still only subject to the 3% rate and not the 5% increased rate, but in order to do that, it is absolutely vital that the contract must not be, to use a colloquialism, messed with. In other words, you mustn’t vary that contract, or assign the rights under that contract, and you mustn’t sub-sale the contract, or in any other way make it such that somebody other than the original purchaser becomes entitled to call for a conveyance.

As long as you stay outside those rules, it should be possible for your old contract to be grandfathered and protected from these new rates. Going forwards, whenever you’re looking at a pre 31st of October 2024 contract, it’s going to be very important to understand that this contract has not been altered, varied or subsold.

The Autumn Budget 2024 was eagerly anticipated. There were great concerns that there’d be a number of very significant tax changes. One of the prevalent rumours was that CGT rates might be upped from their current 10% and 20% up to the income tax rates of potentially 45%.

Over the last few months there was an increasing rumour that in fact, a CGT rate of 33% might be adopted. So in many ways, people were pleasantly surprised by the Autumn Statement in which the Chancellor announced that the rates for assets, other than residential property and carried interest, moved from 10% basic rate to 18%, and 20% higher rate to 24%, and that is obviously far better rates than the feared 33%, let alone the 45%.

One area for concern, however, is that of an anti-avoidance provision. The current rule had always been that if one had exchanged a contract which was an unconditional contract, that was the date of disposal, regardless of when completion takes place. The Autumn Statement, however, has thrown doubt on that by introducing an anti-forestalling rule, the principle of which is to say that if there was a motivation in exchanging the contract to get a tax advantage by reason of a timing issue, then the tax advantage will not be obtained. Therefore, that means there’s going to be uncertainty for many of the people who are racing to exchange contracts on or before Budget day.

The Autumn 2024 Budget introduced a number of changes and one of those was in respect of the sale of shares to an Employee Ownership Trust.

A sale of shares to an EOT provides a full exemption from capital gains tax and has therefore become a relief that has been much used and perhaps to the mind of the Treasury, has been misused. Therefore, the Treasury has introduced changes which will tighten up on the requirements needed to be satisfied in order to obtain this relief.

One of the changes is to require that there is a current market value of the company in order to obtain the exemption. Many taxpayers who are properly advised would have already been undertaking such a valuation, so this should not provide to be too onerous. Similarly, the requirement that the trustees are UK tax resident will not be surprising to many, who will already have chosen to have UK trustees, but is going to be important to take into account these changes, because they took effect for disposals on or after the 30th of October 2024, and there may be as a result of these changes, limitations on the way that a tax payer will want to manage their relationship between themselves and the trustee going forward.

Companies that are typically owned by five or fewer people often make loans to their shareholders, and those loans can attract a tax charge for the company if the company does not repay the amount of the loan by nine months after the end of the accounting period in which the loan was made by the company.

It’s become apparent that what some people were doing was “bed and breakfasting”. In other words, if the loan was not going to be repaid within nine months of the year end that the loan would be, for argument’s sake, repaid in eight months and 13 days, and then a new loan for the same amount was given by the company that very afternoon, and, as a result, the company was able to say “there wasn’t a loan outstanding at nine months, because it had been repaid.” The fact that a matching loan had been given was neither here nor there. Unsurprisingly, the Chancellor has now stamped upon this.

One of the most eagerly anticipated parts of the Budget speech from the chancellor was in respect of carried interest. A vexed topic of conversation for chancellors over many, many years, perhaps even decades. Famously a beneficiary of carried interest in the private equity market, had said that he paid an effective tax rate of less than his cleaner. That had been changed over the years and current rate of taxation of carried interest is 28%.

Currently, carried interest is subject to the capital gains tax regime and with the concerns regarding the taxation and change of rate of CGT, there was a concern that carried interest would have moved up to an income tax rate of say 45%, which would have been at variance with other jurisdictions which treat carried interest as capital and at a rate of around 30%.

What the Chancellor has announced is that with effect, for carry being cashed in on or after the 6th of April 2025 that the rate will increase from 28% to 32%, but for carry that is cashed in after the 6th of April 2026 that there will have been a whole scale alteration of the carried interest regime, with the potential that carried interest will be treated as trading profits, subject to income tax and Class 4 NICs.

This will apply to qualifying carried interest. What that term means will be debated and explored between now and April 2026, although there are some indications in the press releases that came out with the Autumn Statement as to the initial view of the meaning of a qualified carried interest, but even though the profits will be treated as trading profits post 2026, that doesn’t mean a 45% actual tax rate will apply, because the initial indication is that tax will be subject to an adjustment by applying a 72.5% multiplier to the amount of tax.

This will be a significant increase and change the taxation of carried interest and so it’s going to be very interesting to see how private equity funds and the like adjust their incentivisation of managers between now and April 2026.