General Tax Outlook

This article is the first in a series to be published throughout 2025 where TLT’s team of tax specialists will be looking at specific tax issues arising in the Financial Services Sector.

In this article, we set the scene for the tax landscape in 2025 and consider current and emerging tax trends arising from tax changes announced in the first Labour Government Budget, and how these affect individuals, businesses and Financial Institutions.

Budget changes

We are now some way into the regime announced by Rachel Reeves in the first Labour Government Budget on 30 October 2024.

The most notable of the changes announced were:

• the increase in the rates of capital gains tax (CGT);
• the introduction of BEPS (Base Erosion and Profit Shifting) 2.0 Pillar Two rules (Pillar Two);
• the change to a residence basis of taxation; and
• the increase in resources at HM Revenue & Customs (HMRC).

TLT has years of experience advising Financial Institutions on their own tax position and assisting Financial Institutions with their client offering.

We consider each of the changes in more detail below.

Changes to CGT

Following early speculation of an increase to CGT rates, business owners and individuals with assets standing at a gain sought to sell or make disposals to take advantage of the pre-Budget rates, with many entering into an unconditional contract splitting exchange and completion. The pre-Budget hive of activity achieved the desired rewards as an increase in the CGT rates took immediate effect.

However, HMRC will likely look closely at contracts with a split exchange and completion that straddle 30 October 2024. These contracts may be taxed at the increased rates if anti-forestalling measures (Measures) apply.

We expect that:

• Individuals who have made disposals will need to carefully consider their tax reporting including if any claim can be made to take them outside of the Measures. Tax reporting for disposals that exchanged before 30 October 2024 will need to be made in individuals’ self-assessment tax returns due by 31 January 2026. Taking appropriate advice as to the information HMRC requires will be key. We can assist with reporting.
• Business sales and asset disposals will steadily continue despite the increase in the lower and higher main rates of CGT and the phased increase in rates for Business Asset Disposal Relief and Investors’ Relief. We expect to see a number of acquisitions complete before 6 April 2025.
• Individuals with increased liquid assets following sales will require Private Banking and Wealth Management expertise as they enter the “mass affluent” segment of the population.

Introduction of Pillar Two

The Government also announced at the Budget that it would continue the implementation of Pillar Two, introduced by the former Conservative Government.

Pillar Two aims to ensure that multi-national enterprises with global revenues above EUR 750 million pay a minimum effective rate of tax of 15% within each jurisdiction in which they operate imposing top-up tax charges on the ultimate parent or sibling entity.

The UK introduced measures within Finance (No.2) Act 2023 which came into effect for accounting periods beginning on or after 31 December 2023 to implement the Multinational Top-up Tax and a Domestic Top-up Tax preserving taxing rights in the UK rather than the relevant profits being taxed in a parent or sibling company’s jurisdiction.

The 30 October 2024 Budget confirmed measures to introduce the Under Taxed Profits Rule (UTPR) and amendments were introduced into the latest Finance Bill to add the UTPR to the Pillar Two rules.

The UTPR is expected to apply from the beginning of 2025 with transitional safe harbour rules available for certain multi-national enterprises until the end of 2026.

Companies with cross border groups should be preparing now for these major changes.

This means that:

• Groups with the requisite global revenue will need to be compliant and action may be required if data points for the complex calculations are not currently tracked within group.
• Registration with HMRC will be required if at least one entity is in the UK and the group has consolidated group revenue of EUR 750 million or more in at least two of the previous four accounting periods. If these criteria are met registration must be no later than 6 months after the end of the group’s first accounting period that started on or after 31 December 2023.
• Organisations close to the threshold will need to actively monitor their position.
• Increased transparency will require simultaneous and robust record keeping.
• There is likely to be an increasing number of requests to Financial Institutions to assist in providing financial data to corroborate revenue prediction and receipt. The accounting framework requires disclosure of the expected impact of the Pillar Two rules even if entities are not yet fully in scope of the rules such that entities should expect a greater level of scrutiny from their auditors. We can assist Financial Institutions in dealing with requests for data from their multi-national enterprise clients.

Change to the basis of taxation for non-domiciled individuals

Legislation to abolish the remittance basis for those who have up until now been within the “non-dom” regime and to replace it with a residence basis of taxation will be introduced, effective from 6 April 2025.

Former “non-doms” will likely reconsider if the UK is the most tax appropriate jurisdiction. Unless in their first four years in the UK, they will pay UK tax on their worldwide income and gains. The use of offshore trusts used to shelter assets will end. Overseas Work Day Relief is being reformed.

Analysis by Henley & Partners (here) shows a projected net outflow of 9,500 high-net worth individuals from the UK in 2024.

The impact of the changes is that:

• Individuals and their employers should be considering what the changes will mean for them, especially those with tax equalisation agreements. We can assist Financial Institutions with their responsibilities and obligations as employer in their discussions with affected employees.
• There is a limited window in which to plan, therefore time is of the essence.
• Former “non-doms” who choose to remain in the UK may find their resources stretched requiring strategic wealth planning advice. Given that UK Banks are openly sharing their intention to increase their private wealth/wealth management provision being able to provide support to clients with international assets will be key.

Increasing resources at HMRC

The Chancellor confirmed in the Budget that HMRC has investment to recruit an additional 5,000 compliance staff and an additional 1,800 debt management staff. These changes will mean an increase in compliance checks and an increased focus on offshore tax compliance.

Disputes with HMRC will be more commonplace and with HMRC choosing to litigate only appeals that in their view they can win, tax case law may become more skewed in HMRC’s favour.

It is crucial for taxpayers to have their tax affairs in order and properly documented so that any dispute with HMRC can be carefully managed from the outset.

We have specialist tax lawyers who regularly represent the taxpayer in their discussions with HMRC.

TLT comment

Emma Bradley, Partner in our Tax Team says ….. “The October Budget has certainly shaken up the tax landscape in the UK, the result of which is already having a profound impact but equally gives rise to opportunities, particularly so for the services Financial Institutions can provide to their clients.”

How can we help?

Our Tax team has a wealth of experience providing commercial and insightful advice to national and international banks, building societies, other funders and institutions in the financial services sector and their high-net-worth clients.

We offer a tax structuring and advisory service to clients as part of our national reach, as well as tax transactional support on business and real estate transactions.

If you are interested in discussing any of the topics covered in this article, get in touch with our Tax specialists below.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2025. Specific advice should be sought for specific cases. For more information see our terms & conditions.