Update: Autumn Budget 2024

Today, new Chancellor Rachel Reeves delivered Labour’s first Budget since 2010, ahead of the new tax year. During their election campaign, Labour promised not to increase a number of taxes, including Income Tax, National Insurance, Corporation Tax and VAT. As a result, we were expecting changes to Capital Gains Tax and Inheritance Tax along with possible changes to pensions. 

The government stated they would not increase tax on working people, but as the Budget loomed closer it was revealed they were referring to only those who received a monthly pay cheque as ‘working people’. Unfortunately, this disregards the hard work small business owners do to grow their businesses, often foregoing a market-value salary to ensure employee stability and company growth. 

In the run-up to the Budget, it became clear that the state of the UK's public finances was unstable and Rachel Reeves reported a £22 billion black hole which needed to be fixed; we were therefore expecting significant changes to tax burdens today. What we have seen is the biggest tax-increasing Budget in history, with the overall tax burden going up by £40 billion. 

After all the speculation and rumours that have been flying about we have finally heard the new Budget announcements. These are the key headlines: 

• The government kept its promise to keep certain taxes untouched.
• Immediate changes to Capital Gains Tax rates.
• Changes to Business Assets Disposal Relief coming in from April 2025. 
• From April 2025 we will see an increase in the rate of Employer’s NI and a reduction in the threshold where Employer’s NI is payable. In better news, there is an increase coming into the Employment Allowance and the government is scrapping the £100,000 eligibility threshold to benefit from this allowance. 
• Reforms to the inheritance tax rules have been announced and are coming in over the next 2-3 years. This sees pensions taxable for the first time and a restriction on existing reliefs. 
• VAT will be chargeable on private school fees from January 2025.

What is staying the same?

• Income tax thresholds and rates.
• Corporation tax is confirmed to be capped at 25% for the duration of Labour’s government.
• Capital allowances: Annual Investment Allowance (AIA) will remain at £1 million and companies can continue to claim 100% First Year Allowances for zero-emission cars and EV charge points for a further year.
• VAT will remain at 20%.
• Employee’s national insurance rates and thresholds.
• The previously announced changes to the R&D regime (the launch of the Merged R&D scheme for accounting periods starting on or after 1 April 2024) will continue, with no further changes announced.

What are the key changes?

Capital Gains Tax

Immediate changes are coming into play for Capital Gains Tax (CGT). Previously, CGT on residential properties was 18% and 24% (for higher rate taxpayers) whilst CGT on other assets (such as shares, commercial property etc.) was 10% and 20%. From the 30th of October, CGT on the majority of all assets will be at 18% and 24% with no differentiation for residential properties.

There was a lot of talk before the Budget that Business Asset Disposal Relief (BADR) may be abolished or changed. As a reminder, this is the relief that reduces the rate of tax on the first £1m of business sale proceeds. BADR is not to be abolished, but there will be increases to the previous 10% tax rate. From April 2025 you will pay 14% on the first £1m and from April 2026 this will increase again to 18%. 

If selling your business in the next 1-2 years was something that you were thinking about, then you could save yourself between £40k-£80k of tax (or double that if your spouse owns shares) by accelerating that sale to before April 2025. If a trade sale to a third party seems far-fetched, then exploring other options like a Management Buyout (MBO), Employee Ownership Trust or Members Voluntary Liquidation could be ideal. 

Employers National Insurance 

Employers currently pay Employer National Insurance (Er NI) contributions at a rate of 13.8% on worker’s earnings above £9,100 per annum (or £175 per week). Currently, businesses with an Er NI bill of £100,000 or less per annum can claim an Employment Allowance of £5,000 per annum to contribute towards this liability.  

Today, the Chancellor announced that the rate of Er NI is increasing to 15% and the threshold at which businesses will need to pay this per employee will reduce to £5,000 per annum from April 2025. With this, the Employment Allowance is also increasing from £5,000 to £10,500, and the £100,000 eligibility threshold will be scrapped, so all eligible businesses will benefit from this from April. 

These changes will increase the day-to-day costs of paying employees, for example, a business with 20 employees (with an average salary of £35,000) will see an overall increase in Er NI liability per annum of £13,000.

Inheritance tax 

Thresholds:
Prior to today’s announcements, Inheritance tax (IHT) thresholds were frozen until 2028. Today the government has announced they will remain frozen until 2030. This means the current nil rate band of £325,000 and residence nil rate band of £175,000 will remain until 2030. 

Pensions:
Unspent, inherited pensions are presently not subject to IHT, but the Chancellor has confirmed today that they will become chargeable to IHT from April 2027. It is estimated that this will affect 8% of estates annually.

Business property relief:
From April 2026 there will be reform to business property relief, an important relief which can reduce an individual's IHT bill depending on the assets they own. Currently, this relief is given at 100% of the value of shares held in an unlisted trading company. From April 2026 this will remain the case for the first £1 million of value of the asset held and any amount thereafter will be given relief at 50%. There is also a change to the rate of relief given on shares held in stock which are sold on the AIM stock market - currently, this relief is given at 100%, but in April 2026 this will also change to 50%.

VAT to be charged on independent school fees 

A policy which has been well documented since their election success is the abolition of the VAT exemption on independent schools, which Labour have indicated will raise £9 billion of revenue between now and 2030. It has been reconfirmed today that the addition of VAT will come in for fees relating to school terms from 1 January 2025. If you’re in the position of facing increased school fees and you’d like to explore tax planning around this subject please get in touch with either your lead adviser or the tax team.