Autumn Statement - 30 October 2024

In one of the longest ‘Budget’ speeches in memory, Chancellor Rachel Reeves gave the first Labour Budget for nearly 15 years on 30 October 2024. Despite much media attention and associated hysteria in the prolonged period up to this event, many of the rumours and speculation did not materialise.

However, the consequences of the measures announced will have an impact on many Prosperis clients and we await further details on some key consultations to be concluded. As we set out in our Blog at the end of August, it is important that we react to the changes in a constructive manner and the financial planning services we provide will look to explore solutions going forward. Now we are armed with facts, please do get in touch with your adviser who can be contacted at advice@prosperis.co.uk and 01423 223640

Tax

In the largest tax-raising Budget in living memory, Reeves announced big tax increases for employers and wealthier people. The key measure was a 1.2% increase in employer’s national insurance to 15%. The threshold at which employers start paying the tax was also reduced from £9,100 to £5,000. The changes will come into effect from April next year and are expected to raise £25bn a year by the end of the OBR’s forecast period. The reduction in the threshold alone is an added cost of £615 for each employee in many businesses.

In the biggest surprise of the Budget, chancellor Rachel Reeves announced she would not extend a freeze on personal income tax thresholds introduced by the previous government in April 2021, which has dragged millions of workers into higher tax bands.

From 2028-29, these thresholds will once again rise in line with inflation, giving workers more headroom for salary growth before they hit the next income tax band. Until then, the income tax personal allowance (PA) will remain frozen at £12,570 and the higher rate threshold (HRT) at £50,270. Additional higher rate tax (at 45%) will start at £125,140.

Reeves also made substantial changes to inheritance tax. From April 2026, full relief from IHT on agricultural property and business property will be capped at £1m. Assets beyond that level will receive 50% relief, resulting in an effective tax rate of 20%. Reeves also said she would extend the freeze in the IHT tax-free allowance of £325,000 from 2028 to 2030, even though she opted not to do so on income tax thresholds. The Residential Nil Rate Band and associated £2m taper similarly remains.

Meanwhile, a feared removal of inheritance tax relief on AIM listed shares, used by some investors to mitigate IHT, has only partially materialised. From April 2026, relief on AIM shares will be capped at 50%, resulting in a 20% effective tax rate.

Labour’s plans to end the tax ‘non-dom’ rules and replace them with a new system have led to reports of wealthy foreigners fleeing the UK. Reeves confirmed she would abolish the regime from 2025, instead introducing a new residence-based scheme, which she said would be “internationally competitive”.

Reeves also confirmed increases to the taxation of profits earned by private equity fund managers, known as carried interest. The chancellor said this would be taxed at a rate of 32% from April, up from 28% now. She also confirmed the VAT exemption on private school fees will be removed from January. Air passenger duty rates will be uprated, adding £1 to the cost of domestic flights in economy class, £2 more for short-haul overseas destinations and £12 for long-haul. Premium economy and business class passengers will pay relatively more and all rates will be increased by retail price inflation from 2027 onwards. The chancellor also said the higher rate applicable to large private jets will rise by 50% in 2026.

The chancellor also promised a clampdown on rogue umbrella companies. These are payroll agencies that take on a contractor’s financial administration, managing their tax and pay but the sector is currently unregulated.

A Corporate Tax Roadmap was published, setting out plans for corporation tax and a few other taxes. It includes capping the headline rate of corporation tax at 25% for the duration of the parliament; keeping the small profits rate and marginal relief at current rates and thresholds; and keeping permanent full expensing, the £1m annual investment allowance and R&D reliefs.

Pensions

Reeves announced she would close the loophole on inherited pensions from April 2027 to prevent them being used as IHT avoidance vehicles. According to Budget documents, bringing pensions into a person’s estate for IHT will raise £640m in 2027-28, £1.34bn in 2028-29 and £1.46bn in 2029-30. Transfers to spouses and civil partners remain exempt. A consultation period runs to the end of January 2025 to refine the detail further and we eagerly await the outcome of this.

Other than this point, there were no other items relating to pensions. This means the existing funding allowances remain along with rules relating to tax free cash established at the start of the current tax year. With the increased burden of Employer National Insurance contributions, the option to provide salary sacrifice for relevant employees may become more attractive.

The chancellor also confirmed the state pension would increase by 4.1% in April 2025, meaning 12m pensioners would gain up to £470 a year from next year. Reeves said the standard minimum guarantee for pension credit would also rise by 4.1% next year, from around £11,400 per year to about £11,850 a year for a single pensioner. She added that the increases, which are substantially more than the 1.7% rise in working-age benefits, would help make up for the loss of winter fuel payments for many pensioners this November and December.

Capital Gains Tax

In a move affecting investors, the chancellor announced that the lower rate of capital gains tax (CGT) will rise from 10% to 18%, and the higher rate from 20% to 24%. That change, which applies from 30 October 2024, brings the higher rate in line with the rate on residential property assets, which remains unchanged.

The main rate of Capital Gains Tax that applies to trustees and personal representatives will increase from 20% to 24% for disposals made on or after 30 October 2024.

The rate of Capital Gains Tax that applies to Business Asset Disposal Relief and Investors’ Relief is increasing to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2026.

Property

The stamp duty surcharge for buy-to-let and second homes will increase by 2 percentage points to 5%. The chancellor said this change will apply from 31 October 2024. The chancellor left the capital gains tax rate on residential property unchanged at 24%, the level to which her predecessor reduced them earlier this year.

With no mention of stamp duty thresholds, temporary tax breaks introduced in 2022 are set to end in April 2025 meaning stamp duty will become due on purchase amounts over £125,000, rather than £250,000 at present.

For first-time buyers, stamp duty will become payable on purchase amounts over £300,000 rather than £425,000.

The Treasury, ahead of the Budget, set out proposals for above-inflation rent increases for people living in social housing in a long-term deal with affordable housing providers. The chancellor also confirmed plans to restrict the right for social housing tenants to buy their own homes, which had been blamed for reducing the UK’s stock of affordable homes. She said councils would be allowed to keep all of any receipts from the so-called “right-to-buy” sales. Local authorities had previously been obliged to hand over a proportion of the receipts to the Treasury.

Childcare

The government has committed £1.8bn to expand childcare services in a move that represents a continuation of its predecessors’ plan to roll out 30 hours of free childcare for parents with children aged over nine months in England from September 2025. Education secretary Bridget Phillipson said last month that 300 new state-funded nurseries would open ahead of the planned rollout, largely by converting empty classrooms in schools. The sector has already warned it lacks the resources needed to deliver the expansion due to a crippling mix of rising costs, shortages of qualified staff and years of underfunding.

From January 2025, 20% VAT will apply to private school fees across the UK and the business rates charitable rates relief for private schools in England will be removed.

The changes to High Income Child Benefit, announced in March 2024, remain although it was confirmed the plans to align this with Household income will not proceed.

Other measures

VCT & EIS investment incentives had been extended for ten years to April 2035 prior to this Budget. The allowances and reliefs remain unchanged and supported by this government.

The national living wage for workers aged 21 and above will increase to £12.21 per hour from April next year. Announced on Tuesday, the rise represents a 6.7% increase for those aged over 21. For 18- to 20-year-olds, the hourly rate will rise by £1.40 to £10.00 per hour as the government moved towards a single adult rate. The NLW was introduced in 2016 at £7.20 per hour for those 25 and over.

Universal credit and other benefits will increase by 1.7% in April, in line with September’s inflation figures. This will see around 5.7m households gain £150 on average in 2025 and 2026.

Fuel duty will remain frozen next year and the chancellor will maintain a temporary 5p per litre cut was introduced in 2022 after energy prices rose following Russia’s invasion of Ukraine. The duty will remain at 52.95p per litre. However, there will be changes to the amount of vehicle excise duty payable in the first year after a vehicle is registered.

Zero-emission vehicles will pay £10, but there will be hefty increases for all other vehicles, with drivers of the most polluting vehicles facing a £5,490 bill. Rates after the first year will rise with retail price inflation from April 2025. Alcohol duty on most products will increase from February in line with retail price inflation, while a temporary wine “easement” will also end, resulting in higher duty for wines with an alcohol content above 11.5%. However, duty on draught products will be reduced in a concession to the hospitality industry, reducing the price of an average pint by a penny.