Autumn 2024 Budget

Dominic Thomas
Oct 2024 • 5 min read

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.

BACK TO ALL BLOGS

Autumn 2024 BudgetJemima Thomas2025-01-23T10:49:36+00:00

Business Owners and EIS

Solomons-financial-advisor-wimbledon-blogger

Business Owners and EIS

This item is aimed at business owners and how an EIS might be of use.

Many business owners are growing increasingly frustrated about the tax associated with extracting profit from their companies. Often referred to as “double taxation”, a company owner must first face corporation tax on profits made by their business and again when they decide to pay themselves a dividend/salary. It can at times, feel like you are working for HMRC.

An Enterprise Investment Scheme (EIS) can be used to extract profit from a business tax efficiently. EIS was introduced by the UK Government in 1994 in order to induce investment into UK smaller companies. In order to make investing in smaller companies more attractive, compensating the additional risks, there are a number of tax reliefs available through EIS investments (providing you hold your investment for at least three years).

Income Tax Relief	CGT deferral	IHT relief
Reduction in income tax liabilities amounting to 30% of the total investment	Facility to defer paying CGT on all, or part, of a chargeable gain by investing the gain into EIS qualifying shares	EIS companies qualify for Business Property Relief (BPR)
Relief can be applied to the current or previous tax year	Investors can defer CGT by using EIS up to 12 months before crystallising gains or up to 36 months afterwards	As long as shares have been held for 2 of the last 5 years and are held at time of death and remain BPR qualifying, the value of the EIS investment will count as part of your estate but will have a nil value for IHT purposes
The maximum amount of income tax that can be claimed is £300,000 for the current tax year and £300,000 for the previous tax year
Relief cannot exceed the amount which reduces an investor’s income tax liability to nil

Business Owner – Double Tax

Mr Williams, normally a higher rate tax payer, owns a small business. He pays himself a £10,600 salary per year in order to stay within his personal allowance; no income tax is paid on this amount. In addition to this salary he pays himself a dividend each year which attracts an income tax liability. However, he is still frustrated with the amount of tax paid on the dividends.

If Mr Williams pays himself a £50,000 dividend, he will owe 25% (£12,500) in income tax on this (once we take the tax credits into account). This will leave him with £37,500 of net funds in his account after paying the tax.

If Mr Williams invested £50,000 into an EIS, he will be entitled to 30% income tax relief (£15,000). This tax rebate can be used to wipe out the £12,500 due on the dividend. It also leaves him with an extra £2,500 of income tax relief to set against other income tax he has paid across the current and/or previous tax year.

He is left with a £50,000 EIS investment, which he can liquidate once he has held the investment for three years. Providing the EIS investment has, at least, preserved its value Mr Williams has saved £15,000 in tax as a result of this investment.

Any growth within his EIS investment is tax free, as per the EIS rules.

My example, implies that Mr Williams has adequate resources elsewhere, so that he can invest £50,000 rather than it being needed for income. The word or note of caution, is that an EIS is obviously an investment and at the higher end of the risk spectrum (though running your own business obviously carries risk). Whilst investing in smaller companies often involves higher levels of risk and worse levels of liquidity, many investment companies offer EIS investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? – get in touch.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Business Owners and EISDominic2025-01-27T16:09:47+00:00

Inheritance Tax and BPR

You will recall that I have been blogging about various HMRC inheritance tax forms, and last week I also discussed Power of Attorney and the Court of Protection. Today I am high-lighting some planning opportunities that address these issues in a practical way using BPR – or Business Property Relief.

Inheritance Tax (IHT) is the second most resented tax in the UK. IHT is currently payable at the rate of 40% on an individual’s estate which exceeds the ‘nil rate band’, currently £325,000. Estates which comprise a family home and few other assets can incur a large tax liability. There are many options available to those who wish to mitigate their estate’s IHT liability. Trusts and gifting are the most common strategies employed, but both take 7 years in order to be fully effective. For clients who are elderly or unwell, this is often too long a timeframe.

Business Relief, or Business Property Relief (BPR) as it is commonly known, is a UK IHT relief that was introduced by the Government nearly 40 years ago (7 April 1976). It was designed to allow business owners to pass on businesses to beneficiaries without incurring an IHT liability. In 1996, it was made more widely available to private investors and now allows any qualifying investment held for at least two years, and at the time of death, to benefit from 100% IHT shelter. Most unquoted, UK registered companies will qualify for this relief. This two year timeframe makes this form of planning the quickest way of sheltering assets from IHT.

BPR and Power of Attorney

Another area when BPR could be of use is when Power of Attorney (POA) is in place. Take a look at this example.

Mrs Jones is 70. Her son has Power of Attorney (POA) over her financial affairs and due to her poor health, he can make financial decisions on her behalf. Gifting and trust planning may not be possible in this case, because a number of restrictions exist to avoid attorneys abusing their positions. One of the main rules states that attorneys cannot give away access to a donor’s (Mrs Jones) funds, without applying to the Court of Protection for approval. Trust work and gifting both involve a change of ownership and it would be difficult for Mrs Jones’ son to successfully put either in place. It may also be unsuitable given the 7 year timeframe and Mrs Jones’ health status.

Mrs Jones’ son could, however, invest in a BPR qualifying company/a portfolio of companies on her behalf. Since the investment remains in her name, he has not changed the ownership for the funds and since a BPR investment only requires 2 years to become effective for IHT purposes, it may be the most suitable option.

Unquoted companies are usually riskier than those listed on a major stock exchange. Whilst there are a number of risks associated with investing in unquoted companies, many investment companies offer BPR investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? just get in touch.

Dominic Thomas
Solomons IFA

Inheritance Tax and BPRDominic2025-01-21T15:48:31+00:00

Where there’s a Will – part 2

I asked Alex Truesdale for her thoughts on the ruling by the Court of Appeal and am thankful for her very valuable insight, here are her thoughts and observations.

The Court of Appeal’s judgment in this long-running dispute confirms that disinherited children are permitted by a 1975 statute to challenge their parents’ Wills if reasonable provision for their maintenance is not made. “Maintenance” means the child’s cost of daily living at whatever level is appropriate to them. The question of what is “reasonable” is dealt with by the court exercising its discretion to consider a number of factors laid down by statute, including the child’s needs and circumstances, the needs and circumstances of the beneficiary who has inherited instead, and the parent’s conduct. Here, Arden LJ endorses the lower court’s description of Melita Jackson’s conduct towards her daughter Heather Illot, since their 1978 estrangement, as “unreasonable, capricious and harsh”, before replacing the lower court’s £50,000 award with a sum of £163,000. This, Arden LJ reasoned, would allow Mrs Illot to purchase her house, receive a modest income, and potentially arrange a pension through equity release, all without compromising her state benefits.

This is not new Law

None of this is new law. But it is inevitable that this high profile victory for Heather Ilott – albeit one which sees her receiving just over 1/3 of her late mother’s estate – will encourage further challenges to Wills which seek to disinherit family members, particularly if there is no connection between a testator and the charity which has benefited from a windfall legacy. A costs order has yet to be made but will be considerable: Melita Jackson’s insistence that her executors defend to the hilt any attempt by her daughter to contest the Will will already have eroded the value of her estate, and so now the charities themselves face a smaller residual legacy and their own costs bill. There may be a further appeal to the Supreme Court, but I would suspect that the charities will take a view on the reputational as well as financial damage they risk in prolonging a dispute which has run since 2004 and, arguably, since the estrangement in 1978.

Where does this leave testamentary capacity? Much as it was before – the award made in this case turns on its own facts, and does not represent any further curtailment of one’s freedom to leave one’s estate as one pleases, so we should all still be making Wills.

Think ahead and think carefully

However, I would encourage those who do wish to exclude family members from their Wills to leave contemporaneous evidence of their reasoning not only to exclude a particular beneficiary, but also to favour other beneficiaries. This is particularly important if, in the case of charities, the testator has no connection with, or history of donations to, charity during their lifetime. I have been instructed on a number of cases where we have done just that by way of a side letter, to try to avoid the washing of too much dirty linen during probate, a process which makes Wills public. And those asked to act as executors should always check whether they are risking accepting a poisoned chalice that may compel their involvement in a protracted legal battle. As in this case, that may, sadly, become the testator’s most enduring legacy.

Alexandra Truesdale MIPW

Alex Truesdale Wills Limited | Registered in England and Wales no 7275445 | Registered office: 27 Mizen Close Cobham Surrey KT11 2RJ

Alex Truesdale Wills Limited is a member of the Institute of Professional Willwriters and complies with its Code of Practice

Where there’s a Will – part 2Dominic2025-01-21T15:48:52+00:00

Autumn Statement – 3rd December 2014

So the Chancellor has delivered his Autumn statement, most of which was leaked in the media or announced in his radical budget (well radical for financial planners). The main points of the budget that we didnt know already is the provision to pass ISA allowances between spouses on death. This will certainly please married couples with large ISA funds. Prior to this, upon death an ISA becomes part of the estate, unless it has been held in specific AIM listed holdings for at least 2 years thereby benefitting from an IHT exemption, but invariably increasing the degree of investment risk (p56 of statement). The ISA limit will increase for 2015/16 to £15,240 from £15,000 as it is today.

Stamp Duty

A signficant change to Stamp Duty on property was announced, which mirrors the system used for income tax rates, that is, the more you earn, the more you pay, but only over certain thresholds – higher rates are only applied once thresholds are reached and nor applied to the full amount. Stamp Duty has now adopted this approach, some will be better off at the lower end of the property price range, some will be considerably worse off. The aim probably being twofold, to increase and encourage first time buyers and be more of a help to people trying to get onto the property ladder, whilst also attempting to dampen price increases at the top end. You can see a helpful chart on the impact of these changes on pages 53-54 of the Statement.

On a similar theme, the higher rate (40%) threshold has been increased marginally more than previously announced (by £100). We will have to wait until 12 December to find out what the interest rates will be on the new NS&I Fixed Rate Pensioner Bond (only for those age 65+). No doubt the free newspaper you pick up this evening or the TV and radio coverage will have pundits discussing the changes. You might want to look at the figures towards the back of the report, (page 100) which essentially show the UK’s income and expenditure. All the talk of austerity (which is certainly more real for some than others) has still resulted in national overspending and this looks likely to continue until 2016/17 with lots of “if’s, but’s and maybe’s”. If you do have any questions about your own situtation and how it might be effected by today’s Autumn Statement, do get in touch.

Dominic Thomas

Autumn Statement – 3rd December 2014Dominic2023-12-01T12:39:42+00:00