Public spending audit 2024-25: tax measures explained

• The UK Government has set out the next steps for tax measures from the manifesto on which the Government was elected, including policies to close tax loopholes and tackling tax avoidance.
• This is to provide taxpayers with certainty ahead of their final confirmation at the Budget on 30 October 2024.
• Further details on all policies including costings will be published at the Budget, and will be certified by the Office for Budget Responsibility.

Ending tax breaks for private schools and raising revenue to fund state education priorities

• The Government is publishing a technical note setting out its plan to introduce 20% VAT on education and boarding services provided by UK private schools from 1 January 2025.
  • o 20% VAT will also apply to pre-payments of fees for terms starting on or after 1 January 2025 made on or after 29 July 2024.
• Over 94% of school children in the UK attend state schools and ending the tax breaks on VAT and business rates for private schools will secure additional funding to help recruit 6,500 new teachers and roll out breakfast clubs to all primary schools.
• These changes will not impact pupils with the most acute special educational needs, where their needs can only be met in private schools. Where pupils’ places in private schools are being funded by local authorities (LAs) because their needs can only be met in private school (e.g. in England, where attendance at that private school is required by a child’s Education, Health and Care Plan (EHCP), LAs will be able to reclaim the VAT so it does not apply to those fees.
• This change will only apply to tuition fees and boarding fees charged by private schools. The VAT treatment of other services or goods provided by private schools – such as nursery care, wrap-around childcare, school meals and holiday clubs, and part time classes operated by third parties within schools – such as music and drama clubs and Sunday schools – will not change.  The VAT treatment of state boarding fees will also continue to be exempt from VAT.
• The government will also end business rates relief for private schools. This change means private schools in England will no longer be eligible for charitable rates relief and will pay their full business rates liability. This is intended to take effect from April 2025, subject to Parliamentary passage.
• The VAT changes will be legislated for in the Finance Bill introduced following the Budget. The business rates changes will be legislated for through a Local Government Finance Bill led by the Ministry for Housing, Communities, and Local Government (MHCLG).

Non-Doms: Removing domicile status from the tax system and implementing a new internationally competitive residence-based regime

• The Government is committed to addressing unfairness in the tax system, so that everyone who makes their home in the UK pays their taxes here.  
• That is why the Government will remove the outdated concept of domicile status from the tax system and replace it with a new internationally competitive residence-based regime, focused on attracting the best talent and investment to the UK.  
• A policy note has been published to set out the government’s plan to end the use of offshore trusts to avoid inheritance tax and scrapping the 50% tax reduction on foreign income in the first year of the new regime. 
• From April 2025, anyone who has been tax resident in the UK for more than four years will pay UK tax on their foreign income and gains (FIG), as is the case for other UK residents. This is a simpler and clearer test, with less scope for ambiguity than the current regime.  
• New arrivals to the UK will benefit from 100% UK tax relief on their FIG for their first four years of tax residence, provided they have been non-resident for the last 10 years. This is more attractive than the current approach, as they will be able to bring FIG into the UK without attracting an additional tax charge, encouraging them to spend and invest these funds in the UK. 
• To support transition and provide time for adjustment, a Temporary Repatriation Facility (TRF) will be available for individuals to bring pre-6 April 2025 FIG held offshore into the UK at a reduced rate of tax, to encourage these funds to be spent and invested in the UK.
• Behavioural impacts and costings will be published at the Budget.

Energy Profits Levy

• The Government is publishing a policy document that confirms its intention to increase the rate of the Energy Profits Levy (EPL) by three percentage points to 38% from 1 November 2024.
• The levy will also be extended from 31 March 2029 to 31 March 2030.
• The Government will remove unjustifiably generous investment allowances from the EPL, starting by abolishing the levy’s core investment allowance from 1 November. The decarbonisation allowance will be retained.
• The Government will reduce the generosity of capital allowances (including First Year Allowances) when calculating EPL profits – providing further details on these changes at Budget. 
• The Energy Security Investment Mechanism will remain, helping to provide operators and their investors with confidence the levy will no longer apply if prices fall to, or below, historically normal levels for a sustained period.
• Further details on the Government’s approach to all allowances in the EPL, and costings, will be set out at the Budget.
• The Government recognises the importance of providing the oil and gas industry with long-term certainty on taxation after a period of change. The government will work with the industry and others to develop and implement a successor regime for responding to price shocks after the EPL ceases.

The UK Government is also:

• Publishing a call for evidence confirming its intention to take action against the carried interest loophole, and to form the basis for detailed engagement with expert stakeholders.
  • o Carried interest is a form of performance-related reward received by fund managers, primarily within the private equity industry.
  • o Reforms will ensure fairness, whilst also recognising the vital role that our world-leading asset management industry plays in channelling investment across the UK.
• Tackling the tax gap. Reforming the tax system by making policy changes to simplify tax, close loopholes and reduce non-compliance, designing out non-compliance before it happens. At the Budget, the government will provide an update on the implementation and development of measures that form its plan to close the tax gap.
  • The government will invest in HMRC’s compliance work, hiring around 5,000 additional staff to recover more tax revenues. HMRC has already started the process of recruiting additional staff into compliance roles.
  • The government will also invest in HMRC’s technology infrastructure, helping to make HMRC more efficient and improve taxpayers’ experience of interacting with HMRC.