We all knew tax increases were coming in today’s Budget and there were plenty. According to the OBR, the different increases to separate taxes will raise an extra £40bn for the Treasury.
Labour is justifying these increases as essential to the achievement of its goals of bringing stability to public finances, rebuilding public services, and growing the economy. We will have to wait and see.
Our roundup of today’s Autumn Budget 2024 highlights exactly what tax changes were announced, who they impact, and when they will become effective. On reflection, things could have been a lot worse; many of the increases were significantly lower than some experts were predicting.
This article outlines what we know for now. We have divided the Budget announcements into three categories; those affecting businesses and private individuals and a separate category for capital gains tax, since this has dual implications due to business asset disposal relief.
Read on to find out what’s coming.
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Personal taxation – Budget changes
Changes to inheritance tax and reliefs
Described by Rachel Reeves as providing a balanced approach, the reforms unveiled to inheritance tax (IHT) are estimated to generate £2bn. There were four key points raised:
- The freeze to current inheritance tax thresholds of £325,000 was extended for a further two years, until 2030. This policy was due to expire in 2028 under the fomer Tory government.
- The additional IHT residence relief of 175,000 per taxpayer covering the bequest of a principal residence to immediate family members, introduced by the previous government, is also being retained, as is the full surviving spouse relief.
- From April 2027, inherited pensions will no longer benefit from IHT exemption and will be subject to inheritance tax.
- Full tax relief on the inheritance of agricultural land and family businesses is being subjected to a £1m combined cap of 100% relief; values in excess of this amount will only benefit from 50% relief from April 2026. AIM shares will be fully taxable, subject to 50% relief. This sets the effective rate of IHT at 20% for relevant business and agricultural estates on values over £1m, and at 20% for all AIM shares.
Fiscal drag to continue increasing income taxes
As promised in Labour’s election manifesto, there were no increases to the main rates of income tax in the Budget today. This includes no increases to the personal allowance thresholds, which had been frozen until 2028 by the previous government.
Rachel Reeves is continuing with this policy of frozen thresholds, but she has stated that personal allowances will be updated in line with inflation in 2029.
From April 2025, the minimum hourly wage for a full time worker aged over 21 will increase to £12.21 and for workers aged between 18 and 20 years it will increase to £10.00 per hour.
This means that despite all the fanfare about taxes on working people not increasing in this Budget, they are effectively increasing; simply by virtue of inflation related price increases and the much-applauded increases to the national minimum wage, all of which remain fully taxable above the previous personal allowances.
Abolition of non dom regime
There was an element of ‘will they or won’t they’ surrounding Labour’s policy regarding non domiciled individuals. Their election manifesto stated unequivocally that non-dom status would be abolished, but recent media reports suggested there may be a review of the original policy.
From today, it is official. The current non dom tax regime is being abolished – Rachel Reeves has said that she will be completely “removing the concept of domicile from the tax system starting from April 2025”.
Instead, it will be replaced with a residence based scheme, but no specific details are available currently, apart from those already announced by the previous government.
Increases to stamp duty for additional property investors
Stamp duty was another area of tax where steep rises were expected and this anticipation proved correct. The Tory party had already introduced a 3% stamp duty surcharge for buyers purchasing additional property and this is being increased to 5%.
This change becomes effective immediately, from October 31 2024, giving would-be purchasers no opportunity to take advantage of a grace period.
There may be other aspects of SDLT that are being reformed in the Budget, but no details are currently available.
VAT charged on private school fees
The controversial but very widely expected policy of VAT being charged on private school fees will go ahead from January 2025. In addition, private schools will no longer be able to claim business rates relief. We have already written multiple articles about how to mitigate these increases and you can review our suggestions here.
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Business taxation – Budget changes
Increases to employers’ NICs
One of the most widely anticipated changes unveiled in today’s Budget, employers’ national insurance contributions (NICs) are to increase by 1.2 per cent from April 2025. This will bring the main rate up to 15%, which is expected to generate £25bn in tax revenues.
Two other employers’ NIC changes are being introduced. These were promoted as being beneficial for smaller business owners. They are as follows:
- The secondary threshold, which is the rate at which employers must start to pay NI on an employee’s salary is reducing. It will be cut from £9,100 a year to £5,000 from April 2025.
- The employment allowance is increasing from £5,000 to £10,500 from April 2025, to support the smallest SMEs with hiring costs.
According to Rachel Reeves, these two developments mean it will be possible for some SME businesses to employ four full time workers each earning the minimum wage, without having to pay any employers’ NICs.
Certainty over current corporation tax rates
Rachel Reeves announced a “corporate tax roadmap” which is intended to offer businesses more certainty over their financial planning in the long term. As part of this, corporation tax rates are to remain at the current rates (25% for profits over £50,000 or 19% for profits under £50,000) until the end of this parliamentary period.
In addition, current corporation tax relief schemes offering full expensing in the first year, the AIA (annual investment allowances) and the existing R&D tax credit schemes will be continuing unaltered for the time being.
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Reforms to capital gains tax – affecting individuals and business owners
Pre-budget speculation suggested that rates of capital gains tax would be increasing to match income tax rates, or alternatively to 30%. As expected, the rates will increase both immediately and from April 2025, but not by as much as feared. When the changes come into effect, the UK will still have the lowest capital gains tax rate of any European G7 economy.
The following key changes to CGT were announced:
- The lower 10% rate of capital gains tax will increase to 18% for all categories of asset disposal;
- The higher rate of capital gains tax for all non-property disposals will increase from 20 to 24%.
- The rates for residential property gains will be maintained at 18% and 24%.
These changes mean that the previous regime of having a higher CGT rate for residential property gains is being abolished; there will be a single rate of CGT for all gains, differing only according to income levels.
More positively, the current business asset disposal relief (BADR) regime will continue, although not so positively, the actual tax rates will change:
- The first £1m of qualifying gains will be taxed at 10% in the current tax year;
- Increasing to 14% from April 2025;
- And further increasing to 18% from 2026/27.
This means that whilst the lifetime relief limit of £1m at 10% remains for the current tax year, there is still an incentive for business owners to sell up before next April.
Reforms to CGT for private equity fund managers
Taxes on the personal profits made by private equity fund managers are to increase to 32% from April 2025. This affects the carried interest or ‘carry’ made when a fund manager sells the assets from an investment fund, the profits from which are treated as a capital gain rather than income. Further reforms to the taxation of carried interest are to be introduced to ensure the tax on these profits are ‘simpler, fairer, and better targeted’
Many people expected this rate to increase to match the highest income tax rate of 45% so this announcement is better than anticipated, but is perhaps only temporarily.
Tax advantaged EIS and VCT schemes to continue
Although CGT being paid by fund managers on their gains is increasing, the Budget announcements confirmed that the existing rules for Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) are being extended until 2035. This gives both investors and entrepreneurs longer term certainly and aligns with Labour’s desire to give high growth, innovative businesses a much-needed boost.
Other developments in the Autumn Budget
Electric car tax
Tax reliefs and incentives on fully electric cars purchased through a company car scheme will remain at current levels until 2028. This is not surprising given recent news reports that demand for EVs is falling, with some manufacturers closing their plants.
Flight duty
Air passenger duty will increase by a modest amount on international flights, making the average short haul journey £2 more expensive. Private jet travel is being taxed more aggressively with the air passenger duty on a flight by private jet increasing by 50%.
Business rates
Tax relief on business rates in the retail, hospitality and leisure industries will be continuing at 40% in the 2025/26 tax year. Rachel Reeves added that there were plans in place to offer “permanently lower tax rates for retail, hospitality and leisure” in the future, including business rates. Details on this are not yet available.
Fuel duty
There will be no increase to fuel duty, continuing with the Tory’s existing tax policy. The fuel rates have been frozen for another year.
Investing in HMRC systems and people
It’s one thing to increase taxes, but making sure taxpayers are paying them is another. Today’s Budget also confirmed that Labour will be investing in modernising HMRC’s systems and boosting staff levels, in a bid to ensure they are receiving all the tax revenues due. The government has also pledged to clamp down on umbrella companies, charge more interest on outstanding tax debts and aggressively target the promoters of tax avoidance schemes.
What’s next?
That’s all we know for now about what was announced in Rachel Reeves’ first Budget today. Over the coming weeks as more details become available, we will be exploring the finer points of what has changed and how it will affect our clients.
Keep an eye out for our future articles offering more information.
In the meantime, if you have any concerns or questions about the tax changes to come, please contact us via partners@rjp.co.uk.