There was much speculation regarding what measures Chancellor Rachel Reeves would announce to raise billions of pounds in taxes to fill the £22bn “black hole” in the public finances and balance this with the investments the Government wants to make.
The Chancellor said the Budget would highlight £40bn in tax rise, but did she stick to Labour’s manifesto pledges or pull some unexpected rabbits out of the hat?
We’ve listened and analysed today’s Autumn Budget Statement and picked out the headline changes announced that will affect you and your business.
Capital Gains Tax (CGT)
The increase in CGT had been rumoured and today it was announced that there would be a significant increase to the lower rate from 10% to 18% and the higher rate will increase from 20% to 24% for disposals made on or after 30 October 2024.
However, the Government announced it will maintain the CGT rates on residential property at 18% and 24%.
Business Asset Disposal Relief (BADR) which reduces the effective CGT rate to 10% will remain at 10% this year before rising to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2026. The Chancellor confirmed that the £1m lifetime limit for BADR would remain unchanged.
Investors’ Relief (IR) will also increase, in line with BADR. The IR lifetime limit will decrease from £10m to £1m for disposals on or after 30 October 2024.
It is predicted by The Office for Budget Responsibility that CGT will raise £2.5bn by the end of the forecast period. However, it remains to be seen if increasing CGT to this extent reduces the amount it generates because of investors holding onto assets such as their business and shares to avoid being hit with a large CGT bill.
CGT rates on carried interest will rise to 32% from April 2025 as an interim step; from April 2026 the carried interest regime will be within the income tax framework.
Inheritance Tax (IHT)
The previous government froze inheritance tax thresholds until 2028, and the Chancellor announced that this freeze will be extended for a further two years until 2030. This means the first £325,000 (the nil rate band) of any estate can be inherited tax free, rising to £500,000 if the estate includes a residence passed to direct descendants (subject to tapering of the residence nil rate band for large estates), and £1 million when the tax-free allowance is passed to a surviving spouse or civil partner. The nil rate band has been frozen since 2009 so now significantly out of step with inflation, meaning more estates will be caught by the IHT net. This ‘stealth’ approach to increasing tax collection has proved popular with recent governments.
One thing that was not predicted was the announcement that inherited pensions will form part of the deceased’s estate from April 2027, meaning pensions passed on will potentially be subject to IHT.
Until now a pension pot could be inherited without any tax, making pensions an attractive IHT planning tool for many. This will mean a fundamental shift in how wealthier individuals decide to invest and access their money in retirement, with people potentially accessing pensions earlier to prevent them being part of a later IHT bill.
Business relief (formerly business property relief) and agricultural property relief were also targeted after the government announced reform of the tax reliefs. The Chancellor has outlined plans that from April 2026, the first £1m of combined business and agricultural assets will continue to be eligible for the existing 100% relief. However, assets over £1 million and shares listed on AIM and similar markets will only be eligible for 50% relief, with an effective rate of inheritance tax at 20%.
These changes will be a concern amongst farmers and landowners and may see many people having to rethink their approach to estate planning. Business owners will need to consider succession planning in good time before these reliefs are restricted.
Pensions
Rachel Reeves had already launched a pensions review prior to the Budget that focuses on scaling up workplace pensions.
The major change announced today was that pensions passed on will be subject to IHT from 2027 (see details above under IHT).
There were rumours that the government may look to apply employer NI to employer pension contributions, so it was a relief for employers that the Government resisted the temptation to introduce this.
Also, no changes were made to pension tax relief or the tax-free lump sum that retirees can withdraw from their pension at the age of 55 upwards (set to rise to age 57 in 2028). There is currently a maximum limit of £268,275 that can be taken as a tax-free lump sum.
Employers National Insurance
Whilst the Labour government pledged not to raise NI contributions for “working people” it became clear before the Autumn Budget that this statement only related to the employee element, rather than the sum paid by employers.
As expected, Rachel Reeves announced an increase to employer’s National Insurance Contributions from 13.8% to 15% from April 2025.
Reeves added that there would be a reduction to the secondary threshold, which is the level at which employers start paying NI on an employee’s salary. The updated threshold will now be set at £5,000, down from £9,100.
This increase fundamentally targets businesses and will be seen as a tax on jobs; it may filter down as employers consider their wage bill. For smaller employers, the increase to the employment allowance will help to mitigate the impact of this increase.
Employment Allowance
Employment allowance allows eligible employers to reduce their annual National Insurance liability. The rate prior to the Budget announcement was £5,000. Originally, a business would pay less Class 1 National Insurance at every payroll until it has reached £5,000 or until the tax year ends, whichever is sooner. To try and offset some of the NICs increase for employers, it was announced that there would be an increase in the allowance threshold to £10,500. The allowance will also be extended to all eligible employers, removing the £100,000 cap.
Income tax
The Chancellor announced that there will be no extension of the freeze in income tax and National Insurance thresholds and that personal tax thresholds on income tax and National Insurance will rise in line with inflation from 2028/29, which will end many years of ‘fiscal drag’.
Non-dom tax status
Rachel Reeves confirmed she would fulfil the promise made in Labour’s manifesto to remove the non-dom tax status. This applies to a UK resident whose permanent home – or domicile – for tax purposes is outside the UK. Non-doms are eligible for the remittance basis which means they do not pay UK tax on money they make elsewhere in the world unless they bring it into the UK.
The chancellor confirmed she will introduce a simpler residence-based scheme with considerations for workers coming to the UK on a temporary basis. The new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first 4 years of tax residence, provided they have not been a UK tax resident in any of the 10 consecutive years prior to their arrival.
The measures will include a 3-year Temporary Repatriation Facility for individuals who have previously claimed the remittance basis, allowing them to remit at a reduced rate (12% rising to 15%) foreign income and gains that arose prior to the changes.
This means that if non-domiciled individuals decide they want to live in the UK beyond a four-year period, or return to the UK having been previously resident, they will need a long-term solution and alternative strategies to manage and protect their wealth effectively. High-Net Worth individuals should now analyse the reforms and begin adjusting their financial plans accordingly.
Electric vehicles
Businesses acquiring zero-emission cars or installing electric vehicle charge-points received an extension on the availability of the 100% first-year allowance for qualifying expenditure on zero-emission cars and the 100% first-year allowance for electric vehicle charge-points to 31 March 2026 for Corporation Tax purposes and 5 April 2026 for income tax purposes.
There was also an announcement to maintain the incentives for electric vehicles in company car tax from 2028 and increase the differential between fully electric and other vehicles in the first-year rates of Vehicle Excise Duty from April 2025.
Stamp Duty Land Tax (SDLT)
There was an announcement that the SDLT surcharge for second homes, known as the higher rate for additional dwellings, would rise by 2% to 5% with effect from 31st October 2024 targeting second homeowners, property investors and landlords. The higher rate of 15% paid by companies for purchases of expensive property will also increase by 2% to 17%.
VAT on school fees
The Budget saw the confirmation that the Government will introduce VAT on private school fees from January 2025 and will also introduce legislation to remove their business rates relief from April 2025 as well for private schools.
Business tax roadmap
The Government has also outlined a business tax roadmap, which includes a commitment to cap corporation tax at 25% for the duration of parliament, while maintaining full expensing and the £1 million Annual Investment Allowance, and keeping the current rates of Research and Development tax relief to drive innovation.
Summary
Notwithstanding the government’s aim of encouraging UK economic growth, this Budget sees the largest increase in UK taxation in over 30 years, with employers and business owners set to bear the brunt of an estimated £40bn worth of tax rises and spending cuts across government.
There is no doubt that this has been the most eventful budget for some time, and there will be much to digest and plan for in the months ahead.
Should you or your business need any assistance with any of the above, please do not hesitate to contact us.
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