Autumn Budget 2024 – The key changes

After 117 days of speculation and a vacuum of information since the change of Government, we finally have some official information.

We were expecting this budget to be “tough”, with much speculation about what tax rises would be announced. The Labour manifesto put some really tight constraints on what the Chancellor can do, not just in this budget but for the next five years , yet the easiest way for a government to increase tax is to increase Income Tax or National Insurance.

Last year, Income Tax represented over 25% of the tax income for the Government, National Insurance (both Employers and Employees) was over 16%. Since then, however, the previous government cut the rates and then the Labour manifesto has restricted the new government reversing any of those recent cuts. The result is lots of tinkering around the edges of the tax system!

This Budget felt like one that had a longer-term plan, albeit with some hard and possibly unpopular choices. While there are increases in taxes for businesses, some of the non-tax changes may help businesses recruit more employees who are willing to do the work. Will Rachel Reeves keep us a few moves ahead? Only time can tell.

While we still need to go through all the small print, we can finally confirm what is changing in the tax system:

Tax changes coming into force at midnight tonight:   

• Stamp Duty Surcharge payable on purchases of second homes or rental residential property, or on purchase of a residential property by a company, increases to 5%
• Capital Gains Tax Rates increase to 18% for gains within your basic rate band and 24% for gains beyond this, aligning the main rates with the CGT rates applied to Residential Property CGT
• Business Asset Disposal relief remains as is for rest of this tax year

Tax changes coming into force from April 2025: 

• Employers National Insurance to increase to 15% (from the current 13.8%), with the charge applied on employees earning £5,000 or more

• Employers National Insurance “Employment Allowance” increased to £10,500 and removal of the cap which restricted eligibility for relief to employers with total NI bills below £100k. This increased relief offsets some of the increase NI charge for smaller employers

• The National Living Wage will increase by 6.7% for employees 21 and over (rising to £12.21 per hour)

• Business Asset Disposal Relief (BADR) remains available on the first £1m of gains from the sale of a business, but the rate of charge will increase to 14% from 6 April 2025 and to 18% from 6 April 2026

• Inheritance Tax (IHT) changes mean that that value of a pension passed to descendants on death will be included in the estate for the purposes of Inheritance Tax

• Business Property Relief (BPR) and Agricultural Property Relief (APR) changes mean that only the first £1m of assets in these classes within your estate will be Inheritance Tax free.  Relief at 50% will then be applied to any excess value.  This highlights the need for planning how your business would survive the death of a business partner

• The current system of UK taxation for people resident in the UK but domiciled elsewhere will be replaced with new rules from April 2025.  There is sure to be a lot of complex legislation to follow regarding this and we will keep you updated

Other items:

• The freeze on Personal Allowances and tax bands will be removed from April 2028 with future increases to be made in line with inflation

National Insurance Changes

Interestingly, the increase in Employers NI after allowing for Corporation Tax relief means that the net Employers NI charge is around 11%, which is roughly the same as it was when NI was 13.8% and Corporation Tax was 19%.

An example of the impact of the increase in the Employers NI change is that an employee on a salary of £35,000 will cost £925 more per year in NI, before adjusting for the Corporation Tax saved and any impact of the increased Employment Allowance.

For owner managed businesses where directors take a small salary and the rest of their income as dividends, this remains a tax efficient drawing structure with no changes announced with regards to dividends tax rates.  However, it should be noted that director’s salaries of £12,570 per year will incur £1,135 of Employers National Insurance (around £95 per month) if there is no Employment Allowance available to offset this. Reducing the directors pay to £5,000, so as to not incur Employers NI, would lose entitlement to the NI ‘stamp’, meaning a director on this level of salary would lose a year’s contribution for NI and towards future state pension and benefit entitlements.

Note that the Employment Allowance is only available to businesses that are not related to another (i.e. they don’t share owners or directors who also control another business) and it is only available for businesses that have more than one employee. Single director PAYE schemes will therefore still be excluded from this relief.  Additionally, if you run more than one business then you will need to choose carefully which business you elect to claim the Employers Allowance for. You can only claim it on one PAYE scheme and if it is not fully used the balance cannot be used under a different PAYE scheme.

Changes to IHT and Pensions

While it is thankful that there was little change to pensions, the one big change was that pension values passed to others upon death will become taxable in the estate from April 2025.  This has a big impact on the value of a pension in terms of estate planning. We will need to investigate more of the detail when it is released, but it will most likely mean that combined retirement and death planning will need to be revisited for many.

Pension contribution limits remain unchanged, being £60,000 or, if lower, capped to your earnings per year and retain their existing tax treatment for individuals and employers.

Business Exit Planning

The changes to Capital Gains Tax (CGT) will mean that more is lost to tax on the sale of a business. Business Asset Disposal Relief (BADR), as Rishi Sunak brought in in March 2020, remains available on the first £1m lifetime disposals. However, the rate of charge increases from 10% to 14% from April 2025 and then up to 18% from April 2026, to bring it back in line with Basic Rate CGT charges.

The rate almost doubles within two years and should be factored into any exit planning that you are undertaking.  For some this might mean a slight acceleration of exit plans, but in most cases the timing would likely still be based on optimising the value on sale rather than the rate that applies and when.

Here, we have a more detailed analysis of the impact. We discuss:

With the increase to Employers NI…

How can you bring senior team members as partners and owners of the business?

What impact does inflation have?

The best drawing structure for Limited Companies

Pension planning

Things to consider when Inheritance Tax Planning