Mark Savage, Tax Director at BDO in Guernsey, provides his commentary on the UK Spring Budget from Jeremy Hunt, Chancellor of the Exchequer.
Mark (pictured) noted: “In what is likely to be his last full Budget before the forthcoming UK General Election, the Chancellor of the Exchequer has announced a Budget promoting tax cuts funded by better than predicted UK economic performance and future efficiencies in public services. As widely predicted the biggest tax cut is a further 2% reduction in National Insurance Contributions for employees and the self-employed.
“In addition, some of the following measures may be of interest to Guernsey residents with connections to the UK”.
Non-Domiciled Individuals
The most significant change, in the context of the taxation of those individuals who are inwardly and outwardly mobile from the UK, is the plan to remove the importance of domicile from the UK tax regime:
- Income and Capital Gains Tax: Currently residents of the UK who have no long-term connection with the UK (so called Non-Doms) can make a claim so that they are only taxed on foreign income and gains remitted to the UK for up to 15 years. From 6 April 2025, this system will be abolished and, from that date, all new arrivals to the UK will cease to be taxed on their foreign income and gains, whether remitted or not, for up to 4 years.
- Transitional Rules: Special rules are being brought in to benefit existing UK resident Non-Doms for the first year of the new regime and to encourage the remittance of funds, or other assets, to the UK of previously untaxed income and gains.
- Trusts under the New Rules: Under the new rules, income and gains arising in a trust (wherever the trust is resident) will apparently be taxed on UK resident settlors. There are some transitional provisions being introduced, and it will be interesting to see the detail of how these address existing trust arrangements.
- Inheritance Tax (IHT): No immediate changes have been announced in this area, but the Chancellor announced a consultation on moving the basis of UK Inheritance Tax away from domicile and towards residence. The implication is that UK residents will, in future, be subject to IHT on their worldwide assets (possibly including those settled into trust) regardless of their background and long-term intentions. Conversely, it will presumably become easier for long-term non-UK residents to demonstrate that they should only be subject to UK IHT on any UK assets that they hold.
It will be interesting to see the effect of all these potential changes on the attractiveness of the Guernsey Open Market for high net worth and geographically mobile individuals.
Income Tax
There have been no changes to previously announced rates and allowances. The effect of inflation means that these frozen allowances may lead to an increased number of Guernsey residents facing UK tax liabilities.
UK Residential Property
The favourable treatment offered on the taxation of UK property that is rented as short-term holiday lets is being withdrawn, and this will now be subject to income (or corporation) tax in the same way as other UK property income.
On the other hand, a potentially significant tax cut sees the highest rate of UK capital gains tax on residential property fall by 4% to 24%. This will benefit any individuals looking to dispose of UK residential property.
Value Added Tax
Of interest to anyone carrying out business in the UK, or possibly with UK customers, is the increase in the VAT registration threshold for the first time in many years. This means that anyone with sales potentially subject to UK VAT of less than £90,000 p.a. will not need to register.
