Autumn Budget 2024 – What you need to know about Labour's first Budget in 15 years by a first female Chancellor.
Income tax thresholds to increase in 2028
Income tax thresholds frozen by the previous Government in 2021 until 2028 have been defrosted by the Chancellor from the 2028/29 financial year. Finally releasing the dreaded fiscal drag which is pulling millions of people into paying tax for the first time and nearly one million taxpayers into the higher rate tax. The personal tax thresholds for income tax and National Insurance will rise in line with inflation in 2028/29 for the first time since the 2020/21 tax year. It will bring an end to the rapid escalation of people paying more tax at higher rates.
The end of frozen thresholds will give taxpayers more money in their pocket and could avoid dragging pensioners on the state pension only into income tax.
It’s not just the tax on earnings that’s affected. When you start paying higher rate tax, your personal savings allowance shrinks, from £1,000 to £500. It disappears altogether for additional rate taxpayers. You also pay a higher rate of capital gains tax when you cross into paying higher rate tax, and your dividend tax rate rises as you cross each income band.
Higher HMRC interest rates on overdue tax
As part of measures to clamp down on bad payers, the Chancellor said that HMRC will have the power to hike up even further the rates of interest they charge.
The current HMRC rate on late payment is 7.5%, which is 2.5% over the bank rate. Under new proposals this will rise to 4% over base rate from 6 April 2025.
The move is designed to force taxpayers to actually pay their overdue tax bills in a timely manner rather than avoiding payment.
The plan will see HMRC interest rates imposed at an even higher rate than currently charged. With base rates currently at 5%, HMRC charges its own interest rates which are hiked in line with the Bank of England.
The government confirmed it will legislate to ‘encourage taxpayers to pay tax on time by increasing the interest rate charged on overdue tax debts.
The government is also committed to taking stronger action on the most serious tax fraud, including by expanding HMRC’s criminal investigation work and legislating to prevent abuse in non-compliant umbrella companies.
The Budget also sets out the first steps of the government’s longer-term ambition to tighten up non-compliance rules and make the tax system easier to deal with, through making better use of data and raising the standards of tax advisers who interact with HMRC.
The Double cab pickup debacle
The double cab pickup trucks treated as cars again. After mass uproar caused by the previous Government earlier this year when changing double cab pickup trucks to being treated as personal vehicles for tax purposes, Labour has now made further changes to the treatment of these vehicles in the Autumn Budget 2024.
From 1 April 2025 for corporation tax and 6 April for income tax, the government will treat double cab pick-up vehicles with a payload of one tonne [1,016 kilos] or more as cars for certain tax purposes.
The government has acknowledged that the 2020 court decision and resultant guidance update could have an impact on businesses and individuals in a way that is not consistent with the government’s wider aims to support businesses, including vital motoring and farming industries.
The latest Budget clarify that ‘certain tax purposes will impact how double cab pickup trucks are treated when it comes to capital allowances, benefits in kind, and some deductions from business profits.
However, employers who have purchased, leased, or ordered a vehicle before 6 April 2025 will be eligible to use the previous system until their lease ends, discarding the vehicle or up until 5 April 2029.
The benefit in kind and capital allowance changes in particular will have a major impact on the core market buyers of these vehicles.
Landlords - Give with one hand and take with the other
For landlords, this Budget gave with one hand and took away with the other, with good news on capital gains tax, which didn’t move for residential property, but a hike in the stamp duty surcharge. It remains one of the least tax-efficient ways to invest.
Landlords have been fleeing the property market in droves and the trend had been accelerating thanks to fears that capital gains tax on residential property would rise in the budget. This has been allayed with the announcement, which could see some sales fall through.
The rise in the stamp duty surcharge will mean a bigger tax bill when landlords get into property. The ongoing freeze in income tax thresholds and less generous mortgage tax relief means they pay more tax on rent as they go along. Then when they come to sell up, there’s capital gains tax to pay.
What a relief, as tax-free cash remains untouched in Budget
The Chancellor’s decision not to tinker with tax free cash has been greeted with a huge sigh of relief. This is a hugely popular part of the pensions system and any move to reduce it would have severely undermined people’s trust.
Consumer stocks, airlines and banks all gain ground after Budget
We’ve been used to previous Chancellors pulling rabbits out of hats, and the new Chancellor had a few up her sleeve – the biggest being the upcoming change to income tax thresholds. By 2029 fewer people will drift into higher tax bands now that thresholds will be uprated with inflation once again. This tax tweak, coupled with the rise in the minimum wage, will eventually put more money into consumers’ pockets, reflected in retail stocks.
Bank shares have risen on a wave of relief given that there were no plans announced for a bigger levy on profits made in the sector. Although air passenger duty is set to rise by up to £2, airline stocks have headed on a higher trajectory, as the small rise is unlikely to seriously dent appeal for flights. While private jet users who will be hit by a 50% (approximately £450 per passenger) hike are hardly likely to opt for bargain bucket seats, there is an expectation the pent-up demand for travel in the mass market is set to continue.
ISA allowances confirmed to 2030
Providing certainty over allowances until 2030 provides very welcome stability to people’s savings. Rumours before the announcement led investors to fear the worst, so they’ll be breathing a sigh of relief now.
Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2030.
Inheritance tax has been frozen for another two years to 2030
While only 6% of the UK population is affected by IHT, that figure is on the rise. It’s only going to keep increasing now that inheritance tax thresholds have been frozen for another two years. It means heftier tax bills as the value of estates – including property – continues to climb. It means that even those people who are a long way from busting their inheritance tax limit will be anxious about these changes.
The Chancellor agreed to extend the inheritance tax (IHT) threshold freeze for another two years to 2030 – meaning more people will now likely pay IHT in the future.
It means the first £325,000 of your estate (your property, money and possessions) still fall into the nil rate band, so you don’t pay IHT on it.
If your assets include the family home that you’re giving away to children or grandchildren, you also get up to a £175,000 residence nil rate band.
That means you can give away this property up to this value and pay no IHT on that either.
The chancellor also confirmed she will bring inherited pensions into the IHT regime from April 2027.
At the moment, pensions are usually passed on tax free if you die under the age of 75 – or taxed at the beneficiaries’ marginal rate of income tax if you die over 75 – but in most cases pensions don’t attract IHT.
It’s a decision that will upturn many people’s plans as we will see many more people being dragged into paying inheritance tax because their defined contribution pension is now counted as part of their estate.
It’s an issue that won’t be felt as much by those with defined benefit pensions as these cannot usually be passed on.
We’ll likely see a flurry of people revisiting their retirement finances.
The likelihood is we’ll also see people looking to gift more money to loved ones while they’re still alive – for instance money to help people get on the housing ladder.
They might also look to spend down their pensions as retirement income rather than leave them untouched, a move which could keep the rest of someone’s estate below the IHT threshold.
And we could see an increased interest in annuities as people look to secure a guaranteed income while also keeping their estate below the inheritance tax threshold.
Inheritance tax reliefs removed
The Chancellor confirmed reforms to business and agricultural property relief. The new rules will come into effect from 6 April 2026 and will significantly change the current regime. However, the changes are not as radical as originally expected with some reliefs which will be welcomed by businesses and the farming community.
The first £1m for business property and agricultural property relief will be exempt from inheritance tax, covering combined assets, with 50% relief thereafter.
If the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately.
This means the allowance will cover £1m of property qualifying for business property relief, or a combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.
Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.
The measure will affect property in the estate at death, lifetime transfers to individuals in the seven years before death (‘failed potentially exempt transfers’) and chargeable lifetime transfers where there is an immediate lifetime charge, so for example when property is transferred into trust.
The reliefs will be better targeted in future ‘as it is not fair or sustainable for a very small number of claimants each year to claim such a significant amount of relief.
Inheritance tax levied on pensions
Pension pots will be brought into inheritance tax (IHT) for the first time, removing some very favourable tax planning options from 2027.
The generous treatment of pension death benefits has long been considered low hanging fruit for a government in search of cash. It’s a stance that has set it apart from other savings vehicles with the position where a death occurs pre age 75 particularly generous. It’s led to criticism that people were leaving their pensions untouched so they could be passed down the generations in a tax efficient manner rather than being used to provide an income in retirement.
The move will remove the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pension pots and death benefits payable into the scope of inheritance tax from 6 April 2027.
It’s a move that could prove complex and will need changes to trust law to make workable. A much easier solution would have been a return of the so-called “death tax” that existed pre-Freedom and Choice.
It’s a decision that will upturn many people’s plans as we will see many more people being dragged into paying inheritance tax because their DC pension is now counted as part of their estate. It’s an issue that will not be felt by those with defined benefit pensions as these cannot usually be passed on.
This change will drag many more people into inheritance tax and there is less than two years to review current arrangements.
We will see a flurry of people revisiting their retirement finances. The likelihood is we will see people looking to gift more money to loved ones while they are still alive – for instance money to help people get on the housing ladder. They will also look to spend down their pensions as retirement income rather than leave them untouched, a move which could keep the rest of someone’s estate below the IHT threshold.
Promises, promises! Employer NICs hike - The Chancellor increased employers’ National Insurance by 1.2% to 15% from April 2025.
Raising employer National Insurance may not look like the type of change that will impact employees but over time it has the capacity to make a real dent in their financial resilience.
The secondary threshold will be cut from £9,100 to £5,000 which will see higher payments for employers as more staff become liable for NIC payments.
The rise in employers’ NIC will come into effect in April 2025 giving employers time to budget for the increases. However, it will affect the majority of businesses with an unavoidable charge on all PAYE employees.
However, there will be some relief for smaller businesses with an increase in the employment allowance from £5,000 to £10,500 from April 2025.
Amassing extra costs on employers, alongside a planned uplift in the minimum wage will likely result in lower wage increases over the longer term. This will impact people’s day-to-day spending as well as their ability to save for the future. We could also see employers look to restrict the wider benefits they offer due to increased costs.
NIC rates were last at this level in 2022, when the employer element was increased to 15.05% from April 2022, although this was short-lived as the Mini Budget saw this hike overturned.
There is a double hit on employers as a result of changes to employers’ NICs. The increase in headline Class 1 Secondary rate from 13.8% to 15.0% from 6 April 2024 is only an 8.7% increase per se, but coupled with a reduction in the secondary threshold means an actual increase of 25% contribution in respect of an average earner.
With the secondary threshold dropping dramatically to £5,000 if an employee’s gross pay is £30,000 then an employer will see a £865.80 increase in their national insurance costs for that employee.
The increase makes it more expensive for businesses to hire staff and is inconsistent with the Labour government agenda for economic growth.
The consolation for employers is that the national insurance contributions paid is tax deductible.
Chancellor confirms state pension to rise 4.1%
Today’s announcement spells good news for pensioners who can look forward to a 4.1% increase in their state pension from next year. However, the rise will be largely wiped out by the government’s decision to restrict the Winter Fuel payment to pensioners on Pension Credit. With fuel bills on the rise, the loss of up to £300 will be sorely felt and many face a tough Winter ahead.
It's hugely important that if you think you or a loved one may qualify for Pension Credit that you put in a claim. It is an important, but hugely underclaimed benefit that acts as a gateway to other help such as support with council tax and a free TV licence for the over 75s. However, recent government data shows only about two-third of people who could benefit from Pension Credit are claiming it so the government has an uphill struggle on its hands to boost awareness.
VAT on private school fee
From 1 Jan 2025, VAT will apply to all education, training and boarding services provided by private schools.
Stamp duty on second homes increased
From tomorrow, 31 October 2024 stamp duty on second homes to increase by 2% to 5%.
The current 3% stamp duty land tax (SDLT) will increase to 5% from 31 October 2024 on purchases of second homes, buy-to-let properties and companies buying residential property.
On the positive side, the temporary 4% cut in capital gains tax to 24% for landlords will be extended on a permanent basis, instead of ending it in April 2025.
Landlords with several properties held in their own name will welcome the freezing of the CGT rate on the sale of their properties at a maximum of 24% and may well be considering that this is the time to sell.
Purchases by corporate bodies of properties over £500,000 will also be increased to 17%, an increase of 2%. The move signals another hit on the buy to let market.
Immediate changes to Capital Gains Tax
The main rates of capital gains tax (CGT) will be increased. The lower rate of 10% will rise to 18%, while the higher rate of 20% will rise to 24%, to match the residential property rates, which are not changing. The rate increase is not as large as many expected in the tax profession.
Many of those in professional services have been working tirelessly in recent weeks to complete transactions pre-budget day, anticipating an immediate change in the CGT rates.
The 24% CGT means the UK remains relatively competitive compared to other developed countries.
For business asset disposal relief (BADR) and investors relief, these will both increase over time to match the lower rate, being increased to 14% from April 2025, then to 18% in April 2026.
The blow is on top of the slashing of the tax-free allowance over the past couple of years from £12,300 a year in 2022/3 to just £3,000 in the current tax year. Investors also have to cope with the fact that frozen income tax thresholds have pushed more people into higher rate tax automatically pushing up their capital gains tax rate.
According to the Treasury. rules will also be introduced that apply to forestalling arrangements entered into in respect of unconditional but uncompleted contracts before 30 October 2024,
Fuel duty remain frozen
The government is freezing fuel duty and extending the temporary 5p cut for one year.
The 5p cut will be extended for a further 12 months and the planned increase in line with inflation for 2025-26 will be cancelled.
It’s good news for drivers, particularly given how far fuel prices have fallen since the peaks in 2022 that inspired the 5p cut.
However, continual freezing of fuel duty does raise questions about how the country is going to encourage a move to electric vehicles.
Minimum wage to rise 6.7%
The National Living Wage (NLW) for people aged 21 or older will rise by 6.7% from £11.44 an hour to £12.21 from next April. While, for people aged between 18 and 20-years old, National Minimum Wage will rise from £8.60 to £10.
The significant rise in the NLW from April 2025 will be worth £1,400 for a full-time worker over the age of 20, taking the annual salary to £23,809.76 before tax, which is £91.58 a day on a seven-and-a-half-hour shift.
Non-dom status
Creating a simpler residence-based regime. From 6 April 2025, the remittance basis of taxation for those domiciled overseas will disappear.
While the proposals are likely to increase the tax payable by long-term UK residents who are not domiciled in the UK, new arrivals and those planning to come could actually stand to benefit.
In a bid to encourage short-term immigration, the new regime will offer new arrivals 100% relief on foreign income and gains during the first four years of tax residence (“the four-year regime”).
For these purposes, new arrivals will not include anyone who has been a UK tax resident in any of the 10 consecutive years prior to arrival.
For capital gains tax purposes, there will be a transitional arrangement whereby current and past remittance basis users can rebase assets held on 5 April 2017 to the value at that date. Why the rebasing date should be eight years prior to implementation is not explained but given the high inflation rates in recent years, that could prove costly for some.
Foreign income and gains arising by 5 April 2025 to someone charged on the remittance basis will only be taxed when remitted, including remittances made by those who qualify through the four-year regime.
A new Temporary Repatriating Facility is to be introduced for those who were previously taxed on the remittance basis. Income and gains arising prior to the changes, including unattributed foreign income gains held within trusts, will be taxed at reduced rates. In the first two years, the rate will be 12%, increasing to 15% in the last year.
A new residence-based system will also apply for inheritance tax. An individual will be subject to UK inheritance tax on non-UK assets if someone has been resident in the UK for at least 10 out of the last 20 tax years (“a long-term resident”). They will then remain resident for these purposes until between three and 10 years after leaving the UK.
Subject to transitional rules, non-UK assets within settlements will also be subject to inheritance tax when the settlor is a long-term resident.
Overseas Workday Relief will fall into line with these new rules. It will extend to 4 years and cease to be predicated on remittances i.e. those affected will no longer be obliged to keep employment income offshore, usually in an offshore bank account.
However, from 6 April 2025, this relief will be subject to an annual limit of the lower of £300,000 or 30% of an individual’s total employment income.
As a consequential simplification, employers will not need HMRC approval before operating PAYE on the proportion of employment income in respect of work carried out in the UK.
Finally, income tax relief will no longer be available on chargeable overseas earnings from 6 April 2025. These will continue to be taxable on the remittance basis where individuals qualify under the Temporary Repatriation Facility.
In the Autumn Budget, the Chancellor confirmed that Making Tax Digital (MTD) for Income Tax will be introduced.
It will be a legal requirement for those earning over £50,000 as of April 2026 and expanded to those earning above £30,000 in April 2027, with an optional early access programme available from April 2025. The government will expand the rollout to those with incomes over £20,000 by the end of this Parliament, with more details on timings to come. MTD for Income Tax is the biggest change to income tax for a generation.
HMRC improvements
The government re-affirmed its commitment to hiring an additional 5,000 compliance and 1,800 debt recovery individuals within HMRC, meaning tax compliance should be at the forefront of all businesses over the next few years.
This is coupled with investment into HMRCs digital infrastructure to improve HMRC’s efficiency and service delivery and plans to modernise and mandate tax advisor registration.
Alongside these measures also comes commitment to tackling offshore non-compliance by increasing resources and scaling up of compliance activity as well as two consultations: one on options to increase HMRC powers to tackle tax advisors who promote tax avoidances schemes, and the second to review HMRC powers and processes.
Umbrella companies
Umbrella company employers, and those who engage them, have additional concerns. Following years of consultation, the government has committed to tackling non-compliance within umbrella companies and is seeking to impose measures which will push responsibility and potential liability up the chain to the party engaging the umbrella company.
Should you need any assistance with any of the above, please get in touch with us at info@peria.co.uk
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