Labour's New Way - Budget Summary Autumn 2024

On Wednesday, 30 October 2024, the new Chancellor gave her FIRST Budget, whereby she announced various tax changes which will have an impact on taxpayers’ pockets.

1. The headline item for businesses was the increase in employers’ National Insurance contributions to 15% and the reduction to the threshold on which employers’ NI is due to £5,000, compensated somewhat by the increase to the Employment Allowance.

• The current rate of 13.8% employers’ NIC will increase by 1.2% to 15% with effect from April 2025.

• The secondary earnings threshold applicable to employers will reduce from £9,100 to £5,000 from April 2025, costing employers an additional £615 per employee based on the new rate of employers’ NIC.

• The Employment Allowance will rise from £5,000 to £10,500 as an attempt to support small businesses, set to cover the equivalent of 4 full time workers on National Minimum Wage, and this will result in some smaller businesses paying less NIC than they do currently.

2. There will be no change to the current freeze on income tax and NI thresholds, which will remain until April 2028 from when these will be updated in line with inflation. This includes the tax-free personal allowance. In the meantime, more individuals will be forced to pay more tax on rising earnings, pushing more people into the higher thresholds.

3. The main rates of Capital Gains Tax increased with immediate effect rising from 10% to 18% on lower rate and 20% to 24% on higher rate. There is no change to the current residential property rate which will make all CGT rates aligned. There will be a gradual increase in the lower rate for those qualifying for Business Asset Disposal Relief over a few years, which currently gives an effective rate of 10% on the first £1m, which will rise to 14% from next year and then rise further in the following year, bringing it up to the new 18% lower rate.

4. The Stamp Duty Land Tax (SLDT) surcharge on second property purchases has risen by 2% to 5% with immediate effect. 1.   This means that anyone planning on buying an additional residential property needs to budget for an additional 2% on the purchase price. This doesn’t only impact landlords or 2nd homeowners but also has a cashflow impact on someone purchasing a new home before they have sold their existing one. In this case they are required to pay the additional SDLT and then reclaim it once the first home is sold so the increase will also require them to come up with additional funds before completion, which may in some cases hold up or even prevent the purchase happening. In addition, the single rate of SDLT payable by companies and other non-natural persons when purchasing residential properties worth more than £500,000, increase from 15% to 17%.

5. The current non-domicile status will be abolished and replaced with a new residence based regime with effect from April 2025. The new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first 4 years of tax residence, provided they have not been UK tax resident in any of the 10 consecutive years prior to their arrival (4-year foreign income and gains regime).

6. The big hard-hitter is the change to Inheritance Tax (IHT)

• Inherited pension pots will be included within the estate of the deceased for IHT purposes from April 2027.

• Agricultural Property Relief, affecting farms, and Business Property Relief (BPR) will be reduced for combined assets worth in excess of £1million from April 2026, with 50% reduction being applied on IHT rates, i.e. an effective 20% rate of tax instead of 40%. This will no doubt have an impact on longstanding family businesses being passed through the generations.

• AIM shares will no longer have any exemption from IHT. Instead, IHT will be due at the reduced effective rate of 20%.

• The current freeze on IHT rates and thresholds will remain until 2030. This means the first £325,000 of any estate will remain IHT-free, increased to £500,000 when passing a residence to direct descendants.

7. Already announced was the VAT introduction on private school fees with effect from January 2025. In addition, private schools will have their business rates relief removed from April 2025. The VAT threshold is not set to change for now.

8. There will be an increase in the National Living and Minimum Wages for all ages with effect from April 2025, with the main rate increasing to £12.21 p/h for those over 21, and £10 p/h for those aged 18-20.

9. The current incentive for electric vehicles will remain.

• The existing tax incentives will remain until 2028, however they will bridge the gap on Vehicle Excise Duty from April 2025 towards other non-electric vehicles.

• The appropriate percentages for the company car benefit in kind charge have been announced for the tax years 2028/29 and 2029/30. Zero emission electric vehicles will increase by 2% in both years to rise to 9%. Vehicles with emissions of 1g to 50g per km will have an appropriate percentage of 18% in 2029/30. All other emission bands will increase by 1% in both years with a maximum of 39% for 2029/30. This means that the incentive to purchase a zero emissions vehicle is slightly less than currently but there remains a big gap to vehicles with emissions in excess of 50g per km.

10. The 75% relief on Business Rates for Retail, Leisure and Hospitality premises will be reduced to 40% from April 2025 up to a maximum of £110,000 (it was previously intended to revert back to no relief). This is a temporary one year measure with a permanent lower multipliers being put in place for these premises from April 2026.  This is to be funded by increased multipliers on properties with a Rateable Value over £500,000.

11. Some certainty has been provided to companies with the announcement that the main rate of corporation tax for profits over £250,000 (pro rated for associated companies) will remain at 25% during this parliament.  The cynics amongst us may wonder though if that prevents the lower rate of 19% up to £50,000 being increased before then. In addition the capital allowance system and the current R&D reliefs will be maintained.

12. HMRC will be raising interest rates by 1.5% on the late payment of tax with effect from April 2025. Be sure to put aside your tax savings so you are not caught out by high rates of late payment interest.

And finally some good news, and our favourite, investment will be made to the infrastructure of HMRC which is currently on its knees!

Watch out for the small print, like adjustments to the High Income Child Benefit Charge. Undoubtedly there will be more to come once we have digested the small print so watch this space for updates.

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