Post Election Tax announcements

In a statement to Parliament on Monday 29 July 2024 Rachel Reeves, the Chancellor of the Exchequer, confirmed that her first Budget will be delivered on Wednesday 30 October, and announced a number of significant tax changes.

VAT to be charged on private school fees from 1 January 2025

VAT will be charged on independent school fees and boarding fees from 1 January 2025, as explained further in the HMRC brief Revenue and Customs Brief - removal of the VAT exemption for private school fees and boarding services. Special schools where local authorities are meeting the fee, and nursery fees are not affected, nor are the sale of school uniform and other closely related goods and services. Anti-forestalling rules mean that fees invoiced or paid after 29 July 2024 relating to school terms after 1 January 2025 will be subject to VAT. In addition, HMRC have indicated that they will look carefully at prepayments of fees before 29 July 2024, as it is likely that some prepayment arrangements may not have succeeded in avoiding a VAT charge.

A technical consultation on the draft legislation (VAT on Private School Fees & Removing the Charitable Rates Relief for Private Schools) has been launched which closes on 15 September 2024.

Charitable Rates Relief for Private Schools in England removed from April 2025

The government also intends to remove charitable rates relief for independent schools from April 2025, which brings the treatment of schools in England in line with the treatment of schools in Scotland, where the charitable exemption from business rates was removed in 2022. The business rates policy change will be legislated for through a Local Government Finance Bill led by the Ministry of Housing, Communities and Local Government. The Bill will be introduced following the Budget.

Changes to the tax treatment of non-doms in the UK and plans to base UK inheritance tax on residence rather than domicile.

Further details have been announced about how UK resident, non-domiciled individuals will be taxed, as well as plans for the UK's IHT regime to change from being based on domicile to being based on residence. See our blog for more details on these important changes.

Removing the carried interest "loophole" for fund executives

The government's intention to change the tax treatment of carried interest was confirmed. Carried interest is a form of performance-related reward received by fund managers, primarily within the private equity industry. Provided certain conditions are met, carried interest payments are taxed at special capital gains tax rates of 18% / 28%. It should be noted, however, that there are various circumstances under which they can still be taxed as income. Addressing this so-called "loophole" has been Labour policy for some years.

An open call for evidence (The tax treatment of carried interest – A call for evidence) has been published which focusses on three main questions:- "How can the tax treatment of carried interest most appropriately reflect its economic characteristics?", "What are the different structures and market practices with respect to carried interest?" and "Are there lessons that can be learned from approaches taken in other countries?". Further announcements following the consultation are expected alongside the Budget on 30 October 2024.

Abolition of the Furnished Holiday Lettings Tax Regime from 6 April 2025

As announced in the Spring Budget 2024, the beneficial tax rules for furnished holiday lettings will be removed from 6 April 2025. Tax relief for interest will be restricted to the basic rate, capital allowances will be removed for purchases of new assets, income from furnished holiday lettings will no longer be treated as trading income for pension purposes, and CGT rollover relief and business asset disposal relief will not be available. A policy paper Abolition of the furnished holiday lettings tax regime gives further details.

Increases to the Oil and Gas Profits Levy from 1 November 2024

The rate of the Energy Profits Levy will increase to 38% from 1 November 2024, bringing the headline rate of tax on upstream oil and gas activities to 78%. The period that the levy applies is also being extended to 31 March 2030. The government will also remove what it describes as the "unjustifiably generous" investment allowances from the Energy Profits Levy, including by abolishing the levy’s main 29% investment allowance for expenditure after 1 November 2024.