The Autumn 2024 Budget

I expect further analysis to be necessary, here are some of the initial Autumn Budget highlights. I think firstly there is some good news. The tax-free cash from pensions has not been abolished (I didn’t think it would be).

The Taxman on Steroids

Whatever your political persuasion, the Government is raising an extra £40bn and raising an estimated £1,229bn in 2025-26. One might conclude that all the fuss amounts to a total increase of 3.3% which isn’t that far off the rate of inflation. This merely fuels my general, (admittedly cynical) belief that a Budget is a bit like rearranging the deckchairs on the Titanic. Is ‘the system’ fixed? and will it benefit the nation? are always the questions without answer.

What we do know is that Labour are going to ramp up tax collecting, which in truth is probably a continuance of previous Conservative policy. By the end of November 2024 there will be 200 new HMRC compliance staff, with the intention of creating 5,000 new compliance jobs at HMRC. This is part of the strategy to collect more of the unpaid tax (tax gap) that is owed. HMRC are also launching an app for your phone. HMRC do have powers that enable them to take money from your account and I would expect to see more of this sort of thing occur for frequent late payers.

Similarly, Labour will be aggressively going after those who cheat the welfare state, with fairly tough consequences for those who are caught.

Inheritance Tax

Agricultural property relief and business property relief will alter from April 2026. These will retain 100% relief from inheritance tax up to £1m but thereafter be subject to a 20% inheritance tax rate (half the actual rate). So this is probably a better result than many feared, but there cannot be many agricultural properties worth much below £1m. The reduced IHT exemption will also apply to AIM shares (a commonly used but very high risk tool used by some within the sector) which will inevitably now be less appealing.

Surprisingly, there has been some certainty provided in that the Nil Rate Band of £325,000 is now secured until 2030 as is the Main Residence Relief Rate of £175,000 for estates up to £2m. There is no inheritance tax between spouses.

Farmers will certainly be caught by the changes and I wonder if there may be an amendment for smaller farms (sub £5m in value). It isn’t a good idea to upset those who provide our food and rural management, but it is evident to many that some are considerably more prosperous than others and shouldn’t be totally exempt from IHT.

Pensions

Sadly but not unexpectedly, your unused pension pots will begin to be part of IHT assessment for anyone who dies after 5^th April 2027. Currently, unused pension pots are exempt from IHT, but this will end in two and bit years time. This may change some strategies for leaving your pension pot as long as you can, but we have time to make adjustments if necessary. This slight change in policy was always expected and remains one of the many reasons for keeping your retirement provision under review.

The truth is that this will create more administration for Probate which will likely increase the time that the process takes. It is also yet another opportunity for HMRC to learn the value of your pension assets.

Tax-free cash on pensions remains as it was, as does the tax relief on contributions (the latter being a surprise to me). As ever, it rather suggests that you really shouldn’t listen to ‘news’ reports, which are sadly driven by ideology rather than actual facts.

I cannot find anything about changes to Lifetime Allowance, Annual Allowance or Small Pensions rules in the 164 pages of the report. Indeed, it is confirmed that there are no other changes to existing pension rules and allowances, except for offshore pensions, which you do not have anyway! This impacts QROPS (if you know, you know, but you don’t need to if you don’t!).

ISAs

There were no changes to the ISA, LISA or JISA rules and allowances, despite what media pundits suggested. Clearly use of these allowances is sensible, don’t waste yours. The one thing they have scrapped is the British ISA which was announced but never implemented. I think it best assumed that this was a flag-waving attempt for the election.

Non-Dom

Nothing to do with me, but non-domiciled. The rules are changing with the intention being to ensure that people who live in the UK pay their taxes in the UK, both whilst alive and deceased. So this impacts people born outside of the UK. Ultimately, if you have made the UK your home then your worldwide assets will be liable to UK inheritance taxes. Reading between the lines, this is really aimed at very wealthy people with jets and large yachts.

Capital Gains Tax

Capital Gains tax will rise for any disposals from Budget Day (deeply embedded on page 129) this will make our calculations particularly onerous for 2024/25. However, the increase is much as expected, though frankly still lower than I thought might be the case. CGT will increase to 18% (for basic rate taxpayers) and 24% (for higher and additional rate taxpayers). This is still less than income tax. This makes an even stronger case to ensure you use your ISA allowances (£20,000) where CGT does not apply.

There was no change to the CGT allowance of £3,000 – the gain you can make before paying the tax; also no changes to your ability to use realised losses as well

Allowances and rates

There was no change to the annual giving allowance, inheritance tax rates or allowances (other than the above exemptions). The tax bands remain frozen (as previously planned and expected). This means that more people will end up paying tax as they drift into higher tiers.

Business Owners

Arguably business owners (like me) were the ‘hardest hit’ in the Budget. Whilst employees may not pay more National Insurance, employers will collectively pay rather more, some £24bn more from the next tax year and beyond. The employer rate will rise from 13.8% to 15% and be paid from a lower starting level of £5,000 rather than £9,100 (this alone is an extra £615 a year). However small businesses do get Employment Allowance, so the calculated NI they pay only applies after £5,000, this is extended to £10,500 from the new tax year and will apply to all businesses.

This is going to make salary sacrifice schemes more appealing for employers, but I wonder if they might otherwise be even more circumspect about new appointments. This also prompts thoughts about bonuses and pay rises being paid into pensions rather than as salary.

If you do own your own business, then the first £1m you get from selling it has a reduced capital gains tax rate (10%); gains above this are at normal CGT rates. This is known as Business Asset Disposal Relief (BADR) and Investors Relief. The £1m allowance will persist but the rates will increase to 14% for 25/26 and 18% for 26/27. So if you were planning to sell or close your business you probably don’t have enough time to take advantage of the lower rate. In practice the extra tax is no more than £40,000 in 25/26 then £80,000 from 26/27.

Business rates (the council tax businesses pay for having an office, shop or factory without any right to local vote or waste disposal) are going to rise. The temporary discount of 75% on rates expires in April and will become a 40% discount.

Corporation tax will remain at the same rate (25%) – that’s business profit taxed at 25% before the balance is distributed as dividends (which are also taxed). The small business rate (profits under £250,000) is retained at 19%, but is of course reduced in real terms (which is what politicians mean by retained or frozen).

Families With Young Children

For those of you with children and are paying for private education or plan to do so, VAT will now be added to your invoice (20%). You may also find that the fees increase as Public Schools will not be able to claim rates relief.

Child benefit rules are remaining as they were. Long gone are the days when families collected child benefit for each child, irrespective of income or need. Today the benefit is withdrawn (or more accurately must be repaid) if the higher earner’s income tops £80,000 (High Income Child Benefit Charge). The one change is that this can now be resolved through the PAYE system rather than dealing with self-assessment returns which invariably are forgotten by employees – leading to fines.

Helping First Time Buyers

There is little attempt to help any first time buyers in the south of the country. The Stamp Duty Land Tax (Stamp Duty), currently has a threshold of £425,000 before SDLT is paid. This is going to be reduced to £300,000. So First Time Buyers and indeed anyone, will now pay more tax when purchasing a home, so make sure it’s the right location, location, location. Those buying a second property (not their main residence) will see SDLT increase further.

There was noise about building homes and allowing councils to keep funds from sale of council houses under the Right to Buy scheme, which it is hoped will aid the housing market crisis of overpriced and not enough. Perhaps the extra tax on pensions may result in more beneficiaries selling inherited homes as well.

Specifics and Personal  – Get In Touch

Of course, more detail may be needed for your specific personal situation, but these are the main headlines. I think most of us know that Government like to tax fuel, alcohol and cigarettes. Your green holiday flight tax will also rise by £2 for economy.  If you go by private jet, the levy will increase by 50%. Reeves rather pointedly glared at Sunak as she gave an example of a flight to California.