UK's 2024 Spring Budget

On 6 March 2024, Chancellor Jeremy Hunt delivered the UK's Spring Budget. Below, you will find a summary of the key highlights for asset managers. If you would like further help addressing specific background facts and circumstances, please feel free to reach out.

Updates on National Insurance Contributions (NICs)

  • Class 1 NICs main rate will decrease from 10 percent to 8 percent starting April 6, 2024.
  • Class 4 NICs, which are paid by self-employed individuals, will also decrease from 8 percent to 6 percent starting April 6, 2024. This reduction of 2 percent is in addition to the 1 percent decrease announced in the Autumn Budget.
  • Class 2 NICS may be abolished, with further discussions to take place.
  • No changes were announced to employer NICs, the NICs thresholds or the rates for earnings above the upper threshold.

Upcoming changes to non-domicile tax regime

  • The remittance basis of taxation for non-domiciled individuals residing in the UK will be abolished from April 6, 2025, and replaced with a new regime.
  • New arrivals, who have a period of 10 years consecutive non-residence, will enjoy full tax relief on Foreign Income and Gains (FIG) for a four-year period of subsequent UK tax residence. This means they can bring money to the UK during this period without facing additional taxes. Consideration should be given to any carried interest gains, which are not explicitly mentioned.
  • Existing tax residents with fewer than four years of UK tax residence can also benefit from this relief until the end of their fourth year as a tax resident.
  • There may still be opportunities to manage Inheritance Tax (IHT) exposure for non-domiciled individuals based on current proposals.
  • Transitional provisions may allow for remittances to the UK at a tax rate of 12 percent within a specified timeframe.

Rate decrease for Capital Gains Tax

  • Starting April 6, 2024, the higher rate of property capital gains tax will decrease from 28 percent to 24 percent.
  • There are no announced changes to the taxation of carried interest capital gains.

Value Added Tax (VAT) registration threshold

  • Starting April 1, 2024, the taxable turnover threshold for VAT registration will rise from £85,000 to £90,000. The deregistration thresholds will also increase from £83,000 to £88,000.

Transfer of assets abroad rules amendment

  • As part of the Spring Bill 2024, the government will amend the Transfer of Assets Abroad anti-avoidance rules in response to a recent court case. The amendment applies a tax charge on relevant transfers conducted by closely-held companies.

Updates on offshore trusts and implications

  • There are significant proposals to the taxation of offshore trusts specific to income and gains — all structures will likely need reviewing over the next year.

A&M's panel of specialists have reviewed the key measures in the announcement and offered insights into the potential impact on individuals and businesses. For more details, please refer to A view on the Spring Budget 2024.

The Vermilion case: key takeaways for asset managers on deeming provisions in employment-related securities legislation

In this update on the Vermillion case, we provide key takeaways from the Supreme Court's decision in HMRC v Vermilion Holdings Ltd [2023] UKSC 37 for asset managers and outline how A&M can provide assistance. The Vermilion case underscores the importance of considering the deeming provisions in UK employment-related securities (ERS) rules. It is particularly relevant for those contesting that awarded securities fall outside ERS rules. For asset managers, a common scenario involves individuals who are partners in the asset management business (rather than employees), participating in carried interest and co-invest arrangements of a fund. These individuals may also serve as directors of entities within the fund's structure or companies invested in by the fund.

Changes to HMRC's guidance on salaried member rules guidance and increases in capital contributions

HMRC has included a new example in their guidance, addressing instances where the Targeted Anti-Avoidance Rule (TAAR) is deemed applicable. This occurs when capital contributions are increased through arrangements allowing members to adjust their contributions in each period to avoid meeting the capital contribution condition (Condition C). Additionally, HMRC has removed the section which stated that a genuine, enduring contribution that poses real risk would not trigger the TAAR.

The updated guidance carries significant implications for cases where members raise contributions to circumvent the salaried member rules. HMRC clarifies that a genuine, long-term restructuring leading individuals to fail one or more of the conditions aligns with this policy aim, provided that it can be substantiated. However, the potential impact of TAAR application concerning Conditions A and B remains uncertain.

Given these changes and recent case law developments on salaried member rules, as discussed in our 2023 Bluecrest update, it is crucial to establish effective policies, procedures, and processes to manage and evidence compliance. Issues with the rules may arise throughout the year rather than at a specific point, necessitating an ongoing, iterative process. For instance, if a member joins or leaves a Limited Liability Partnership (LLP), a reassessment is essential. We have previously outlined common issues faced by LLPs in our article on salaried member rules and have experienced a rise in communications from HMRC to LLPs regarding salaried member rules compliance.

Employment related securities reporting

Just a reminder that the UK Employment-Related Securities (ERS) return deadline of July 6, 2024, is fast approaching for reportable events in the 2023/24 tax year, such as the acquisition of carried interest entitlements, co-investments, and certain disposals where more than tax market value is paid. Employers need to register their arrangements with HMRC and file online annual returns for reportable events occurring during the 2023/24 tax year by July 6, 2024. Please note that even if there are no reportable events during the 2023/24 tax year, employers must still submit nil returns if arrangements were registered previously.

We would also like to remind you of the importance of considering the deeming provisions in the UK ERS rules in light of the HMRC v Vermillion Holdings Ltd 2023 case, which you can read about in our article on the Vermillion case. Broadly, where the entity issuing the award is "connected" to the entity of which the individual receiving the award is an employee/director, the deeming provisions will be in play and the application of the ERS rules should be considered. Please do not hesitate to reach out if you have any questions about the case or the implications it may have for you.

Originally published by 21 March, 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.