On Wednesday 30 October 2024, the Labour Government announced its eagerly awaited 2024 Autumn Budget. For the first time in history, a female Chancellor of the Exchequer, the Rt. Hon Rachel Reeves took to the stage and delivered the new fiscal budget. There were some key changes which we explore below, commenting particularly on the Scottish perspective.

1. Inheritance Tax (IHT)

Arguably, the most extensive changes in the Budget to the direct tax position of UK domiciled individuals were made to IHT.

Pension funds and other assets on death

From April 2027, unused assets and death benefits under discretionary pension schemes which transfer on the death of the pensioner to beneficiaries will form part of the death estate for IHT purposes. As of now, such assets do not, generally, form part of the death estate that may be liable to an IHT charge.

For estates which are liable to IHT, this in principle will mean an IHT charge of 40% of the value of discretionary pension fund assets and other benefits which transfer to beneficiaries.

The person liable to make return of and settle the IHT liability on relevant pension and other benefits is proposed to be the scheme administrator and not (as with the other estate) the personal representative of the deceased. A consultation has been issued to seek comment as to how the personal representative and pension administrator will interact to establish estate values and IHT liabilities. The application of these requirements to non-UK schemes is not clear.

If the IHT position is later amended so that further IHT or a repayment becomes due, it is proposed that, if possible, the scheme administrator will deal with this but if it is not possible, the estate beneficiaries may be liable for any further IHT liability.

There is currently an income tax charge on pension fund benefits received by beneficiaries of a deceased where the pensioner was 75 or over on death. How this may be affected by the IHT changes is not clear.

Business property relief (BPR) and agricultural property relief (APR) from IHT

As of now, most property qualifying for BPR and APR attracts IHT relief at 100% (although certain types of property attract BPR or APR at only a 50% rate) meaning no IHT is charged on the death estate value of the relevant property.

From 6 April 2026, these 100% BPR and APR reliefs will change in two ways (the existing 50% reliefs are not affected):

• First, a total cap of £1m will be introduced to all property that is subject to 100% BPR and APR relief. This cap applies to death assets, and lifetime transfers before death made after 30 October 2024, if the donor dies on or after 6 April 2026. Above the cap, a relief of 50% will apply to property held on death or transferred before death, meaning an effective 20% rate of IHT could apply to such property, if the estate is subject to IHT. This £1m cap on 100% BPR and APR will also apply to property held by trusts.
• Second, the existing 100% BPR which applies to shares in companies designated as not listed on the markets of recognised stock exchanges will be 50%. This reduction to 50% will apply to shares listed on the London AIM, meaning such shares will be unaffected by the cap noted above, as 100% BPR will no longer apply.

From 6 April 2026, APR will be extended to apply to land managed under an environmental agreement with, or on behalf of, the UK Government, devolved Governments, public bodies, local authorities, or approved responsible bodies.

The effect of the £1m cap on the 100% BPR and APR reliefs may necessitate the sale of the whole or part of farming and other businesses to fund IHT liabilities.

IHT is a UK-wide tax so these changes apply equally in Scotland.

2. Tax changes for non-UK domiciled individuals

As previous trailed, the Government has announced changes affecting the taxation of non-UK domiciled individuals. The remittance basis of taxation, which is based on domicile status, will be replaced with a new tax regime based on residence from 6 April 2025.

An overview of the key changes include:

• A 100% relief on foreign income and gains for new arrivals to the UK in their first 4 years of tax residence, provided they have not been UK tax resident in any of the 10 consecutive years prior to their arrival (4-year foreign income and gains regime).
• A new Temporary Repatriation Facility (TRF) will be available for individuals who have previously claimed the remittance basis. Under the new rules, individuals will be able to designate and remit foreign income and gains (including unattributed foreign income and gains held within trust structures) that arose prior to the changes at a reduced rate. The TRF will be available for a limited period of three tax years, from 2025 to 2028 and the TRF rate will be 12% for the first 2 years and 15% in the final tax year of operation.

Changes to foreign income and gains

The protection from tax on foreign income and gains arising within settlor-interested trust structures will no longer be available for non-domiciled and deemed domiciled individuals who do not qualify for the 4-year foreign income and gains regime.

Transitionally, for Capital Gains Tax (CGT) purposes, current and past remittance basis users will be able to rebase foreign assets they held on 5 April 2017 to their value at that date when they dispose of them.

Any foreign income and gains arising on or before 5 April 2025, while an individual was taxed under the remittance basis, will continue to be taxed when remitted to the UK under the current rules. This includes remittances by those who are eligible for the new 4-year foreign income and gains regime.

Replacing the domicile-based system for IHT with a residence-based system

The current domicile-based system of IHT will be replaced with a new residence-based system. This will affect the scope of non-UK property brought into UK IHT for individuals and trusts. An individual is long-term resident (and in scope for IHT on their non-UK assets) when they have been resident in the UK for at least 10 out of the last 20 tax years and then remain in scope for between 3 and 10 years after leaving the UK.

Subject to transitional points, any non-UK assets a person put into a settlement will be subject to IHT charges at times when the settlor is long-term resident.

Reforming Overseas Workday Relief (OWR)

OWR will now align with the 4-year foreign income and gains regime therefore it will no longer be necessary to keep foreign employment income offshore and in an offshore bank account to benefit from relief. From 6 April 2025, OWR will be subject to a financial limit on the amount of relief that can be claimed. This is the lower of £300,000 or 30% of an individual’s total employment income.

In addition, individuals will not be able to claim income tax relief on chargeable overseas earnings for income earned on or after 6 April 2025. This relief applied to earnings relating to a foreign employment carried out wholly abroad for those who do not qualify for OWR. These earnings will continue to be taxable on the remittance basis if brought to the UK after 6 April 2025 and are eligible for the TRF. The exemption to travel costs incurred by non-domiciled employees that are paid for by employers when they come to work in the UK and any business-related travel within the time limit of 5 years will be reduced to 4 years to align with the 4-year foreign income and gains regime.

The changes apply equally in Scotland.

Please note that due to the complexities involved, Dentons will publish more detailed guidance on these changes affecting non-UK domiciled individuals in due course.

3. Capital Gains Tax (CGT) – changes to the rate of CGT

The Government has announced the following changes to the rates of CGT, with effect from 30 October 2024:

• The main rates of CGT that apply to assets (other than residential property and carried interest) will increase from 10% and 20% (for higher rate taxpayers) to 18% and 24% respectively, for disposals made on or after 30 October 2024.
• The rate of CGT that applies to gains accruing to trustees and personal representatives will increase from 20% to 24% for disposals made on or after 30 October 2024.
• The rate of CGT that applies to Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14% for disposals made on or after 6 April 2025; and will increase further from 14% to 18% for disposals made on or after 6 April 2026.

The rate of CGT that applies to residential property disposals (18% and 24%) will remain unchanged.

Anti-forestalling provisions will apply to unconditional contracts entered into before 30 October 2024 but not completed until a later date, and, for the purposes of Business Asset Disposal Relief and Investors’ Relief, contracts made from 30 October 2024 to 5 April 2026 and completed from 6 April 2025. In such cases, the disposals would not be subject to the new rates of CGT provided the contract was not entered into with a purpose of obtaining a tax advantage by reason of the timing rule in section 28 of the Taxation of Chargeable Gains Act 1992, and (where the parties to the contract are connected), that the contract was entered into for wholly commercial reasons.

These changes apply equally in Scotland.

4. CGT: Investors' Relief (IR) – reduction to the lifetime limit 

IR provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, subject to a lifetime limit of £10m on qualifying gains for an individual. The Government has announced that the lifetime limit will be reduced from £10m to £1m for disposals made on or after 30 October 2024 which qualify for IR. This brings the lifetime limit in line with the Business Asset Disposal Relief lifetime limit.

These changes will apply equally in Scotland.

5. Carried interest – increase in rates of CGT applicable

Under the carried interest rules, where an amount arises from a fund partnership, the amount is treated as a chargeable gain arising to the fund managers and taxed at the basic (18%) and higher (28%) rates of CGT. The Government has announced changes to the rates of CGT applicable to carried interest. From April 2025, the basic (18%) and higher (28%) rates of CGT on carried interest will be increased to a single unified rate of 32%. Further, the Government also announced that from April 2026, carried interest will be subject to a revised regime within the Income Tax framework.

These changes will apply equally in Scotland.

6. Employer National Insurance Contributions

The Government will increase employer Class 1 National Insurance Contributions (NICs) by 1.2% from 13.8% to 15% with effect from 6 April 2025. In addition to this increase, the salary threshold at which employers become liable to begin paying Class 1 NICs will drop from £9,100 to £5,000. The reduction in the threshold of £4,100 when taking into account the increased Class 1 NICs will cost an employer £615 per employee in addition to the 1.2% increase of Class 1 NICs above the previous threshold of £9,100. Employer NICs should be deductible when calculating corporation tax.

From April 2026, the Government has confirmed that it will become mandatory to include all benefits in kind provided to employees in payroll reporting (as is currently used to report salary payments). It is expected that employment related loans and accommodation will need to be reported in this way in future.  

NICs is not a devolved tax and these measures will apply to Scottish employers.

7. Employer Allowance

The Employment Allowance, which allows eligible employers to reduce their NICs liability by £5,000 will increase to £10,500. This is claimed through payroll and the allowance will be reduced each time a payroll is run until the allowance has been eliminated (at which time the business or charity will become liable to pay the NICs) or a new tax year has started.

Previously the Employer Allowance only applied to business or charities where the Class 1 NICs liability of that business or charity in the previous tax year was less than £100,000. The Government will remove this requirement allowing many more business and charities to access the Employer Allowance. The expected impact of these amendments is that 865,000 employers will not pay any Class 1 NICs next year.   

These changes will apply equally in Scotland.

8. National Minimum Wage

It has been confirmed that the National Minimum Wage (NMW) and National Living Wage (NLW) will increase in April 2025. The NLW applies to employees aged 21 and over. The current rate is £11.44 per hour, this will increase to £12.21 in April 2025 (a 6.7% increase).

Employees aged between 16 and 20 are to receive at least NMW. For employees aged 18-20 the NMW is currently £8.60 but will rise to £10 per hour in April 2025 (a 16% increase).

There are separate apprentice rates which apply to eligible people under 19 or those over 19 but in the first year of an apprenticeship. This will rise from £6.40 to £7.55 per hour (an increase of 18%).

It is believed 3.5 million workers will receive a pay rise.

This will apply equally in Scotland.

9. Taxes on Individuals

As anticipated, the Government has upheld the manifesto commitment of not increasing personal income tax or employee national insurance contributions. The income tax thresholds will continue to be frozen until April 2028, at which point the thresholds will increase with inflation.

In addition, there are no changes to the income tax reliefs for pension contributions and the rate of VAT has not been increased.

Any measures on income tax will not be applicable to Scottish taxpayers as income tax is devolved to Scotland.

10. VAT on School Fees

As already announced and effected under anti-forestalling legislation, Private School and Boarding fees for school terms starting on or after 1 January 2025 will no longer qualify for an exemption from VAT. The supply of these educational and lodging services will attract the standard VAT rate of 20%. VAT will be payable on the payment of fees for terms starting on or after 1 January 2025, or the pre-payment of fees relating to terms starting on or after 1 January 2025 and made after 29 July 2024.

The removal of this exemption from VAT will apply equally to Private Schools in Scotland.

11. Qualifying Recognised Overseas Pension Schemes (QROPS)

The exclusion from the 25% Overseas Transfer Charge to tax no longer applies to transfers from 30 October 2024 made to QROPS established in the EEA and Gibraltar.

This will apply equally to Scotland.

12. EIS relief – extension of the relief until April 2025

EIS Relief (introduced in 1994) has long since been a targeted tax measure to incentivise equity investment into smaller, higher risk companies. EIS provides a 30% income tax relief on the value of a person’s investment (up to a maximum invested amount of £1m, or £2m if at least £1m is invested in a ‘knowledge-intensive company’). Further, any gain on the disposal of EIS qualifying shares after 3 years is exempt from CGT. The Government has announced an extension to the EIS relief for a further ten years to April 2035.

These changes apply equally in Scotland.

13. Stamp Duty Land Tax (SDLT) – Increased rates for additional dwellings

With effect from 31 October 2024, the Government has increased the higher rates for the purchase of additional dwellings (e.g. holiday homes) and dwellings purchased by companies in England by 2%. The new rates are as follows:

This 2% increase adds to the previously implemented 3% supplement levied in England, totalling a 5% surcharge for purchases of additional dwellings or purchases of dwellings made by companies. In comparison, Scotland currently levy a 6% additional dwelling supplement and Wales levy an additional 3%.

Where a company purchases a sole interest in a high value dwelling for which the chargeable consideration is in excess of £500,000, the applicable SDLT rate will, from 31 October 2024, be a flat rate of 17% (a 2% increase from the previous 15%).

The increased rates will not apply to a transaction which is effected pursuant to a contract entered into before 31 October 2024 provided that there has not been any variation or assignment of rights of the contract after 31 October. For these purposes, a contract entered into before 31 October does not include any option or right of pre-emption.

These rates will not apply to property in Scotland. LBTT applies to land interests in Scotland.

14. Multinational Top-up Tax and Domestic Top-up Tax

A number of technical changes have been announced affecting the Multinational Top-up Tax and Domestic Top-up Tax. These are the UK’s implementation of the Global Anti-Base Erosion (GloBE) rules agreed by the UK and other members of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting and broadly apply to groups with annual global revenues exceeding 750m euros that have business activities in the UK. The measures will mainly take effect for accounting periods beginning on or after 31 December 2024. There are some provisions which will take effect for accounting periods beginning on or after 31 December 2023.

The Government has also confirmed that it will proceed with the planned extension to the rules to introduce an undertaxed profits rule. That new rule is to take effect, as planned, for accounting periods beginning on or after 31 December 2024 with the Offshore Receipts in Respect of Intangible Property (ORIP) rules being repealed at the same time. Other opportunities to simplify the tax system in light of UK implementation of the two-pillar solution will be considered.

This will apply equally in Scotland.

15. Transfer Pricing

The Government will further consult in Spring 2025 on changes to the UK’s transfer pricing, permanent establishments, and diverted profits tax regimes. Potential changes being trailed at this stage include:

• Reducing the existing thresholds of the small and medium sized enterprise (SME) exemption for transfer pricing, bringing more businesses within the scope of the transfer pricing rules.
• Simplification of the rules, including the potential removal of UK-UK transfer pricing.
• The introduction of a requirement for multinationals to report cross-border related party transactions to HMRC.

In addition, the Government will review the transfer pricing treatment of cost contribution arrangements.

16. Loans to participators of close companies

The purpose of the loans to participators regime is to deter companies from making untaxed loans to their participators, or allowing them otherwise to extract company funds untaxed, rather than paying wages, dividends or other income chargeable to tax. Currently (and it will continue to be the case) a close company has to account for corporation tax at a rate of 33.75% of any such loan amounts outstanding 9 months after the end of the accounting period. The close company must have made the loan or advance to, or conferred a benefit on, participators who are individuals (subject to certain limited exceptions) during the accounting period. The close company can claim relief for this tax if the loan, other monies, or value is repaid to the company.

An anti-avoidance measure is to be enacted to have effect from 30 October 2024 which will counter arrangements using a group of companies or amongst associated companies making new loans and repaying existing loans to avoid the tax charge.

This will apply equally in Scotland.

17. Taxation of Employee Ownership Trusts and Employee Benefit Trusts

A number of changes have been announced affecting the taxation of Employee Ownership Trusts and Employee Benefit Trust which have effect from 30 October 2024.

These include:

• Changes to the conditions for obtaining relief from CGT on disposal of a controlling shareholding in a company to the trustees of an Employee Ownership Trust, broadly to:
  • ensure that former owners cannot retain control of the company post-sale by retaining control of the Employee Ownership Trust.
  • require that the trustees of a qualifying Employee Ownership Trust be UK resident as a single body of persons.
  • require that reasonable steps are taken to ensure that the consideration paid on disposal of shares to the trustees does not exceed market value.
• Individuals being required to provide additional information to HMRC at the point of claiming the relief, and increases in the period of time within which relief can be withdrawn from the individual if the Employee Ownership Trust conditions are breached post-disposal.
• Legislative certainty over the distributions tax treatment of contributions paid to the trustees of an Employee Ownership Trust in order to repay the former owner for their shares, by introducing a specific relief which covers such contributions.
• A small adjustment to the conditions for obtaining Income Tax relief on annual bonuses made to employees of Employee Ownership Trust owned companies, to allow for directors to be excluded from the bonus award.
• More technical changes to the conditions that need to be met for a transfer into an Employee Benefit Trust to be exempt from IHT.

This will apply equally in Scotland.

18. Business Rates

The Government will introduce two lower business rates for Retail, Hospitality and Leisure (RHL) properties from 2026-27. Prior to this permanent change, the Government have provided temporary support of £1.9bn to small business for the 2025-26 tax year by freezing the small business multiplier and will provide 40% relief on bills for RHL properties; up to a £110,000 cash cap.

These amendments to business rates only impact England as business rates are devolved to Scotland, Wales and Northern Ireland.

19. Oil and gas taxation

From 1 November 2024, the rate of the temporary Energy Profits Levy will be increased by 3% to 38% and the end date of the levy will be extended to 31 March 2030. The investment allowance under the levy will be abolished and the decarbonisation allowance reduced to 66%.

This will apply equally in Scotland.

20. Fuel Duty

The Government announced that the freeze on fuel duty will continue for another year as well as maintaining the existing 5p cut for another year.

This will continue until April 2026 and apply equally in Scotland.

21. Air Passenger Duty

Rates on Air Passenger Duty will increase in line with the forecast for Retail Price Index (RPI). The 2025 rates will remain as proposed by the previous Government.

The Government announced that from April 2026 there will be a 50% increase of air passenger duty for private jets, this will equate to an increase of £450 per passenger. For short haul economy flights, there will be an increase of no more than £2 per passenger.

This will apply equally in Scotland.

22. Electric Vehicles

The Government has announced the current company car tax rate on EVs will be extended until 2028, where it will then increase by 2% per year in tax years 2028/29 and 2029/30. It will result in a rate of 9% in 2029/30.

This will equally apply in Scotland.

23. Vaping Excise Duty and Tobacco Duty

The Government has announced an increase to the duty on vaping liquid and tobacco in today's Budget. From October 2026 there will be a tax of £2.20 per 10ml of e-cigarette liquid. There will also be an increase of £2.20 in tobacco duty per 100 cigarettes.

The Government also confirmed an immediate above-inflation increase of 2% duty on tobacco and 10% duty for hand-rolled tobacco. This took effect at 6pm on 30 October 2024.

This will apply equally in Scotland.

24. Alcohol Duty

The Government announced that Alcohol Duty rates on non-draught products will rise in line with RPI from February 2025. However, the Government will reduce all Alcohol Duty rates for draught products by 1.7%. This will result in a reduction of 1p in duty per the average alcoholic strength pint.

The Government will also increase the cash discount provided to small producers for non-draught products and maintain the current cash discount provided to small producers for draught products.

This will take effect on 1 February 2025 and will apply equally in Scotland.