Top 10 takeaways from the UK Budget for HNWIs

The Autumn Budget delivered a flurry of changes that, while not presenting a single ‘knockout blow’, collectively amount to a series of significant adjustments affecting high net worth individuals (HNWI). In the following article, Nana Aboagye, Client Director and Tracey Neuman, Executive Director at Ocorian, distil the most pertinent developments, focusing on council tax charges, commonly known as the ‘mansion tax’, inheritance planning, and increasing compliance requirements.  

Property taxes and council tax surcharge

From 2028, individuals owning UK properties valued over £2 million as of 2026 will face an annual council tax surcharge of £2,500, rising to £7,500 for properties exceeding £5 million. This move aims to address disparities where properties in certain regions attract higher council tax than prime London properties, although the impact on HNWIs is expected to be limited compared to existing envelope property charges, which can reach up to almost £300,000 annually.

Increases to income tax

The UK Budget introduced targeted increases to income tax, specifically affecting savings, dividends, and property income. Higher rates for savings and rental income have increased from 40% to 42% and the additional rate from 45% to 47%. Dividend tax rates have also gone up, with the basic rate moving from 8.75% to 10.75% and the higher rate from 33.75% to 35.75% with the additional rate unchanged at 39.35%. These changes apply to individuals but do not impact companies.

Entrepreneurial relief adjustments

For those selling businesses to employee ownership trusts, the relief on capital gains tax (CGT) has been reduced from 100% to 50%. Sellers now bear half the CGT cost upfront, reflecting the Government’s intent to curb perceived misuse of these structures for tax avoidance, while still encouraging cooperative business models.

Inheritance tax (IHT) changes

• £5 Million cap on 10-year anniversary charge: Trusts set up by non-domiciled individuals holding excluded property as of October 2024 will see a cap of £5 million applied at the ten-year anniversary, offering some respite to those with significant non-UK assets.

• Extension to agricultural property: Indirectly held agricultural property will now fall within the IHT net, potentially closing a loophole to shield farms from inheritance tax.

• Transferability of £1m APR/BPR allowance: It will now be possible for any unused allowance to pass to the surviving spouse on death in a similar way to the nil-rate band.

• Anti-avoidance measures: New rules prevent the circumvention of exit charges when long-term resident settlors cease UK residency and convert their assets, ensuring non-UK assets remain subject to IHT.

Capital gains tax and non-resident rules

• Property-rich entity definition tightened: Disposals involving protected cell companies will be assessed on a cell-by-cell basis, bringing more transactions within the non-resident CGT regime.

• Temporary non-residence rules: The carve-out for dividends from offshore profits arising whilst non-resident will be removed. HNWIs returning to the UK within six years will face income tax charges on dividends from closely held companies, regardless of when profits were generated.

Dividend tax credit abolition for non-residents

Non-UK residents receiving UK dividend income and UK rental or partnership income can no longer claim tax credits on those dividends, shutting down a niche but valuable tax planning opportunity involving offshore trusts and UK beneficiaries.

ATED claims: Time limit removed

Companies owning enveloped properties can now submit a claim for relief from ATED (Annual Tax on Enveloped Dwellings) paid at any point. While the statutory four-year amendment window still applies, the removal of the specific ATED restriction provides additional flexibility for missed claims.

Incentives for high-talent and entrepreneurs

The Government signalled further development of favourable tax regimes for entrepreneurs and highly skilled individuals, including easier migration routes and potential expansion of investment reliefs such as the Enterprise Investment Scheme (EIS). Apprenticeship training costs will also be covered for small and medium businesses, aiming to attract and retain talent post-Brexit.

Crypto asset reporting requirements

In a notable expansion of compliance obligations, the Government plans to extend domestic reporting requirements for UK-based crypto asset service providers. These providers will be required to report details of crypto asset users who are UK tax residents or have controlling persons resident in the UK, aligning with the emerging Crypto Asset Reporting Framework and increasing transparency for HNWIs involved in digital assets.

Key takeaways from the UK Budget for HNWIs

While none of the changes individually represent a seismic shift, the cumulative effect is a landscape of ‘a thousand cuts’ for HNWIs, tightening reliefs, broadening tax bases, and increasing compliance obligations.

Staying abreast of these developments and seeking timely advice is crucial for effective wealth and tax planning in the year ahead. Reach out to our dedicated Private Client team for more information on how we can support.