Autumn Budget Announcements 2024

Over the past three months, speculation and uncertainty about the budget has been rife, creating an uneasy environment for both clients and advisers, and leading some to make premature decisions that may now seem less than optimal.

Unlike previous budgets with dramatic announcements and unexpected changes, yesterday's key tax-raising announcement—a rise in employer National Insurance—was well publicized, as were the headline changes to capital gains tax. The revelation that unused pension funds and death benefits will now be subject to IHT, albeit not until April 2027, adds further complexity to intergenerational planning.

We have summarised some of the key changes below that may impact our clients, and will be presenting any new recommendations in upcoming reviews as we demonstrate the value of financial planning advice.

Capital Gains Tax (CGT)

Immediately from 30th October 2024, the main CGT rates will increase to 18% and 24%, aligning with residential property rates which remain unchanged. The Annual Exempt Amount of £3,000 stays the same. Trustees and personal representatives will pay the higher rate of 24%.

Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rates will rise to 14% from 6th April 2025 and to 18% from 6th April 2026. The lifetime limit for Investors’ Relief will reduce to £1 million, matching the limit for BADR. There are no changes to the CGT uplift on death, which is very positive.

Inheritance Tax 

The inheritance tax thresholds are extended until April 2030, with the nil rate band at £325,000 and the residence nil rate band at £175,000, transferable to surviving spouses. From April 2026, agricultural property relief and business property relief will continue at 100% for the first £1 million of assets, but above this limit, assets will attract 50% relief, paying 20% inheritance tax. Unlisted shares will see a reduction in relief to 50%, resulting in a 20% inheritance tax rate. The inheritance tax service will be digitalised by 2027-28 for a more efficient system.

Pensions

Before the budget, there was widespread speculation that the amount of tax-free cash a person could receive would be reduced. Fortunately, this did not materialise. The main change concerning pensions was instead around the IHT implications.

From 6th April 2027, most unused pension funds and death benefits will now be included in the value of a person’s estate for IHT purposes. Pension schemes will be required to report and pay IHT due. HMRC has launched a consultation to gather views on the process, with a technical consultation on draft legislation planned for 2025.

The income tax treatment of death benefits before and after age 75 is expected to remain unchanged.

In addition, there are changes to the taxation of transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) to close a loophole inadvertently introduced by the abolition of the lifetime allowance. The loophole theoretically enabled an individual to double their tax-free allowances. This loophole was closed by amending the overseas transfer tax charge (OTC) rules. From 30th October 2024, the exemption for the member and the QROPS being within the UK, Gibraltar, or EEA has been removed.

Non-Domicile Abolished

Another big change comes as the government is removing the outdated concept of domicile status from the tax system and replacing it with a new residence-based regime from 6th April 2025. This includes ending the use of offshore trusts to shelter assets from Inheritance Tax and scrapping the planned 50% tax reduction for foreign income in the first year of the new regime. The government will legislate to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence-based regime, effective from 6th April 2025. Individuals who opt into the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence. For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5th April 2017 on disposal, subject to certain conditions.

Overseas Workday Relief will be retained and reformed, extending the relief to a four-year period and removing the need to keep the income offshore. The amount claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income. The government is extending the Temporary Repatriation Facility to three years, expanding the scope to offshore structures, and simplifying the mixed fund rules to encourage individuals to spend and invest their FIG in the UK. A technical note has been published alongside the Budget.

Income Tax 

The government has decided not to extend the freeze on income tax thresholds beyond 2028, meaning they will increase in line with inflation from April 2028. The Starting Rate for Savings will remain at £5,000 for the 2025-26 tax year, allowing those with less than £17,570 in earned and/or pension income to receive up to £5,000 of savings income tax-free.

National Insurance (NI)

In line with the Labour manifesto, recent reductions in individual NI rates were not reversed. However, the rumoured employer increases were announced. Employers will face an increase in the rate of NICs they pay and the point at which they are paid from. Rates will increase from 13.8% to 15% from 6th 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 6th April 2025 until 6th 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 6th 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 5th April 2030. It was also confirmed that the British ISA will not proceed.

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 1st 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% immediately from 31st October 2024. These higher rates apply to purchases of second homes, buy-to-let residential properties and companies purchasing residential property. The additional property surcharge for non-UK residents will remain at 2%.

This change aims to support first-time buyers by making it more financially challenging for investors to purchase additional properties, however the relief for first time buyers that was increased in 2022 will be reverting back from April 2025. This means that the first £300,000 will be exempt as long as the total property price is no more than £500,000, down from the current £425,000 / £625,000 figures.

Also reverting back to the rates from 2022, the threshold at which buyers start to pay stamp duty tax is returning to £125,000 from the current £250,000. The value between £125,000 and £250,000 will be chargeable at 2% from April 2025.

Minimum Wage

Announced ahead of the Budget, minimum wages will rise for all over 21 from 6th April 2025. The minimum wage for over 21s (known officially as the National Living Wage), will rise by 6.7%, from £11.44 to £12.21.

For 18 to 20-year-olds, the minimum wage will rise from £8.60 to £10.

Apprentices will get the biggest pay bump, from £6.40 to £7.55 an hour.

State Pensions

The State Pension is expected to rise by 4.1% in April 2025. The Government will continue to honour the ‘triple lock’.

Fuel Duty

No increase to fuel duty for next year, this will be frozen again, as well as honouring the 5p cut for another year.

This document is the opinion of Velarium Wealth and contains our understanding of the latest Government Budget Statement as of 30th October 2024 that we feel is relevant at the current time. This document has been prepared for general information only and is not guaranteed to be complete or accurate. It does not contain all of the information which an investor may require in order to make an investment decision.