Autumn Budget 2024

Over the past three months, the financial landscape has been marked by relentless speculation and uncertainty. This has created an uneasy environment for clients and advisers, with some individuals making pre-emptive decisions that now look far from optimal. The run up to today’s budget has been more challenging than any other we can remember.  
    
The anticipation of today's budget has been palpable, with many hoping for a return to stability and predictability. Unlike previous budgets, featuring dramatic announcements and unexpected changes, today's main tax raising announcement of a rise in employer National Insurance was well publicised. As were the headline changes to capital gains tax.  

The revelation that unused pension funds and death benefits will now be within the IHT net, albeit not until April 2027, adds additional complexity to intergenerational planning. No doubt this is another opportunity where financial advisers will be able to show their worth to clients. 

Income Tax 

Although a two-year extension to frozen income tax thresholds was anticipated, the government have decided they will not extend the freeze beyond 2028. From April 2028, these will once again increase in line with inflation.  

The Starting Rate for Savings will remain at £5,000 for 2025-26. This allows individuals with less than £17,570 in earned and/or pensions income to receive up to £5,000 of savings income tax free. 

Capital Gains Tax (CGT) 

As expected, the main rates of CGT are increasing to 18% and 24% respectively and with immediate effect – for disposals on or after 30 October 2024. These new rates now align to residential property rates, which were confirmed to remain unchanged. The £3,000 Annual Exempt Amount remains unchanged. Trustees and personal representatives will pay the higher rate of 24%. 

In addition to the main rates, there are two reliefs which offer access to a lower rate of CGT. These are Business Asset Disposal Relief (BADR), and Investors’ Relief (IR). The rate for both BADR and IR will rise to 14% from 6 April 2025 and then to 18% from 6 April 2026.  

In addition, the lifetime limit for Investors’ Relief will be reduced to £1 million, matching the lifetime limit for Business Asset Disposal Relief.  

There was no change to the rumoured CGT uplift on death. 

Inheritance Tax 

The current inheritance tax thresholds were already frozen until April 2028, and it was announced that this will be extended for a further two years to April 2030. Therefore, the nil rate band of £325,000 and residence nil rate band of £175,000 will be in place for another 5 years.  Qualifying estates can continue to transfer unused nil rate bands to surviving spouses enabling up to £1million of wealth transfer without an inheritance tax liability. 

In addition, the government will reform agricultural property relief and business property relief from April 2026. In addition to the nil rate bands above, the 100% relief on qualifying agricultural and business assets will continue but will be limited to the first £1million of combined assets. Above this limit, agricultural and business assets will attract 50% relief, paying 20% inheritance tax.  

Unlisted shares (AIM for example) will also suffer a reduction in the relief they receive. Instead of 100% relief on qualifying shares, the rate of relief will be 50% resulting in a 20% rate of inheritance tax.  

To help with the increasing inheritance tax burden, the inheritance tax service will be digitalised from 2027-28 to provide a modern, easy-to-use system, making returns and paying tax ‘simpler and quicker’. 

For details on changes to IHT on pensions – see the Pensions section below.

National Insurance (NI) 

In line with the Labour manifesto, recent reductions in individual NI rates avoided being reversed.  

However, the rumoured Employer increases were announced. Employers will face an increase in the rate of NICs they pay and the point in which they are paid from. Rates will increase from 13.8% to 15% from 6 April 2025. The Secondary Threshold (the point at which employers become liable to pay NICs) on employees’ earnings will reduce from £9,100 a year to just £5,000 a year from 6 April 2025 until 6 April 2028, and then increase by CPI thereafter. 

To help smaller businesses with this additional cost, the Employment Allowance will be increased from £5,000 to £10,500. The £100,000 threshold for eligibility will also be removed, expanding this to all eligible employers with employer NICs bills from 6 April 2025.  

Individual Savings Account (ISA)  

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. 

It was also confirmed that the British ISA will not proceed.  

Pensions

Before the budget, speculation was rife that the amount of tax-free cash that a person could receive would be reduced. Fortunately, this did not come to fruition. The changes in relation to pensions were: 

Unused pensions funds and death benefits subject to IHT 
The most significant announcement was that, from 6 April 2027, most unused pension funds and death benefits will be included in the value of a person’s estate for IHT purposes. 

It is intended that pension schemes will be required to report and pay IHT due. HMRC have launched a consultation to seek views on the process, which they will respond to and carry out a technical consultation on draft legislation in 2025. However, our initial reaction is that, from April 2027, the time taken to pay claims could be materially increased because of information exchanges between a pension scheme and the personal representatives of the deceased’s estate. 

In summary 

• The change will apply to both defined contribution and defined benefit registered pension schemes, and to Qualifying Non-Uk Pension Schemes (QNUPS).  A small number of pension benefits will remain outside the scope of IHT including dependants scheme pensions and charity lump sum death benefits. 

• The income tax treatment of death benefits before and after age 75 appear to apply as they do today. 

• Any IHT charge due will be calculated and deducted from unused funds and death benefits first. For deaths post age 75, beneficiaries will then be subject to income tax, at their marginal rate, on the remaining funds whether taken as a lump sum or pension income. Similarly, for pre-age 75 deaths, any lump sums paid after 2 years are subject to marginal rates of income tax. 

• It is proposed Pension Schemes will have to meet the deadline of paying the IHT charge within 6 months of the end of the month in which the death occurred. After this point late payment interest begins to accrue on the IHT due from the pension funds. 

• All life policy products purchased with pension funds or alongside them as part of a pension package offered by an employer are not in scope of the changes. 

Reducing tax-free overseas transfers of tax relieved UK pensions
Taking effect immediately, there are changes to the taxation of transfers to Qualifying Recognised Overseas Pension Schemes QROPS to close a loophole that was inadvertently introduced by the abolition of the lifetime allowance. That loophole theoretically could enable an individual to double their tax free allowances. The loophole was closed by amending the overseas transfer tax charge (OTC) rules.  

Currently, a tax charge, known as the overseas transfer charge, is applied on funds transferred from a registered pension scheme to a QROPS. There are exemptions to the tax charge if you met any of the following: 

• Both the member and the QROPS are in the same country. 

• Both the member and the QROPS are within the UK, Gibraltar or European Economic Area (EEA). 

• The QROPS is provided by the members employer. 

From 30 October 2024, the exemption for the member and the QROPS being within the UK, Gibraltar or EEA has been removed. 

Other points of interest 

VAT on private school fees
As widely expected, fees for private education services will be subject to VAT at the standard rate of 20% from 1 January 2025. This will also apply to boarding services provided by private schools.  

Local authorities and devolved governments that fund places for pupils with special educational needs, will be compensated for the VAT they are charged on those pupils’ fees to ensure the continued needs of these pupils are protected. 

Stamp duty
It was announced that there would an increase in the higher rates for Additional Dwellings of Stamp Duty Land Tax from 3% to 5% from 31 October 2024. These higher rates apply to purchases of second homes, buy-to-let residential properties and companies purchasing residential property. The policy intent is that those looking to move home or purchase their first property will have a comparative advantage over those purchasing additional property. 

Those who exchanged contracts prior to 31 October 2024 are not affected by this rate increase.

Furnished holiday lets
As previously announced in the Spring budget, the beneficial treatment over other property businesses will be removed for furnished holiday let landlords in 4 key areas by: 

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for Income Tax 
• removing capital allowances rules for new expenditure and allowing replacement of domestic items relief 
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets 
• no longer including this income within relevant UK earnings when calculating maximum pension relief

The measure will have effect from April 2025. 

High Income Child Benefit Charge (HICBC) 
It was announced that the government will not proceed with the reform to base the HICBC on household incomes.  

To make it easier for all taxpayers to get their HICBC right, the government will allow employed individuals to pay their HICBC through their tax code from 2025 as well as pre-prepopulating Self-Assessment tax returns with Child Benefit data for those not using the tax code service.  

Corporation tax
A Corporate Tax Roadmap has been published. This includes a commitment to cap the Corporation Tax Rate at 25% as well as maintaining the Small Profits Rate and marginal relief at current rates and thresholds.  

Strengthening the regulatory framework in the tax advice market
Also announced in Autumn Budget 2024, the government has published a summary of responses to the Raising standards in the tax advice market: strengthening the regulatory framework and improving registration consultation and is considering options to strengthen the regulatory framework of the tax advice market. 

Tax Table