Autumn Budget 2024

Sir Keir Starmer and Rachel Reeves promised us a ‘painful’ budget and they sure delivered.

After boxing themselves into a manifesto promise of no tax rises for ‘working people’ on income tax, National Insurance, corporate tax, or VAT, the Government had to look elsewhere for the £40 billion of taxes needed to fill their public finance black hole.

As ever, some of the changes announced by Reeves at the despatch box were broadly expected, while others will require careful long-term financial planning, emphasising the importance of regulated financial advice ahead of more uncertain times to come. We take a look at the most striking changes and what they may mean for clients and advisers.

Inheritance tax (IHT)

The inheritance tax nil rate band threshold was frozen at £325,000 from April 2021, and it was no surprise that it, together with the residence nil rate band, will now remain frozen for the remainder of this Parliament, to April 2030. There were other changes to IHT. From April 2026, the first £1 million of combined business and agricultural assets will continue to not attract IHT, but for assets over this threshold there will be a 50% relief, meaning an effective rate of 20%. The level for shareholdings on the alternative investment market (AIM) also reduced to 50% relief.

On top of this, the Government intends to bring inherited pensions into IHT from April 2027. On paper this sounds like a simple change, but I fear this will be a complicated process to put into practice. Those who have planned based on the current rules may find that this shift in goalposts means they will want to revisit their pension planning with their financial adviser.

Together, these changes are expected to raise a useful £2 billion for the Treasury. However, with house prices still on the rise, it’s becoming increasingly likely that this ‘most-hated’ tax will start to spread its net, and more ‘ordinary’ households will be forced to pay.

Capital gains tax (CGT)

Rachel Reeves confirmed the rate of capital gains tax (CGT) will increase from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers, narrowing the gap between income and investment gains. This is an immediate change – taking effect from today – and may catch some investors on the hop. Financial advisers will have a valuable role to play helping clients cope with these increased rates, by moving more assets into tax wrappers as well as utilising transfers between spouses.

The Chancellor estimates this will raise £2.5 billion by the end of the forecast. However, the jury is still out on whether CGT rises will be the cash cow many think it will be. Instead, it may encourage some to hold onto assets for longer than first anticipated.

Employers’ National Insurance (NI)

One of the most heavily trailed and biggest revenue raisers announced today, employers’ NI is also set to increase. From April, not only will employers see their National Insurance (NI) contribution rate lift from 13.8% to 15%, but the lowering of the secondary threshold – the salary when employers start paying towards an employee’s NI – to £5,000 will supercharge this rise to an even higher level. And although an increase in the National Living Wage will be welcomed by millions of lower-paid employees, the combination of both hikes to the wage bill will place many employers under increasing strain.

Employers of all sizes will have to find ways to accommodate these costs, perhaps by reducing future wage increases, reining in expansion plans, or considering ways to better harness technology like AI to keep bills down.

Stamp duty rates changed

The cost of buying a second (or third, or fourth...) property will increase as a result of changes in the Budget. Anyone buying an additional property to their main residence already faces an additional stamp duty surcharge that’s three percentage points higher. But Labour has now extended this to five percentage points. The change is effective immediately, coming in from 31 October. The move is expected to raise an additional £310 million in tax by the 2029/30 tax year.

Overseas transfer charge on pensions

The government has made a change to the tax treatment of some transfers to a qualifying recognised overseas pension scheme (QROPS), removing the exclusion to the 25% charge if the transfer was to a QROPS in the EEA or Gibraltar, unless the pension saver was resident in the same country.

The change closes a loophole on double dipping on tax-free cash, left over from the abolishment of the lifetime allowance in April, but it could result in pension currency chaos for some overseas retirees.

Triple lock confirmed

This was a move expected ahead of the Budget, but confirmed in the announcement: the state pension will rise by 4.1% from next April. It means the single state pension will increase from £221.20 per week, or £11,502 per year, to £230.30 per week, or £11,975 per year. The increase was pegged to the average increase in earnings, as it was higher than inflation or the fixed 2.5% also included in the triple lock.

Of course, it had already been announced that many pensioners will lose their Winter Fuel Allowance, meaning they will lose the £200 benefit this winter, partially offsetting the increase.

What didn’t happen?

Finally, let me finish with two changes that didn’t happen.

First, the previous government froze tax rate thresholds in April 2021, resulting in an eye-watering tax grab for the Treasury over the past few years. The Chancellor has chosen to thaw these thresholds from April 2028 onwards. However, as that is not for another three years, some clients will still be keen to get help to reduce their taxable income to avoid slipping into the next tax bracket up, through tactics such as pension contributions and gift aid.

Second, in a throwaway line, the Government confirmed it would not go ahead with the British ISA due to a ‘mixed response’ to the recent consultation.

This has been a tough Budget for investors and small business owners. Faced with such a dramatic change to personal finances, many will be calling on their financial adviser for practical solutions to help them weather the upcoming storm.

To stay up-to-date with the latest Budget news as changes happen, head to our Techcentre to find insights from our knowledgeable Technical Team.