HM Treasury Update: Key Tax Reforms Announced Ahead of Budget under Labor

July 29, 2024, UK´s His Majesty´s (HM) Treasury published an update offering taxpayers some clarity ahead of final confirmations in the upcoming Budget.

Here are some of the main changes expected: 

VAT AND BUSINESS RATES ON PRIVATE SCHOOLS

The government is set to introduce a 20% VAT on education and boarding services provided by private schools across the UK, effective from 1 January 2025. This VAT will also apply to pre-payments made on or after 29 July 2024 for terms starting on or after the implementation date. Importantly, pupils with acute special educational needs, who require the specific provisions of private schools, will remain unaffected.

Additionally, private schools in England will lose their eligibility for charitable rates relief under business rates from April 2025, subject to Parliamentary approval. The government will engage with stakeholders to address potential impacts, particularly where private schooling is specified in an Education, Health, and Care Plan.

Interestingly, HMRC has published that “private schools that are not currently registered for VAT should not apply to HMRC to register, at this time. HMRC will be publishing further guidance on registration for schools in due course.

Where private schools currently make some taxable supplies, they may voluntarily register in respect of these supplies, in accordance with the normal VAT rules”. 

ABOLISHING THE TAX REGIME FOR NON-UK DOMICILED INDIVIDUALS

A policy note has been published detailing plans to eliminate domicile status from the tax system, replacing it with a new residence-based regime. This change aims to end the use of offshore trusts to shield assets from inheritance tax and abolish the 50% foreign income discount. Further details will be shared in the forthcoming Budget.

ADDRESSING THE CARRIED INTEREST LOOPHOLE

The government has issued a call for evidence as it seeks to close the carried interest loophole, initiating detailed discussions with expert stakeholders to inform future reforms.

ENERGY PROFITS LEVY REFORM

Effective 1 November 2024, the Energy Profits Levy (EPL) rate will increase to 38%, with the levy extended until March 2030. The Energy Security Investment Mechanism will persist, ensuring the levy does not apply if prices fall to or below historically normal levels for a sustained period. Unjustifiably generous investment allowances will be removed, including the core investment allowance, with further details to be disclosed at the Budget.

TACKLING THE TAX GAP

To address the tax gap, the government will invest in HMRC’s compliance work by hiring approximately 5,000 additional staff to enhance tax revenue recovery. Investments in HMRC’s technology infrastructure will also be made to improve efficiency and taxpayer interaction. Policy changes to simplify the tax system and reduce non-compliance will be introduced, with updates on these measures provided at the Budget.

ABOLISHING THE FURNISHED HOLIDAY LETTINGS TAX REGIME

Draft legislation has been published to abolish the Furnished Holiday Lettings tax regime from April 2025, leveling the playing field between short-term holiday lets and standard residential properties. The legislation includes details on transitional arrangements.

OECD PILLAR 2 IMPLEMENTATION

The government is translating an internationally agreed anti-avoidance rule into UK legislation to prevent multinational enterprises from circumventing the Pillar 2 top-up tax. The legislation will be effective from 14 March 2024. Additionally, the Undertaxed Profits Rule (UTPR) of Pillar 2 will be introduced for accounting periods beginning on or after 31 December 2024.

SOURCES/ RECOMMENDED READ: 

• https://questions-statements.parliament.uk/written-statements/detail/2024-07-29/hcws32
• https://www.gov.uk/government/publications/revenue-and-customs-brief-8-2024-removal-of-vat-exemption-for-private-school-fees-and-boarding-fees/b73771cb-f422-46b4-b473-e7ba0ad72ec3 
• https://www.gov.uk/government/collections/finance-bill-2024-25-draft-legislation-and-technical-tax-documents