Autumn statement impact to be felt soon

The Spring Statement unveiled by the Chancellor Rachel Reeves on March 26 was a much-awaited event following months of "doom and gloom" headlines as a consequence of the Autumn Budget in October 2024.

The Autumn Budget brought a range of tax increases affecting employers, family businesses, farm owners and investors. There was speculation that the Spring Statement would bring further tax rises, or perhaps a U-turn for measures brought in at the Budget such as the 1.2% increase in employer's National Insurance Contributions (NICs), and the heavily criticised change to Agricultural Property Relief (APR) for Inheritance Tax purposes.

However, the Chancellor stuck to her guns of 'one fiscal event a year', and the Spring Statement was delivered without any changes to the major tax policies announced previously.

But the world is changing at a fast pace. The UK and its economy are no longer in the same place as in October 2024. There is a new US President, a reduction in the UK's growth outlook, and hundreds, if not thousands of wealthy 'non-domiciled' investors, emigrating out of the UK. 'Non-domiciled', also known as 'non-dom', is a common law concept in the UK. Typically, those born and brought up outside of the UK with a non-UK domiciled father are regarded as non-domiciled by origin. Rachel Reeves choosing to stick to those same policy proposals in the Spring Statement is in effect a fiscal event, with the full impact of these changes remaining to be seen.

UK employers will soon feel the financial pain of NICs increasing to 15%, and the NIC threshold lowering to £5,000. Combined with the increase in minimum wage, this will add to the cost of hiring and will affect some labour-intensive sectors such as retail and hospitality. This could lead to wage stagnation, redundancies, and employers passing on costs to customers, adding to the inflation that the UK has already experienced over the last three years.

The abolition of the 'non-dom' regime and the 225-year-old remittance basis, together with the introduction of the Foreign Income and Gains (FIG) regime as a 'non-dom' replacement, has sent shockwaves across the non-domiciled high net worth individuals who reside in the UK. Remittance basis is a regime that allows non-dom individuals to be exempt from paying tax in the UK for their non-UK income and gains, unless the non-UK income and gains are remitted and brought into the UK.

Because of these changes, many have departed from the UK in the last few months, making the UK the second largest country with outflowing emigrants. The new FIG regime offers a 4-year window for someone to be exempt from paying UK tax on their overseas income and gains, as opposed to the 15 years offered by the previous remittance basis.

However, there is a slightly more generous Overseas Workday Relief for expatriates who carry out regular business travels outside of the UK. But overall, for expatriates and companies sending assignees to the UK, as long as each assignment spans over 4 tax years or less, they will not be much worse off.

Rachel Reeves proposal to "Get Britain Building" is an aspirational target that could help to resolve the UK's housing shortage. However, Stamp Duty Land Tax (SDLT), the transaction tax paid upon purchasing a property, will increase from 1 April 2025 impacting both first-time buyers and homebuyers across the board. Construction costs are already becoming more expensive due to Brexit increasing import costs and reducing the numbers of workers coming to the UK from the EU.

Investors and entrepreneurs will also be impacted by Rachel Reeves' policies. The increase of Capital Gains Tax (CGT) to up to 24%, lowering of lifetime allowance from £10 million to £1 million for Investors' Relief, (which allows the first £1 million of gains made by investing in qualifying company shares to benefit from a lower CGT tax rate), and the upcoming gradual increase of the tax rate applicable for Business Asset Disposal Relief (a relief which allows those who built their own business to dispose of their assets or shareholding paying a lower CGT rate, which will be 14% in 2025/26 and will be 18% from 2026/27 onwards) essentially means that tax benefits offered to investors and entrepreneurs still exist, but will be narrowed down, shortening the gap in comparison with the taxes borne by workers.

The 100% IHT relief (Inheritance Tax relief) for family businesses that are passed down to the next generation will be limited to £1 million, with anything over and above relieved at 50%, resulting in an effective rate of 20% (as IHT is normally payable at 40%.).

What should Rachel Reeves' next steps be? Given its not so rosy economic outlook, the UK needs to reach out to business partners across the globe to kickstart growth in the economy. Rachel Reeves needs to introduce measures in the Autumn Budget to make the UK an attractive destination for Foreign Direct Investment (FDI) from the rest of the world. The rise in NICs (National Insurance Contributions) increase costs for all employers including foreign businesses, but there are disparities. China currently does not have a social security reciprocal agreement with the UK so the NICs for sending expatriates are an added cost for Chinese businesses but not necessarily so for countries with reciprocal agreements such as Japan and Korea.

The Chancellor has announced ambitious plans to utilise AI and invest in STEM (Science, Technology, Engineering and Mathematics). The UK's Research and Development (R&D) tax scheme is not as generous as R&D schemes in other countries and should be reviewed to attract AI developers, STEM talents and FDI in these areas.

The author is a VAT manager at leading audit, tax and business advisory firm Blick Rothenberg in the UK. The views do not necessarily reflect those of China Daily.