Finance Bill 2024-25 Committee: MPs agree to abolish special regimes for non-doms and holiday lets

Shadow ministers raised CIOT concerns on a number of the measures in the Bill. Responding to CIOT concerns on the transitional safe-harbour anti-arbitrage rule (part of the OECD/G20 Pillar 2 legislation) the minister acknowledged the rule is flawed and told the committee that, if the opportunity arises, it is the government’s intention to seek agreement to improve it.

Among the legislation passed in the two sessions was the abolition of the separate non-dom tax regime. The minister promised to respond in writing to CIOT concerns about retrospective application of the inheritance tax exit charge for trusts and changes to the definition of ‘remittance’.

64 government amendments were passed to the first two parts of the Bill. These included an expansion of the scope of acquisition costs in relation to employee-ownership trusts that can benefit from capital gains tax relief, which the minister told the committee had been done in response to CIOT concerns (albeit the Institute would have liked to see the scope expanded still further).

You can read the transcripts of the two sessions here: Sitting one and Sitting two.

Some clauses were debated in Committee of the whole House (see report here) so are not being debated at Public Bill Committee. 

Session 1 – Tuesday 28 January 2025, 9.25-11.25

Part 1 – Income tax, capital gains tax and corporate taxes

Income tax charge, rates, etc (Clauses 1-4 + NC3)

Clause 1: Income tax charge for tax year 2025-26
Clause 2: Main rates of income tax for tax year 2025-26
Clause 3: Default and savings rates of income tax for tax year 2025-26
Clause 4: Freezing starting rate limit for savings for tax year 2025-26

New clause 3, proposed by the Conservatives, would require a review of how many people receiving the new state pension at the full rate are liable to pay income tax this year and in the next four tax years

The Exchequer Secretary to the Treasury, James Murray, began the session by introducing clauses 1 – 4, explaining that the first two clauses apply to non-savings, non-dividend income of taxpayers in England and Northern Ireland. On clause four he suggested that maintaining the starting rate limit at £5,000 for 2025-26 would ensure “fairness in the tax system while maintaining a generous tax relief”. 

Speaking for the Conservatives, the Shadow Financial Secretary, Gareth Davies, noted that the government's announcement that it will not extend the freeze on income tax thresholds beyond April 2028 does not need legislation, as the income tax personal allowance and the basic rate limit are subject to consumer prices index indexation by default unless overridden by Parliament. He pressed the minister to commit that the government will not override indexation of thresholds beyond 2027-28, given rising borrowing costs “have eliminated the Chancellor’s headroom”.

Davies also sought clarification on whether the unfreezing of thresholds in 2028-29 will include an increase to the fixed portion of the income tax higher limit. He asked: “Should we expect the additional rate to rise only in so far as the personal allowance rises, or will that £100,000 be unfrozen too?” The minister confirmed that the £100,000 threshold would not be unfrozen and the “threshold does not move, and it sets the personal allowance taper beyond that level”. He reiterated that the personal allowance is frozen until April 2028 and would rise with inflation thereafter.

The shadow minister requested an update on when the new state pension will exceed the income tax personal allowance and how many pensioners would be affected. While urging members to vote for the new clause 3, he stated that “pensioners cannot easily alter their financial circumstances” and “must not be blindsided…by the taxman”. The minister argued that the new clause 3 is ‘unnecessary’ as the requested data is already public. He emphasised that rising personal allowances would benefit both workers and pensioners.

Clauses 1-4 were passed.

New clause 3 will be voted on, if at all, at end of public bill committee.

Income tax provisions relating to cars (Clauses 5-6)

Clause 5: Appropriate percentage for cars: tax year 2028-29
Clause 6: Appropriate percentage for cars: subsequent tax years

These clauses relate to the cash equivalent of the benefit of a company car made available for private use.

The Exchequer Secretary said the changes would provide long-term certainty and the rates will gradually increase for electric vehicles (EVs) to narrow the gap with petrol and diesel cars while maintaining incentives for EV adoption. The government is setting out the appropriate percentages for some years in advance “to give car manufacturers and everyone interested in the car industry certainty about what will happen”.

The Shadow Financial Secretary voiced concerns about the communication of these changes to the public, particularly for those with plug-in hybrid vehicles who may face ‘significant’ tax increases. He said the Chartered Institute of Taxation had raised this as “a key area of concern, which could confront unsuspecting taxpayers… with a massive and steep tax rise”. (Actually the representation on this had come from the Association of Taxation Technicians rather than CIOT.) He provided the example that a higher rate taxpayer on £51,000 whose company car is a plug-in hybrid VW Golf could face an additional tax bill of as much as £1,600 in 2027-28. 

The shadow minister suggested the government reconsider and bring a “better calibrated” policy in a future Finance Bill – noting that the Conservatives would vote against the clauses.

The minister responded that the legislation would come in 2028 and give consumers and manufacturers advanced knowledge of future tax rates to ensure they are informed and prepared. 

The committee voted on whether to pass clause 5. The vote was won by the government 10 – 4. Clauses 5 and 6 were passed.

Corporation tax charge and rates (Clauses 13-14)

Clause 13: Charge and main rate for financial year 2026
Clause 14: Standard small profits rate and fraction for financial year 2026

Clauses 13 and 14 set the corporation tax rate at 25% and the small profits rate at 19% for financial year 2026.

The Exchequer Secretary said that setting the corporation tax rate for 2026 now was necessary to provide certainty for large and very large companies that pay tax in advance. He continued that the government has committed to capping corporation tax at 25% for the duration of the Parliament, as outlined in the corporate tax road map; adding these clauses ensures “stable and predictable tax rules” for businesses.

The Shadow Financial Secretary criticised the government’s lack of a ‘binding’ commitment to cap corporation tax outside the road map, stating that: “It is unclear how much certainty or stability such a loose commitment will bring, especially when the Budget blindsided businesses with a £25 billion tax hike”. He sought confirmation that the government would not raise the headline or small profits rates of corporation tax for the duration of this Parliament, or reduce marginal relief, and would “maintain full expensing and the annual investment allowance, as well as writing down allowances and the structures and buildings allowance without meaningfully altering their eligibility”.

The minister defended the government's approach, stating that the corporate tax roadmap provides a ‘clear’ strategy for corporation tax and related allowances.

The shadow minister called for a comprehensive business tax roadmap that includes national insurance, business rates, and other taxes borne by businesses, rather than focusing solely on corporation tax.

Clauses 13-14 were passed.

Pillar Two (Clause 19 and schedule 4, plus government amendments 1-14, 21-37)

Clause 19 relates to Pillar Two of the OECD/G20 International Framework. It introduces schedule 4 which introduces the 'undertaxed profits rule' into UK legislation. UTPR is the UK’s adoption of the third and final Pillar 2 rule collectively giving effect to a global minimum tax rate of 15%. The schedule also makes miscellaneous amendments to the existing Multinational Top-Up Tax and Domestic Top-Up Tax legislation including in respect of transitional safe harbours.

31 government amendments were tabled to schedule 4. Among other things these:

• correct errors in the calculation of multinational top-up tax payable under the UTPR provisions that would have resulted in an excessive liability;
• secure that eligible payroll costs and eligible tangible asset amounts are allocated from flow-through entities in a manner that is consistent with the Pillar Two model rules;
• make sure that multinational top-up tax, and domestic top-up tax, apply properly in cases involving joint ventures

The Exchequer Secretary, James Murray, explained that Pillar Two ensures multinationals which generate annual revenues of more than €750 million will pay a minimum tax rate of 15% on profits in every jurisdiction they operate in, with a top-up tax if they fall below this rate. He explained that the government is legislating amendments to the income inclusion rule and the domestic minimum tax (effective in the UK from December 2023). 

Multinational enterprises are expected to file their first tax returns and pay any top-up taxes in mid-2026, the minister noted. In preparation for this, the companies have identified certain elements of the rules that require clarification or adjustment. “The Bill incorporates many of those updates that have been agreed multilaterally in the past year and includes clarifications to the existing legislation, in addition to implementing the undertaxed profits rule (UTPR)”. He explained that this legislation details the calculation for the UK's share of top-up tax and includes a simplification known as the UTPR safe harbour which applies until December 2026. 

The Shadow Exchequer Secretary, James Wild, quoted the CIOT and raised a number of points, including the Institute’s concerns about the application of the transitional safe-harbour anti-arbitrage rules. He said: “There has been some uncertainty as to whether a single error in a country-by-country report could disqualify all jurisdictions from applying the transitional safe harbours. HMRC has recently indicated that it would be open to permitting re-filings of country-by-country reports where errors are spotted”. He asked the minister to provide further clarity on HMRC’s proposed approach while stressing that the UK’s legislation needs to be updated regularly to stay in line with the OECD’s evolving guidance.

Wild acknowledged that new top-up taxes and the undertaxed profits rule are ‘complicated’ and argued that it is important that the government minimise the cost of implementation and compliance. He asked about the impact of the US position on the future operation of Pillar Two and sought further information on Pillar One and the future of the digital sales tax.

Addressing concerns about the anti-arbitrage rule, the minister recognised that the rule is “imperfect and applies in cases where we would prefer it did not”, however, he said, “the rule is not a taxing provision”. He explained that “[i]t limits the availability of an administrative easement, the safe harbour, rather than charging tax. It was introduced to combat structures that would have allowed groups to qualify for safe-harbour status in jurisdictions with very low tax rates, which would have been a material threat to the integrity of the pillar two project. In that context, we do not think it was unreasonable for the drafting to err on the side of breadth. If the opportunity arises, though, it is our intention to seek agreement to improve the rule in the light of the extensive stakeholder comment that it has drawn.”

On errors with country reporting, the minister reassured the committee that the government is committed to ‘simplifying’ the rules and HMRC seek to apply the rules in accordance with the information given out through the OECD model rules and proportionately. He confirmed the government's commitment to the implementation of both pillars.

Clause 19 and schedule 4, plus government amendments 1-14 and 21-37, were passed.

Offshore receipts in respect of intangible property (clause 20)

Clause 20 repeals legislation on offshore receipts in respect of intangible property (ORIP) because Pillar Two means it is no longer needed.

The Exchequer Secretary stated that this legislation aims to prevent multinationals from holding intangible property in low-tax jurisdictions to gain a competitive advantage. He explained that ORIP is no longer needed due to the introduction of Pillar Two, which more comprehensively addresses multinational tax planning. He emphasised that the government aims to simplify the UK's tax rules for cross-border activities in the light of Pillar Two.

The Shadow Exchequer Secretary questioned the success of ORIP since its introduction and the negative impact of its repeal on Exchequer revenues, which is estimated to peak at £40 million in 2026-27. He asked for clarification on why repealing ORIP negatively impacts revenues. He also noted that the CIOT has welcomed the measure, saying “any reduction in the legislative code to minimise overlap and unnecessary measures is welcome”.

The minister answered that: “A fundamental point here is that Pillar Two… will now tax the profits that were the target of ORIP”, and is expected to raise more than £15 billion over the next six years.

Clause 20 was passed.

Internationally mobile employees (clause 21, plus government amendments 15-19)

Clause 21 makes it easier to operate PAYE on UK earnings of someone who works both in the UK and overseas.

Five government amendments were tabled to clause 21, including making it clear that legislation (new section 690) applies if an employee has been internationally mobile in a tax year, even if the employee is no longer internationally mobile.

The Exchequer Secretary described clause 21 and highlighted that currently employers must wait for HMRC approval to treat only part of an employee’s income as PAYE income, causing delays. Following the change from 6 April 2025, “an employer will be able to operate PAYE only on income relating to work done in the UK once they have received an acknowledgment from HMRC of their completed application, rather than having to wait for HMRC to approve it”, he explained.

The minister said that amendments 15 to 19 are needed in order to ensure that the legislation works as intended.

The Shadow Exchequer Secretary referenced comments by both ICAEW and CIOT on this clause. ICAEW had suggested that “historically HMRC has missed its four-month target to agree employers’ applications, and in some cases it has taken up to a year to obtain HMRC’s approval”. He welcomed the new process allowing immediate operation of PAYE on UK-related earnings. However both ICAEW and CIOT had raised a concern that the reforms to section 690 make no reference to treaty non-resident cases. He asked the minister to clarify whether there would be another process for such cases.

Asking for further information on the impact and risks of the changes, he said: “The ICAEW also considers that the Bill overlooks scenarios in which a section 690 determination will be required—for instance, where all the UK tax on foreign employment income is covered by foreign tax credits. Has the Minister considered amending the new section 690 so that the definition of an internationally mobile employee includes that scenario”.

The minister responded: “He [the shadow minister] rightly recognises that this is a simplification to make things happen quicker in the tax system, and we can all agree on that”, while promising to provide detailed information on the operation of the clause in writing to address the specific points raised by the opposition.

Clause 21, plus government amendments 15-19 – Passed.

Transfer pricing (clause 22)

Clause 22 relates to advance pricing arrangements for transfer pricing. 

Introducing this clause the Exchequer Secretary explained that transfer pricing rules exist to prevent companies from manipulating intra-group prices to shift profits to lower tax jurisdictions. He continued that the changes in the clause address a gap in the legislation, providing businesses with tax certainty regarding transfer pricing for financing arrangements, in line with HMRC's guidance.

The Shadow Exchequer Secretary welcomed the changes, particularly the clarification on indirect participation in advance pricing agreements (APAs). He noted that CIOT has said “this measure will be helpful for taxpayers that have applied to or want to apply to HMRC for APAs in relation to financing arrangements (such as Advance Thin Capitalisation Agreements) in circumstances where the UK’s transfer pricing rules are only in scope due to persons acting together in relation to those financing arrangements.”

However, the shadow minister posed questions about the “real-world impact”, enforcement costs and economic benefits of these changes and requested the minister to confirm how many businesses the change is likely to impact

The minister responded that: “As it is a simplification measure, it is non-scoring, so it does not have an Exchequer impact—it simply provides certainty on how the rules as intended will apply”. He added that only a ‘limited’ number of taxpayers will be affected.

Clause 22 – Passed.

Electric vehicles and charging points (clauses 23-24)

Clause 23: Expenditure on zero-emission cars
Clause 24: Expenditure on plant or machinery for electric vehicle charging point

Clauses 23-30 relate to various ‘reliefs for business’. Clauses 23 and 24 extend the 100% first-year allowance on electric vehicles and EV charging points by a year.

Discussing clauses 23 and 24, the Exchequer Secretary, James Murray, said that the extension of these capital allowances would support the transition to electric vehicles.

Shadow Financial Secretary Gareth Davies cited the Association of Taxation Technicians (ATT)’s representation to the committee on these clauses, which queried the extension of the specific allowance for charging points, “as this expenditure has been covered by both the annual investment allowance and full expensing since the Conservative Government made those reliefs permanent in 2023. That means that the allowance is really relevant only to unincorporated business—for example, a partnership or sole trader— that has already used its annual investment allowance in full, which is a scenario that the ATT considers to be quite rare.”

He asked the minister what information he has on the number of claims made for this specific allowance on tax returns. He also asked for “the rationale behind that specific extension, given the context that the ATT has so clearly set out.”

The shadow minister observed that the cost to HMRC for implementing these clauses is £1.2 million - which seems a “relatively high figure” if clause 24 is largely redundant. While welcoming the extension of the EV allowance, he added: “I cannot help but wonder why they are putting a brake on the allowance after just a single year”.

The minister argued that the extension of the 100% first-year allowance for charge points is necessary to ensure full relief for investments in EV charge point equipment. Without this extension, some investments would qualify for only a 50% first-year allowance. He said he would look into what information is available on the number of claims in relation to charging points. 

Clauses 23-24 – Passed.

Furnished holiday lettings (clause 25 and schedule 5)

Clause 25 introduces schedule 5 which repeals the special tax rules for commercial letting of furnished holiday accommodation.

The Exchequer Secretary stated that following the previous government's announcement in the Spring Budget 2024 regarding the abolition of furnished holiday lettings (FHL), “[w]e are now legislating for that measure” in order to level the playing field with landlords of standard residential properties. He continued that the abolishment is expected to raise £190 million per year by 2029-30.

Murray said that the Bill “does not equalise tax treatment entirely”, and holiday lets, whether they qualify as FHLs or not, are subject to VAT, whereas longer-term, private rented sector accommodation is not. On the introduction of transitional arrangements, he said that FHL properties will become part of a person’s overall property business and past FHL losses can be relieved against profits of that business in future years. He added that capital allowance claims can be continued “but new capital expenditure will be dealt with under the rules for standard residential let properties”.

The minister thanked all the stakeholders who have fed into the publication of the draft legislation and suggested the changes made would make the tax system ‘fairer’ and support both the visitor economy and long-term residential lets. 

The Shadow Financial Secretary said that his party do not oppose this measure but that it is important to view the measures in the context of the wider changes to the circumstances of the hospitality sector as a result of the government’s recent Budget – in particular the employer’s national insurance contributions increase.

“Some organisations, such as the excellent Chartered Institute of Taxation, are concerned that removing the regime removes this distinction and could open up a whole can of worms, leading to costly disputes for both the taxpayer and HMRC”, stated the shadow minister. He asked if the minister could clarify what defines a letting as a trading activity in the absence of the FHL regime or commit to publication of clearer guidance for the industry. Additionally, clarifications were sought (on behalf of CIOT), including on roll-over relief, business asset disposal relief, and income splitting for married couples. 

To conclude his comment, the shadow minister asked about the government’s reassurance that HMRC guidance has been “specifically and sufficiently” clear on these points, so that those affected are aware of the implications of the changes.

Debate was adjourned after two hours, to resume in the afternoon session.

Session 2 – Tuesday 28 January 2025, 14.00-16.26

Part 1 – Income tax, capital gains tax and corporate taxes (continued)

Furnished holiday lettings (clause 25 and schedule 5) (continued)

The debate on the FHL regime resumed in the day’s second sitting. Picking up where he left off, the Shadow Financial Secretary, Gareth Davies, noted that the CIOT is calling for an administrative easement for backdating joint ownership declarations and asked if the minister has considered it. He said: “I have not been able to raise all of the many points that the institute has raised with me, and I apologise to it for that. I am sure the Minister is engaging with the institute. I know that in opposition he spent a lot of time with it, as he will be doing with industry. I encourage him to speak to the Chartered Institute of Taxation and get its guidance and input, as I have tried to lay out in my remarks”.

Responding, the Exchequer Secretary, James Murray, said: “I start by putting on the record my thanks to the Chartered Institute of Taxation. It was a great support to me in opposition and continues to be an important stakeholder for us in government.

In response to the concerns raised by the shadow minister and the CIOT regarding the boundaries between trading and property income, the minister stated that there are established principles that define each category. He argued that the proposed bright-line tests distort these principles rather than clarify them. Determining whether income is classified as property income depends “on the nature of the activity undertaken, and specifically how the profit is derived”. He continued that if profit comes from land exploitation, it is property income. The FHL rules allowed specific reliefs but were always property income, not trading income. Arbitrarily classifying some property income as trading would offer more reliefs than FHLs previously had, he said.

Regarding the repeal of FHL rules, the minister highlighted that HMRC have published guidance and will provide more information before the April changes. On business asset disposal relief and roll-over relief, he explained that the impact depends on individual circumstances. Broadly, relief applies if an FHL business or its assets are disposed of before April 2025. He stated: “We have been fair in our approach not to restrict relief where someone has had an FHL before repeal”.

The minister declined to introduce an easement allowing backdating of joint ownership declarations by married couples and civil partners. Income is assumed to be split 50:50 unless a declaration is made to the contrary, but any declaration must align with ownership proportions. The deadline of 6 April 2025 to make a declaration for the 2025-26 tax year remains in place.

Clause 25 and schedule 5 – Passed.

Creative industry reliefs (clauses 26-28)

Clause 26: Film and television programmes: increased relief for visual effects
Clause 27: Certification of films etc: minor amendments
Clause 28: Films etc: Unpaid amounts

Clause 26-28 relate to creative industry reliefs. Clause 26 enables film and high end TV companies to claim a higher audio-visual expenditure credit (AVEC) on UK visual effects costs. Clause 27 aligns the circumstances in which a film, TV programme or video game meets the ‘British certification’ condition for a tax credit. Clause 28 aligns the rules on what expenditure can be included in film, TV and video game relief claims.

The Exchequer Secretary explained that clause 26 increases AVEC for UK visual effects in film and high-end TV by 5 percentage points, raising the total credit rate to 39%. It removes the 80% cap on qualifying expenditure, allowing all visual effects costs to receive the enhanced rate. He argued that around 1,300 companies would benefit, with the extra relief costing £75 million annually from 2028-29.

The minister continued that clause 27 aligns expenditure credits legislation with tax relief rules, ensuring cultural certificates are valid when claims are made and maintaining continuity between the previous tax reliefs and the new expenditure credits. He said clause 28 ensures unpaid amounts can still be deducted from profits until paid.

The minister suggested that these changes strengthen the UK’s position in visual effects, making it more competitive and encouraging more work to be done in the UK while ensuring continuity for film, TV, and video game companies.

The Shadow Financial Secretary said that the government has chosen not to let companies claiming the independent film tax credit also claim additional visual effects relief. “The government have said they do not believe this exclusion will have an adverse impact on companies”, he observed, but he suggested it would be helpful to hear what assessment had been made of how expanding the relief might have benefited smaller visual effects studios.

The shadow minister said that the 2024 spring Budget announced a 40% business rates relief for eligible film studios in England for 10 years. However, “[m]y understanding is that this has not yet been implemented by the new government, and has in fact been referred to the Subsidy Advice Unit”. He asked if the minister could update the committee on the Unit’s report findings.

The minister responded that the independent film tax credit provides ‘generous’ support for visual effects in independent films. He believed that keeping the additional visual effects relief separate ensures that both schemes are simple and easy for companies to understand.

As for the Subsidy Advice Unit’s findings, he noted that the report has just been published but he has not been briefed yet due to committee preparations.

Clauses 26-28 – Passed.

R&D relief (Northern Ireland) (clause 29)

Clauses 29 and 30 relate to research and development relief. Clause 29 amends the relief for loss-making R&D intensive companies for companies with a registered office in Northern Ireland in some circumstances.

The Exchequer Secretary explained that clause 29 adjusts the rules introduced last April to reflect Northern Ireland’s market conditions and aligns with the UK’s international obligations. He suggested that only a “very small number” of companies will be affected, while most will remain better off than their Great Britain counterparts. 

The Shadow Financial Secretary asked why have these provisions been moved from regulation into law, and what are the implications. He said that HMRC state that Northern Ireland companies claiming enhanced R&D support “now need to take into account other relevant aid that they have received” and questioned what steps have been taken to ensure they are aware of and can meet this requirement.

The minister repeated that a very small number of companies would be affected, and minimal claims are expected before April 2025. He added: “Since the change will be a key qualification to the tax rules for a part of the UK”, it should be legislated in the Finance Bill and the Budget process.

Clause 29 – Passed.

R&D intensity condition (clause 30)

Clause 30 amends the transitional provision in Enhanced R&D Intensive Support (ERIS) to correct an unintended effect of the legislation which may understate the intensity ratio for certain companies.

Finance Act 2024 did not account for R&D expenditure credit in the R&D intensity calculation for enhanced relief, meaning some companies that were supposed to qualify as R&D-intensive might not meet that threshold, said the Exchequer Secretary. He explained that clause 30 ensures that R&D expenditure credit-qualifying expenditure is included in the calculation of the R&D intensity ratio, as originally intended.

The Shadow Financial Secretary asked about the steps is the Treasury taking to ensure those who previously missed out but are now eligible are aware and able to claim.

The minister responded that Treasury officials regularly engage with industry and R&D beneficiaries, and the government will communicate all legislative changes and provide support to ensure companies are informed.

Clause 30 – Passed.

Employee-ownership trusts (clause 31 and schedule 6, plus government amendments 38-43)

Clause 31 introduces schedule 6 which amends the tax regime for employee-ownership trusts (EOTs) in various ways, primarily tightening up eligibility for capital gains tax (CGT) reliefs. The government proposed six amendments including a welcome (but limited) expansion of the scope of acquisition costs that can benefit from the relief.

The Exchequer Secretary, James Murray, highlighted that clause 31 and schedule 6 amend CGT relief conditions for disposing of a company to an EOT, ensuring former owners do not retain control. Trustees must be UK residents and take reasonable steps not to overpay for shares. He continued that these changes prevent abuse and protect the long-term integrity of the relief.

Moreover, the minister said that individuals can now provide more information to HMRC when claiming relief, and HMRC’s time to act on post-disposal breaches is increased. “HMRC will be given additional powers to monitor the reliefs and to take action when non-compliance is identified”, he reported. Technical adjustments also provide clarification on tax treatment of company contributions to trustees and modify income tax relief conditions for employee bonus schemes – overall simplifying EOT operations.

The minister explained the purpose of the six government amendments:

• Amendments 39 and 41 confirm that the relief is available only with respect to contributions paid to the trustees from a company for the purposes of meeting the trustees’ acquisition costs. 
• Amendments 38 and 40 ensure that the distributions relief is available in circumstances where the CGT relief was not claimed because the vendor was a company, rather than an individual, provided that the conditions for obtaining the relief were otherwise met.
• Amendments 42 and 43 expand the scope of the costs that qualify for the relief to include other expenses that may reasonably be incurred by trustees in connection with the acquisition of the company. These “address the concerns expressed by key stakeholders that the scope of the relief as announced at the autumn Budget was too narrow to reflect the reality of how employee ownership trust acquisitions are funded”.
• The Shadow Financial Secretary, Gareth Davies, supported these measures but proposed several questions including why the suggestion to raise the tax-free employee bonus limit from £3,600 was not taken forward. Had it kept pace with inflation, the maximum today would be close to £5,000, he observed. He asked if the government would keep this under review.

The shadow minister also expressed concern about double taxation when an EOT-owned company is sold to a third party—trustees pay CGT, and employees face income tax on proceeds. He said: “When responding, the government did not acknowledge that point about double taxation, which the Chartered Institute of Taxation also highlighted. We understand that concern must be weighed against the main abuse that the government are rightly trying to prevent with these measures: the exploitation of EOTs by company owners to reduce their CGT liability when ultimately selling their business to a third party.”

Davies acknowledged the amendments expanding relief scope but noted that professional trustee and adviser fees remain excluded. Now that relief is statutory, “HMRC has limited flexibility to provide relief for any excluded cost”. He enquired on what basis are the government determining what should and should not attract relief, while arguing that preventing the regime from being abused is essential.

Responding on this point, the minister told the committee that, “since the autumn Budget, officials have met stakeholders such as the Chartered Institute of Taxation, which raised concerns about the scope of the distributions relief as initially announced. The CIOT was concerned that that relief was too narrow to reflect the reality of how employee ownership trust acquisitions are funded”. In response, the government had tabled amendments 42 and 43 to expand it, covering all reasonable trustee expenses linked to acquiring the company. He added that: “As always, I am grateful to the Chartered Institute for Taxation for the constructive engagement it has given to my officials in discussing these issues”.

Regarding policy choices, the minister said that the government continually reviews policy, balancing effectiveness and targeted use of public funds. He concluded that: “Our relationship with the Chartered Institute of Taxation and other relevant stakeholders in this space helps to inform the policy decisions we are putting in law today, as well as any future changes to the scheme we might consider.”

Clause 31 and schedule 6, plus government amendments 38-43 – Passed.

Pensions (clauses 32-34)

Clause 32: Overseas transfer charge: pension schemes in EEA state or Gibraltar
Clause 33: Overseas pension schemes established in EEA states
Clause 34: Pension scheme administrators required to be resident in United Kingdom

Clauses 32-34 relate to pensions. Clauses 32 and 33 are an attempt to prevent tax free transfers to overseas pensions from UK relieved pensions. Clause 34 requires scheme administrators of registered pension schemes to be UK resident.

The Economic Secretary to the Treasury, Emma Reynolds, explained that clause 32 removes the overseas transfer charge exclusion for transfers from 30 October 2024, meaning transfers will be subject to the overseas transfer charge unless another exemption applies - such as when a transfer is made to a scheme in the member’s country of residence. She explained that this change is expected to retain up to £1 billion in UK pension savings over five years.

Describing clauses 33 and 34, the minister suggested that changes would bring the tax treatment of transfers to EEA and Gibraltar pension schemes, the conditions that EEA overseas schemes need to meet, and the requirements for EEA administrators of UK schemes into line with those for the rest of the world.

Shadow Exchequer Secretary James Wild said the opposition supported these changes. He asked the minister how many individuals currently use the EEA exclusion from the overseas transfer charge and at what cost. Additionally, he asked about the operational steps HMRC are taking to implement these changes, the number of individuals affected, and what guidance will HMRC provide to ensure compliance.

The minister answered that, in 2023-24, there were 7,100 qualifying overseas pension transfers, totalling £1.14 billion. She acknowledged concerns and said that: “There is an increasing risk that these transfers were being made tax free and that some of these individuals would have been benefiting from the double tax-free allowances”. Regarding HMRC readiness, she said Treasury ministers and officials closely collaborate with HMRC, who have been involved in drafting and consulting on these changes. “I can reassure him that everything is in order”.

On whether individuals can continue paying into registered pension schemes without a UK-resident administrator—the minister explained that some may lose tax relief if their scheme lacks a UK-based administrator and is subsequently deregistered. However, “we do not expect many schemes to be affected by this issue,” as administrator transition processes are well established, she said. 

Clauses 32-34 – Passed.

Alternative finance (clause 35 and schedule 7)

Clause 35 aims to ensure that where an existing asset is used to raise finance using alternative (sharia-compliant) finance, the tax outcome is broadly the same as conventional financing. 

The Exchequer Secretary said that schedule 7 ensures that individuals and companies using qualifying alternative finance provisions will not be liable to capital gains tax, corporation tax, or income tax when transferring a beneficial interest in an asset to a financial institution to raise funds. He emphasised that the government is committed to supporting the UK Islamic finance sector and to provide access to alternative finance to anyone who seeks it. He continued that this measure fulfils that commitment by levelling the tax playing field. 

The Shadow Exchequer Secretary expressed his gratitude to the CIOT for its work and advice on scrutinising the Bill and said: “The Chartered Institute of Taxation has suggested that the clause could be amended to exempt taxpayers from the liability on inherent gains that were raised on alternative finance transactions before 30 October 2024. They recognise that making such a retrospective change would be unusual. However, they suggest that a retrospective change in circumstances where there is an anomaly in the legislation that is both inconsistent with government policy during the time the anomaly exists and adversely affects taxpayers, particularly those with protected characteristics, would meet the high bar.” He asked if the minister has considered this point and what is HMRC’s approach to those who have already incurred capital gains tax. Additionally, how many taxpayers using alternative finance will benefit from this change and what steps are HMRC taking to prevent fraud?

The minister answered that the government does not “typically apply tax changes retrospectively”, and this will not be an exception. He continued that while the government recognise that some alternative finance users have already paid capital gains tax on refinancing, providing ‘certainty’ and ensuring that “the law is applied in the way intended” is a priority. 

Regarding the number of affected individuals, Murray said only that the previous government’s consultation on alternative finance tax rules, published in January 2023, received 22 responses from finance providers, representative groups, tax and legal professionals, academics, and consumers. He added: “This is, of course, a sector that we want to grow.”

Clause 35 and schedule 7 – Passed.

Statutory neonatal care pay (clause 36)

Clause 36 confirms Statutory Neonatal Care Pay is taxable as social security income. 

The Exchequer Secretary said that the legislation ensures that statutory neonatal care pay is included in the employer’s notice to employees when entering a partnership share agreement, alongside other existing statutory payments. He added that this change helps employees understand how salary deductions under a shared incentive plan (SIP) agreement might affect their entitlement to neonatal care pay.

The Shadow Exchequer Secretary supported the measure. 

Clause 36 – Passed.

Part 2: Replacement of special rules relating to domicile 

Chapter 1: New rules for foreign income and gains of individuals becoming UK resident (clauses 37-39 and schedule 8, plus government amendments 20, 44-54)

Clause 37: Claim for relief on foreign income
Clause 38 and Schedule 8: Claim for relief on foreign employment income
Clause 39: Claim for relief on foreign gains

This chapter puts in place, with effect from April 2025, a new income and capital gains tax regime for individuals (‘qualifying new residents’) who are within their first four tax years of UK residence, having been non-UK resident for at least the ten preceding tax years. During this period they will be able to make a claim to relieve their foreign income and gains from UK taxation. However, in following tax years, and during the first four years if no claim is made, they will (like all other UK resident individuals) be subject to UK taxation on worldwide income and gains. Clause 38 and schedule 8 provide that Overseas Workday Relief will continue to provide tax relief on qualifying earnings that relate to employment duties performed outside the UK.

12 government amendments were tabled to chapter 1. These included amendment 20 which provides for income treated as arising to a settlor of a trust as a result of a capital payment made by the trustees to be eligible for relief to the extent that the deemed income arises from foreign income, and a number of amendments relating to the eligibility of qualifying new residents for income tax deductions. One of these (amendment 51) dealt with an apparent drafting error identified by CIOT in our representations on the Bill.

“The Government are committed to ensuring that everyone who is long-term resident in the UK pays their taxes here” stated James Murray, Exchequer Secretary, who then described clauses 37 - 39. Then he gave a brief explanation of the government's amendments:

• Amendment 20 amends clause 37 to add an additional category of income to the list of eligible incomes, which will ensure that all eligible income for relief is referenced correctly
• Amendments 44 to 53 have been tabled to ensure that the relief on travel costs for qualifying newly resident employees in the UK functions as the legislation intended
• Amendment 54 amends schedule 8 to clarify that it is a general direction made by HMRC, rather than a public notice

Gareth Davies, Shadow Financial Secretary, observed that Labour’s adjustments to the regime are projected to raise £12.7 billion over five years, including £10.6 billion from the temporary repatriation facility. However, the Office of Budget Responsibility (OBR) highlights ‘significant uncertainty’ in behavioural responses and tax base size.  He continued: “The OBR also says it is unclear to what extent inflows to the temporary repatriation facility are additional over the long term rather than bringing forward disposals which would otherwise have attracted full rates of taxation.”

Yuan Yang (Labour) asked the shadow minister whether he was familiar with the work done in this area by Andy Summers and Arun Advani, who had modelled the proposal before the committee. The shadow minister said his focus was on the work of the OBR.

Harriet Cross (Conservative) intervened to point out that although the tax intake peaks at £6 billion it is expected would drop to £95 million by 2029. “By the time this spending and the costs have been worked into the system, no matter what happens in terms of uncertainty, at the end of that tax period there will be a huge amount of money that was in the system, but which now has to be filled.” The shadow minister agreed.

“The biggest concern that has been raised with me regarding these new reliefs by the likes of the now-famous Chartered Institute of Taxation, which many of us have referred to, is the requirement to itemise and actively claim each income and gain,” Davies continued. It was wrong that the claim window is so much less than the 12 years HMRC have for compliance checks. These measures were meant to introduce a regime that would be simpler and internationally competitive, he continued, “but those two requirements are neither of those things”. 

The minister responded that reporting foreign income and gains helps the government assess the regime’s value and ensure compliance. He continued that all UK taxpayers must report foreign income and gains: “failing to request information could be considered to run contrary to the UK’s international information-sharing obligations, something we would want to avoid”.

Davies intervened and said that “[a]lthough the point about the reporting is valid in terms of monitoring, does the minister accept that that in itself could make the system more complicated and onerous to those who may consider moving their assets to this country”.

Murray reiterated that the new regime is more ‘attractive’ than the remittance basis, as foreign income and gains will be entirely tax-free for four years.

Clauses 37-39 and schedule 8, plus government amendments 20, 44-54 - Passed

Chapter 2: Ending the special treatment of individuals not domiciled in United Kingdom (clauses 40-42 and schedules 9-11, plus government amendments 55-59)

Clause 40 and Schedule 9: Remittance basis not available after tax year 2024-25
Clause 41 and Schedule 10: Temporary repatriation facility
Clause 42 and Schedule 11: Rebasing of assets

Chapter 2 ends the special tax regime for those who are resident but not domiciled in the UK, abolishing the ‘remittance basis’ in respect of foreign income and gains from tax year 2025-26 on. There will be a ‘temporary repatriation facility’ to encourage people to bring historic foreign income and gains into the UK over the next three years. 

Five government amendments were tabled to chapter 2. 

The Exchequer Secretary said that clause 40 and schedule 9 remove the remittance basis of taxation from 6 April 2025. While no new claims can be made, foreign income and gains accrued under the remittance basis before this date will still be taxed at prevailing rates if remitted to the UK later. The temporary repatriation facility (TRF) will allow former remittance basis claimants to remit pre-April 2025 foreign income and gains at a reduced tax rate. It also provides a transitional capital gains tax arrangement, allowing individuals to rebase foreign assets held on 5 April 2017 to their value on that date when disposing of them from 6 April 2025.

The minister explained the government amendments to this chapter:

• Amendments 55 and 56 amends the Income Tax (Earnings and Pensions) Act 2003 to remove some references to domicile which the current reforms make redundant
• Amendment 57 ensures that an individual’s domicile is no longer a relevant consideration for Treasury securities issued with free of tax for residents abroad (FOTRA) conditions. 
• Amendment 58 removes more redundant references to domicile, this time in the Income and Corporation Taxes Act 1988, relating to relief on income for investments of certain pension schemes
• Amendment 59 corrects an incorrect reference in schedule 10
• The minister told MPs that the Chancellor will introduce further amendments to the Bill at report stage to simplify the TRF while maintaining its structure.

The Shadow Financial Secretary claimed that by offering a reduced rate of tax on income and gains for a limited time the government is not so much ‘closing loopholes’ in the tax system, as ‘creating’ new ones. He added that there is great uncertainty over how much of the revenue raised from the TRF will be truly additional. 

About the new amendments, he questioned why they have not been tabled in committee and what prevented the Chancellor from doing so.

Another major concern is the definition of “remittance” in schedule 9, said the shadow minister: “The Chartered Institute of Taxation says the changes are badly drafted, that they should not be retroactive and that, at the very least, implementation should be delayed to allow for them to be rewritten and consulted on”. Meanwhile, “[p]aragraph 5(11), which makes it so that anything that has ever been remitted to the UK without being charged to tax under previous rules should now be treated as if it was a chargeable remittance, is described by the ICAEW as “unacceptable”; it states that the provision “should be deleted”.” He asked the minister to explain these points.

The minister acknowledged the concerns raised and said: “I am always happy to respond to queries from the Chartered Institute of Taxation ... and I will make sure that any responses to those queries are forthcoming.”

Regarding the TRF, he emphasised that the amendments which the Chancellor referred to “are separate from the amendments that we are debating today in Committee, which clarify specific aspects of the legislation and ensure that the policy works as intended”.

Clauses 40-42 and schedules 9-11, plus government amendments 55-59 – Passed.

Chapter 3: Trusts etc. (clause 43 and schedule 12, plus government amendments 60-61)

Chapter 3 makes special provision about trusts in connection with the introduction of relief for qualifying new residents and the abolition of the remittance basis of taxation. It also removes certain protections for foreign-source income and makes transitional provision in respect of income that arose in past tax years.

Two government amendments have been tabled to chapter 3. These expand the scope of the onward gifting rule to circumstances where benefits are routed via individuals who are UK resident but who are not themselves within the scope of the benefits charge (because they are not the settlor or a close family member). 

The Exchequer Secretary said that clause 43 and schedule 12 ensure that foreign income and gains within settlor-interested trusts will no longer be protected from tax for non-domiciled and deemed-domiciled individuals who do not qualify for the four-year foreign income and gains regime. From 6 April 2025, foreign income and gains in such trusts will be taxed on the same basis as for UK-domiciled settlors unless the settlor qualifies for and claims the four-year regime, regardless of when the trust was established. Government amendments 60 and 61 ensure the onward gifting provisions continue to function as intended, preventing taxpayers from avoiding tax liabilities by diverting benefits to others not subject to the charge, he explained.

The Shadow Financial Secretary highlighted that this measure aligns with the Conservatives’ March 2024 proposals and said he had no objections to it.

Clause 43 and schedule 12, plus government amendments 60-61- Passed.

Chapter 4: Inheritance tax (clauses 44-46 and schedule 13, plus government amendments 62-65)

Clause 44: Excluded property: domicile test replaced with long-term residence test
Clause 45: Corresponding change for settled property
Clause 46 and Schedule 13: Consequential, connected and transitional provision

Chapter 4 introduces a residence-based system for inheritance tax (IHT), with IHT being applicable to the worldwide estates of individuals who have been UK resident for 10 of the last 20 tax years. Individuals will remain within the scope of UK IHT on worldwide assets after leaving the UK for up to 10 tax years.

The Exchequer Secretary explained that the new regime ensures individuals will not be able to keep their assets out of scope of IHT indefinitely, adding “our approach ensures that non-UK assets in existing protected trusts will be kept out of the settlor’s or beneficiary’s death estate”.

Four government amendments were tabled to schedule 13. The minister explained that these were “to insert a missing word, to correct cross-references to the new definition of excluded property in a settlement, and to ensure that all fiscal domicile definitions are removed unless they are needed for a double taxation convention to work”.

The Shadow Financial Secretary expressed concern that no details have been published of consultations on these changes. He stated: “I am told by the likes of the Chartered Institute of Taxation that certain provisions such as the tapering of the 10-year tail were put forward during that process. I would be grateful if the Minister could confirm to the Committee the nature and extent of the consultation that has taken place by the Government”.

The shadow minister also raised another point made by the Institute that “that there is now an anomaly whereby individuals who leave the UK before the new regime begins on 6 April are considered long-term residents when the legislation comes into effect, meaning they will incur an inheritance tax exit charge for trusts they have settled when their long-term resident status ends”. He agreed with CIOT that it seems ‘unfair’ that individuals are being hit by an exit charge under rules introduced after they have already left the UK. 

The minister explained that a technical note was published in the autumn 2024 Budget to provide clarity before implementation in April 2025. He continued that officials have engaged with specialists and stakeholders over the summer, incorporating feedback on measures like the tapered tail and transitional arrangements. He promised to follow up in writing on the question the shadow minister had on the exit charge. “The objective with this policy is to achieve our aim of making the tax system fairer while making the new regime as attractive as possible and internationally competitive to encourage people to come to the UK to invest here, work here, create jobs and wealth, and grow our economy”, he stated.

Clauses 44-46 and schedule 13, plus government amendments 62-65 – Passed.

Part 3: Other taxes

Annual tax on enveloped dwellings (clauses 54-55)

Clause 54: Alternative finance: land in England, Scotland or Northern Ireland
Clause 55: Alternative finance: land in Wales

Clauses 54 and 55 make changes to the Annual Tax on Enveloped Dwellings legislation in relation to alternative property finance arrangements, to extend the scope of existing rules.

The Exchequer Secretary, James Murray, suggested that these clauses, together with clause 35, deliver the government’s commitment to strengthening the UK Islamic finance sector by ensuring that alternative and conventional financing receive broadly equal treatment under the Annual Tax on Enveloped Dwellings (ATED).

The Shadow Exchequer Secretary, James Wild noted that “our friends at the Chartered Institute of Taxation… have queried what they term the government’s piecemeal approach to levelling the playing field for alternative finance arrangements. The CIOT has said that the current legislation does not provide for a look-through to the underlying buyer for stamp duty land tax reliefs such as charities relief, group relief and relief for acquisition by a house builder from an individual acquiring a new dwelling”. As a result, these reliefs are denied when alternative finance arrangements are in place, contradicting the policy aim of equal treatment between alternative and conventional finance.

He called on the minister to consider addressing this inconsistency and more broadly adopt a more consistent approach to alternative finance in future.

Replying, Murray acknowledged that these changes would benefit only a small number of finance providers and individuals, however, he emphasised their importance in giving the alternative finance sector confidence to grow and ensuring a level playing field.

Clauses 54-55 – Passed.

Stamp duty and stamp duty reserve tax (clause 56)

Clause 56 introduces a power to make stamp duty and stamp duty reserve tax changes by secondary legislation in connection with a financial market infrastructure sandbox.

Shadow Economic Secretary Emma Reynolds explained that clause 56 introduces a stamp duty and stamp duty reserve tax exemption for private intermittent securities and capital exchange system (PISCES) transactions within financial market infrastructure sandboxes. She said that it would increase the attractiveness of PISCES and demonstrates the government’s commitment to ensuring its success.

For the Conservatives, the Shadow Exchequer Secretary supported the measure, highlighting that in 2023, the government proposed a mandatory single tax on securities to replace separate taxes for electronic and paper instruments - aiming to reduce complexity. He asked if the minister could provide an update on the government’s stance on those proposals.

The minister said she could not provide an exact response to the shadow minister, but “I will absolutely prioritise looking at simplification, because any kind of simplification is good for the market and helps to get things going”.

Clause 56 – Passed.

Inheritance tax rates (clause 57)

Clause 57: Rate bands etc for tax years 2028-29 and 2029-30

Clauses 57-62 relate to inheritance tax. Clause 57 continues the freeze in IHT bands to 2030. 

Debating the final clause of the second sitting, the Exchequer Secretary said extending the IHT threshold freeze for two more years would will increase the number of tax-paying estates by 1,400 in 2028-29 and 2,900 in 2029-30, but that most estates will remain unaffected.

The Shadow Financial Secretary wondered why the government has chosen to unfreeze income tax in 2028 but not inheritance tax.

The minister responded that “that is a political choice”, adding that the government pledged not to raise taxes on working people and have upheld that promise through their policies on income tax, employee national insurance, and VAT.

Clause 57 was passed at the very start of the third session.

A further report will cover the remaining two sessions, which took place on Thursday 30 January 2025.