AUTUMN BUDGET 2024: Did Halloween come early?

Autumn Budget 2024 – Did Halloween Come Early?

In her inaugural Labour Budget on 30 October 2024, Chancellor Rachel Reeves presented a comprehensive plan aimed at addressing a significant £22 billion fiscal black hole while striving to restore stability and enhance public services. The Budget anticipates a £40 billion increase in tax revenue, raising important questions for both individuals and businesses regarding its implications.

For individuals

From April 2025, the National Living Wage (NLW) will increase from £11.44 to £12.21 per hour, benefiting over three million workers. The National Minimum Wage (NMW) for workers aged 18 to 20 will also rise from £8.60 to £10.00 per hour—a significant increase of 16.3%.

One of the key aspects of the Budget is the decision to maintain Income Tax rates, adhering to Labour's manifesto promises. The government will not extend the freeze on income tax thresholds beyond April 2028, when they will finally adjust for inflation. However, National Insurance contributions are set to rise significantly; the Lower Earnings Limit will increase by 1.7%, while the Small Profits Threshold will reach £6,845 per annum. For those voluntarily contributing, Class 2 and Class 3 NICs rates will also see an increase.

A pivotal change is the abolition of the non-domicile regime starting in April 2025. This transition to a residence-based system allows individuals to avoid UK tax on foreign income for their first four years in the country, promoting fairness in contributions.

Capital Gains Tax (CGT) is undergoing substantial revisions as well. Effective immediately, rates for basic rate taxpayers will increase from 10% to 18%, while higher earners will see an increase from 20% to 24%. These adjustments align CGT rates for non-residential assets with those for residential property. The lifetime limit for Business Asset Disposal Relief remains at £1 million, but relief rates will gradually rise over the next two years.

In addition to CGT changes, the Budget introduces a stamp duty surcharge on second homes and buy-to-let properties in England and Northern Ireland, increasing from 3% to 5%. This change aims to reduce investor demand in the housing market, potentially giving first-time buyers a better chance at purchasing homes. However, it could also lead landlords to raise rents as they adjust to increased costs. Furthermore, thresholds for paying stamp duty are set to revert to previous levels in April 2025, which may impact approximately 20% of first-time buyers who currently benefit from no stamp duty.

Individuals who need to complete self-assessment tax returns—such as sole traders or private individuals with investments—will also feel significant effects from this Budget. High-net-worth individuals (HNWIs) should be particularly vigilant about potential reforms targeting their wealth through changes in Capital Gains Tax (CGT), Inheritance Tax (IHT), and pension legislation.

Simon Boxall, Tax Director at Ward Williams Accountancy Firm, emphasises caution among high-net-worth clients stating: “With no changes to Income Tax rates and a commitment to uprate thresholds in line with inflation, the Budget reflects a cautious approach. High-net-worth individuals, especially those holding second homes, must remain vigilant in their tax planning.” He continues: “The recent abolition of the non-domicile regime starting in April 2025 will significantly impact their tax liabilities on foreign income and assets. Additionally, changes in Capital Gains Tax rates and potential increases in property-related taxes may affect decisions around property investments. It's essential for these individuals to navigate these complexities effectively to protect their wealth and ensure compliance in this evolving fiscal landscape.”

As CGT rates rise and thresholds are adjusted back toward original levels in April 2025—potentially impacting around 60% of first-time buyers who currently pay no stamp duty—individuals with investments must reassess their strategies accordingly. Additionally, HNWIs may face increased scrutiny regarding their tax compliance as Labour aims for greater transparency in wealth taxation.

The inclusion of pensions in inheritance tax calculations starting in April 2027 adds another layer of complexity for those planning their estates. Currently valued estates above £325,000 do not include pension savings; however, this change could bring more estates into IHT liability as pension pots become part of taxable assets upon death.

Interestingly absent from the Budget were anticipated changes regarding pensions. Despite this lack of formal revision, salary exchange schemes remain effective tools for reducing employers' NIC costs. By linking these exchanges to low-emission vehicles and pension contributions, employers can achieve meaningful savings in light of increased NIC rates.

Significant reforms in estate planning were also announced. Agricultural Property Relief (APR) and Business Property Relief (BPR) will now grant 100% relief on the first £1 million of combined eligible assets but only 50% relief thereafter. Furthermore, a new residence-based system for Inheritance Tax (IHT) will replace outdated offshore trust regimes from April 2025.

Of particular note is that pensions will be included in inheritance tax considerations starting in April 2027. Currently, inheritance tax is paid if an estate is valued at more than £325,000; however, any money saved in a pension does not count towards this threshold. Anyone who dies before age 75 can usually pass on what remains of their pension savings tax-free as a lump sum or income; if they are 75 or older when they die, their pension money can still be passed on but may be treated as income subjecting beneficiaries to income tax liabilities. Starting April 2027, inherited pension pots will be included in IHT calculations—potentially bringing more estates into tax liability.

Such changes necessitate a careful review of estate planning strategies.

"With pensions now entering the inheritance tax framework," advises Malcolm McKinnell, Estate Planning Director at Ward Williams, "individuals must reassess their estate plans." He continues: "This inclusion could significantly impact how families manage their wealth transfer strategies."

McKinnell further emphasises that "the Budget's extension of the freeze in Inheritance Tax thresholds and the proposed reforms to the treatment of pensions and business assets highlight the importance of proactive estate planning. Individuals must consider how these changes impact their legacies and ensure their estates are structured effectively to minimise tax liabilities."

Individual taxpayers must navigate changes in CGT rates that have risen from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. This shift prompts individuals to reassess their capital gains strategies ahead of these new rates taking effect.

For Businesses

For small and medium-sized enterprises (SMEs), the increase in the National Living Wage (NLW) from April 2025 to £12.21 per hour - a significant increase of 16.3% and the recent increase in employers' NICs from 13.8% to 15%, effective from 6 April 2025, presents challenges. The threshold at which employers begin paying NICs will decrease from £9,100 to £5,000 per year. However, the doubling of the Employment Allowance from £5,000 to £10,500 offers some relief by potentially exempting those with fewer than four employees from liability.

"While some small-sized businesses may find some relief from the increased Employment Allowance, employers will face significantly increased taxation costs from April 2025 due to National Insurance rising to 15% and the reduction of the secondary National Insurance threshold to £5,000," says Andy Webb, Business Services Director at Ward Williams Accountancy Firm. "This works out to an extra £615 per employee on the first £9,000 of earnings. These changes place an additional financial strain on businesses that are already navigating a tough economic landscape."

"While the increase in NICs is concerning for many SMEs, we believe that leveraging salary exchange schemes can help mitigate these costs," he adds. "These schemes not only reduce NIC liabilities but also promote environmentally friendly practices by encouraging low-emission vehicle use."

Larger businesses are also facing significant implications from this Budget. The adjustments in employers' National Insurance contributions and the upcoming increase in the minimum wage will lead to higher employment costs. Colin Hamilton, Corporate Services Director at Ward Williams Accountancy Firm, notes that "the main takeaways from the Budget for larger companies will be the additional employment costs stemming from changes to employers' National Insurance and the increase in the minimum wage." He adds that "as larger businesses strive to manage these rising costs, end users may see an increase in prices for goods and services as companies seek to recoup their expenses. This Budget highlights the need for more substantial support to ensure that businesses can continue to thrive in a challenging economic environment."

From a corporate perspective, this Budget also reinforces commitments related to research and development (R&D). Katherine Van Eyken, Corporate Tax Director at Ward Williams Accountancy Firm, states that "the new Budget’s Corporate Tax Roadmap seeks to reassure businesses that the government’s approach to key features of the Corporate Tax landscape remains unchanged." She continues: "However, multinationals should note future international reporting obligations alongside transfer pricing scrutiny promised consultations."

Individuals who need self-assessment tax returns—such as sole traders or private individuals with investments—are particularly affected by CGT rate increases starting immediately. High-net-worth individuals (HNWIs) must navigate complexities around property-related taxes while ensuring compliance given the abolition of the non-domicile regime affecting foreign income assets post-April ’25.

As Chancellor Reeves outlined her vision for addressing public service needs through targeted investments funded by these new tax measures, questions linger about whether Labour can deliver on its promises without stifling economic growth. With taxpayers facing their highest burden in decades amidst rising living costs and stagnant public services, patience may wear thin if tangible improvements do not materialise soon.

The Autumn Budget presents a challenging yet crucial path forward for both individuals and businesses navigating this new fiscal landscape. For those seeking clarity on how these changes may affect their financial strategies—whether through self-assessment tax returns or corporate tax planning—staying informed and seeking expert guidance will be essential in adapting to this evolving environment.

Phil Grainger, Managing Director at Ward Williams views the Budget as a mixed bag: "As a firm committed to supporting our clients and employees, we see this Budget as a mixed bag. While some measures provide immediate relief, we urge the Government for more strategic investment plans that will enable us to better serve our clients and foster a thriving workforce."

At Ward Williams Accountancy Firm, we are committed to providing our clients with insights and support during this period of change. Our team is here to help you navigate these developments effectively and ensure that your financial strategies align with current regulations. For information please get in touch. Talk to one of our team on 01932 830664 or email enquiries@wardwilliams.co.uk.