Autumn Budget – Impact of the Autumn 2024 Budget on Global Mobility and Global Employees

Up until now the UK has had a competitive tax regime for foreign nationals coming to the UK. However, the Government confirmed that the non-domiciled tax regime will end from April 2025. The existing regime will be replaced by the new Foreign Income & Gains (FIG) regime, which, while generally less beneficial than the non-domiciled regime for longer term High Net Worth (HNW) foreign nationals, may be seen as more beneficial for employees coming to in the UK.

In fact, the FIG regime has a number of attractive features including:

• FIG will be non-UK taxable for the first four years of UK residence (providing the taxpayer has been non-UK resident for at least the previous 10 years). This is a significant change meaning the complexity of the historic remittance rules will go away and foreign nationals can freely bring to and spend non-UK sources of income in the UK without it being subject to UK tax. UK Nationals will also be eligible for this relief (subject to having been outside the UK for at least 10 years)
• Overseas Workdays Relief (OWR) remains and will be available for four years from April 2025. Previously it was only available for the first three years in the UK, but a point to note is that this relief is capped at the lower of 30% of qualifying earnings or £300,000 per annum)
• The Budget extends the temporary remittance relief for income and gains which arose before April 2025 to three years (initial proposals were for two years only), with the reduced tax rate of 12% for such remittances applying for 2025/26 and 2026/27, and 15% for the 2027/28 year. However, foreign tax credit relief won’t be available to offset against this reduced tax rate. So, whilst this does create some additional freedom to bring non-UK sources of income to the UK, it is worth doing the sums to ensure any remittance makes sense.

Given this overall simplification of the remittance rules along with retention of overseas workday relief, it seems fair to say that the UK is now a more welcoming place for employees and executives from overseas who only intend to be here for up to their fourth year of tax residence, which may make moving talent to the UK when considering taxation, much easier.

For longer term foreign national employees and executives, who will become taxed on their worldwide income after the fourth year of tax residence, their overall position will require further review and time will tell whether we start to see some changes to employment arrangements, e.g. where employees have the flexibility to limit their time in the UK and compliantly carry out some duties from other locations.

However, this is a complex area for any employer and advice should be sought before arrangements are entered into.

The draft regulations on the non-domicile changes indicate that non-domiciled individuals who are presently in the UK and leave the UK before 6 April 2026 will avoid the proposed ‘10-year tail’ within the new IHT/non-domiciled tax regime. This 10-year tail principle would keep them subject to the UK IHT regime for the 10 years following their departure from the UK and could in many situations potentially result in individuals (or officially their estates) having a double tax liability on death.

As the UK IHT tax regime is relatively punitive compared to tax regimes in many other countries (including countries such as Canada, USA and Australia), companies may find that any senior executives on assignment in the UK are keen to leave the country before the new regulations start in April 2026.

While no increase to Income Tax or employee NICs arose in this Budget, the Government has increased the burden on businesses by:

• Increasing the headline rate of employer NICs to 15% from April 2025 (it is presently chargeable at a rate of 13.8%), and
• Reduced the starting point at which employer’s NIC is payable from £9,100 per annum to only £5,000 per annum.

On a positive note, the Government has also eased the rules around the Employment Allowance (EA) and increased the amount which can be claimed under the EA rules from £5,000 per annum to £10,500 annually. This will help mitigate the employer NICs payable by smaller employers, although this will depend upon the exact number of employees which a company has and the wage level / hours of each company’s specific businesses.

Though there are no ideal options for employers facing the increased employer NICs burden over the long haul, there are some measures which employers might wish to consider to minimise their future employer NICs liability including:

• Making voluntary payments (e.g. calendar year bonuses) on or before the 5 April 2025 (so that the old employer NIC rates apply)
• Considering what benefits companies provide to their employees as some benefits (e.g. extra holiday), are free of employer NIC
• Introducing a ‘salary sacrifice’ scheme with regard to relevant benefits e.g. pension contributions, so that these are legally transferred from salary (subject to employee and employer NICs) into employer pension contributions (which are free of tax and employee/ employer NICs).

In addition, employers sending people to or from countries with which the UK has reciprocal social security agreement, can reconsider the arrangements which they enter into for their UK-touching, internationally mobile employees. For example, for inbounds to the UK, can employees be kept in their home country social security scheme if it’s beneficial to do so, and similarly how are international benefits being provide UK outbound employees and / or what exact contractual arrangements are used by the company for these cases?

The Budget also announced significant increases in Capital Gains Tax (CGT). While CGT is typically applied to private investments (e.g. privately held shares and second homes), and therefore not something which impacts employers in many situations, the increased rate of CGT (with the top, standard rate of CGT having increased from 18% to 24% from the date of the 30 October 2024 Budget), this change will impact employees and executives who benefit from specific tax-advantaged employee share arrangements such as:

a) Approved Company Share Option Plans
b) Employee Share Save Schemes
c) Enterprise Management Incentive Arrangements.

On a positive note, these arrangements are still efficient when compared to simply providing employees with cash bonuses (with cash awards being liable to both employee NICs and Income Tax, which are still significantly higher than the CGT rates).

The Government made it clear, prior to the Budget, that they would be looking to increase the taxes charged on the carried interest earned by Private Equity (PE) executives and they announced two significant changes in this area:

a) From April 2025, the special rate of CGT applied to carried interest gains will increase from 28% to 32%
b) From April 2026, carried interest will cease to be regarded as capital gains but rather will be re-categorised as deemed self-employment income and become liable to Income Tax and class 4 (self-employed) NICs
c) As self-employment income, it will be taxed at a special Income Tax rate of 32% (or officially 72.5% of the 45% rate which would apply to the top slice of regular self-employment income), plus the 2% class 4 NIC surcharge rate which applies to self-employment income where someone’s salary and self-employment profits are above £50,270 per annum.

While the increase in the carried interest rates of tax (and the introduction of self-employed NICs) are clearly not welcome, the good news is that the cumulative tax rates are better than some expected and means that the tax rates on carried interest in the UK are broadly in line with the rates which apply in most major European jurisdictions.

Where PE executives are cross-border commuters (i.e. those undertaking some work in the UK but being regarded as resident and treaty resident in an overseas jurisdiction with which the UK has a Double Tax Agreement), under the proposed rules, the UK would only be taxing the deemed self-employment income, which is held to relate to that individual’s UK-based investment management activity based on a just and reasonable analysis of the overall activities and role.

In summary, while with the exception of the employer NIC changes, the changes announced primarily affect individual employees who are responsible for their own taxes, employers who are seeking to get talent into the UK and retain it, will have to think about what these changes might mean for them.