October’s Autumn Budget sought to address the UK's economic challenges by focusing on stability, investment, and reform – but in reality, it presented a mixed bag for international businesses considering establishing a presence in the UK. Peter Fenyves, London-based business development manager at Hawksford, gives his thoughts on the challenges and opportunities stemming from the Budget’s key components.
While the first Autumn Budget from the UK Labour party in close to 15 years included some positives aimed at attracting foreign investment, certain controversial measures, particularly concerning taxation, may well be giving pause to international businesses considering setting up in the UK.
Certainty and innovation
On the positive side, the government's commitment to a competitive and sustainable corporation tax rate of 25% offers reassurance to businesses seeking a predictable tax environment. The UK's continued investment in research and development (R&D) – protected at record levels – is a strong signal of its ambition to be a global leader in innovation, further bolstered by the establishment of a new R&D Missions Programme.
In addition, the extension of ‘full expensing’ for capital expenditure, including computer software, will be an attractive incentive for businesses to invest in growth and expansion while the £1 million Annual Investment Allowance, and existing writing down allowances, have provided certainty for businesses planning investments.
Meanwhile, initiatives like the SME Digital Adoption Taskforce and the exploration of e-invoicing demonstrate the UK's commitment to supporting businesses in adopting digital technologies and enhancing productivity.
Rising taxes
As with any Budget, there will always be winners and losers; give in one area, offset by take from another.
Arguably one of the more controversial ‘takes’ from the Budget was the increase to employer National Insurance Contributions (NICs).
Effective from April 6, 2025, the employer NIC rate will increase by 1.2 percentage points, from 13.8% to 15%. This increase, referred to by some as a ‘tax on jobs’, could impact businesses' hiring decisions and potentially dampen job creation. While the government argues this is necessary to fund essential public services and address the fiscal deficit, it could add pressure to businesses already facing rising costs with employees ultimately feeling the effect if increased payroll costs and reduced profitability lead to pay freezes and job cuts.
Meanwhile, changes to capital gains tax (CGT) rates, Business Asset Disposal Relief (BADR), and carried interest, while not as drastic as initially feared, will still impact businesses looking to exit or restructure. These changes, coupled with broader global economic uncertainties, might lead some businesses to re-evaluate their investment decisions.
Regarding CGT, the main rates have been raised, with the lower rate increasing from 10% to 18% and the higher rate from 20% to 24%, effective from October 30, 2024. This move aligns CGT with those of residential property and aims to ensure international competitiveness while increasing revenue. This increase could, however, prove counterintuitive if it impacts investment decisions and returns for international investors.
Further, the current advantageous 10% rate on the first £1 million of qualifying gains under BADR (formerly Entrepreneurs' Relief) will increase to 14% from April 2025, rising to 18% from April 2026. This phased increase could impact exit strategies for business owners and potentially reduce the attractiveness of investing in UK businesses.
The CGT rate on carried interest, a performance-related reward in the fund management sector, will rise to 32% from April 2025 as an interim measure. From April 2026, carried interest will fall under the income tax framework, with qualifying carried interest subject to a 72.5% multiplier, bringing the top rate broadly back to 32%. This reform seeks to simplify and bring fairness to the taxation of carried interest but will likely require fund managers to re-evaluate their compensation structures.
Non-doms
Another controversial aspect of the Budget was the abolition of the remittance basis for non-domiciled individuals, a move aimed at creating a more residence-based tax system.
This decision has been met with criticism from many professionals and wealth managers who argue that it could discourage high net worth individuals from choosing the UK as their base, potentially leading to a loss of tax revenue and talent. The government, however, maintains that this reform will create a fairer system and that the UK remains attractive due to its stable economy and skilled workforce.
Acknowledging concerns and to counteract some of these effects, the government has introduced the Temporary Repatriation Facility (TRF).
The TRF, extended to three years, provides a window for UK expats returning to the UK to remit previously accumulated foreign income and gains at reduced tax rates. This could encourage the repatriation of capital for investment or spending in the UK. Additionally, for former non-domiciled individuals, a CGT rebasing to 5 April 2017 is available for certain foreign assets disposed of on or after 6 April 2025.
Inheritance
UK expats – who previously would still have been considered UK domiciled, despite being long-term non-UK resident – will be rejoicing as their worldwide assets no longer form part of their UK taxable estate after a period on ten years of residence outside of the UK. It remains to be seen if the TRF is enough of an incentive to temp them back to the UK with this carrot in their sights.
Among the changes to inheritance tax (IHT) rules, the Budget included substantial changes to reliefs, particularly to Business Property Relief (BPR) and Agricultural Property Relief (APR). Starting 6 April 2026, a combined allowance of £1 million will be available for qualifying agricultural and business assets.
Currently, both BPR and APR offer 100% relief, but after the changes, they will provide 100% relief for the first £1 million and 50% relief on any value exceeding that threshold. This means that while the first £1 million of qualifying assets will be entirely exempt from IHT, any amount above that will be subject to 50% IHT.
The Budget also affects relief for shares listed on the Alternative Investment Market (AIM). Previously, these shares – categorised as ‘not listed’ for IHT purposes – received 100% relief under BPR. However, the changes reduce this relief to 50%.
Intended to target wealthier families and raise revenue, these changes stand also to impact modest family businesses and farmers. Consequently, there has been strong resistance to the government announcements with protests recently being held around Whitehall.
Despite these adjustments, BPR and APR remain valuable reliefs for mitigating IHT liabilities but only time will tell what the ultimate impact will be.
Next steps
International businesses will need to carefully assess the overall effect of the proposed changes on their operations. While the UK remains a strong contender for foreign investment, businesses should:
- Analyse the impact of changes to corporation tax, NICs, CGT, and other relevant taxes on their financial projections.
- Factor in potential increases in operating costs due to tax changes and broader inflationary pressures.
- Evaluate the potential impact of the ‘tax on jobs’ on hiring decisions and the availability of skilled labour.
- Keep abreast of changes in regulations, particularly those related to digital technologies and data protection.
The nexus of the Budget was aimed at balancing increased revenue generation with fostering a favourable environment for international businesses. While the changes to NIC, CGT and carried interest present challenges, the government's focus on maintaining a competitive tax system, promoting research and development and supporting key sectors shows a commitment to attracting and retaining international investment.
Such measures, however, are part of an ongoing cycle influenced by political and economic forces, meaning that future elections, fiscal pressures, and public consultations could lead to modifications or reversals – and, of course, what businesses need is a certain and stable outlook.
It is worth adding, though, that this cyclical nature creates strategic opportunities for investors and businesses, particularly during periods of tax increases, where strategic investments in assets or businesses that could benefit from future policy changes might be made.
Regardless of the tax changes it is undeniable that the UK remains an attractive and fertile market for foreign businesses. International businesses must carefully navigate these changes and, with the support of experts where needed, adapt their strategies accordingly in an evolving UK economic landscape.
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