Autumn Budget 2024

Rachel Reeves delivered the first Labour budget in 14 years yesterday and has given the country the largest tax rises in over 30 years and employers, farms and family businesses will pay the brunt. The biggest single measure designed to address a blackhole was a 1.2% increase in the rate of employer NICs.

There are some very big changes as shown below but most are also going through consultation so we would urge restraint on making any big changes.

Pensions and Inheritance Tax (IHT) – Now fully included in your estate

It was announced that unspent pensions would be brought into the Inheritance Tax (IHT) regime from April 2027, to make the tax system fairer.

Most pension death benefits are usually paid out at scheme discretion which means they do not form part of the estate. The planned changes will now include schemes with discretionary disposal in the IHT net.

The principles are similar to when someone has an interest in a trust on their death known as the “settled estate”. The IHT bill is split between the trust and the estate according to the proportion of the overall estate each component represents. HMRC have some good examples in their consultation paper.

Based on the detail in the consultation this would include almost all pensions (including dependants, nominee and successor pensions) into the IHT remit. With dependant scheme pensions and charity lump sum death benefits being exempt. Where the pension benefits are paid to a surviving spouse the spousal exemption will continue to apply.

The consultation runs until 22^nd January 2025. However, there will no doubt be a great degree of detail needed from this consultation, with the potential for changes to be made. So, a watching brief as opposed to immediate action may be prudent.

Pensions remain a vital part of retirement planning.

National Insurance Contributions for employers

From 6 April 2025, the rate of employer NICs will increase from 13.8% to 15% and the Secondary Earnings Threshold – the point at which employers start paying NICs on an employee’s earnings – will reduce from £9,100 a year to £5,000 a year. The reduction in the threshold alone will cost employers £615 per employer per annum.

The threshold will be frozen until 6 April 2028 and will be increased by CPI thereafter.

Currently, the Employment Allowance allows employers with NIC bills of up to £100,000 in the previous tax year to deduct £5,000 from their NIC bill. From 6 April 2025, this allowance is being increased to £10,500 and the £100,000 threshold will be removed so that all employers will be eligible.

Inheritance tax – Agricultural property relief and business property relief

From April 2026, only the first £1m will get 100% relief on the combined value of qualifying agricultural and business property. For qualifying assets over £1 million, relief will be given at 50%, resulting in an effective rate of 20%.

	Business / Farm Value of £1 million	Business / Farm Value of £10 million	Business / Farm Value of £20 million
IHT on death in 2024/25 & 2025/26*	£0	£0	£0
IHT on death in 2026/27*	£0	£1,800,000	£3,800,000

The nil rate band of £325,000 and the maximum residence nil-rate band of £175,000 will now be frozen until 5 April 2030, two years beyond the current freeze.

Tapering of residence nil rate band will continue from the £2 million threshold.

The trustees of discretionary trusts are liable to an IHT charge of up to 6% of the value of property held in a trust every 10 years. There is also an exit charge when property leaves the trust. APR and BPR can apply to property in trust. There will be a combined £1m allowance for trustees on the value of qualifying property to which 100% relief applies, on each ten-year anniversary charge and exit charge, consistent with the treatment of qualifying property chargeable to IHT on death. The government will publish a technical consultation in early 2025 on the detailed application of the policy to charges on property within trust.

Settlors may have set up more than one trust comprising qualifying business property and/or agricultural property before 30 October 2024, in which case from 6 April 2026, each trust would have a £1m allowance for 100% relief. The government intends to introduce rules to ensure that the allowance is divided between these trusts where a settlor sets up multiple trusts on or after 30 October 2024.

However, shares which aren’t listed on recognised stock exchange, including AIM shares, will be subject to relief at 50% on the entire holding and will not count against the £1m allowance.
The new rules will also apply to lifetime transfers from 30 October 2024. This means a gift of AIM shares before April 2026 will be a failed PET if the donor does not survive for seven years and relief will be restricted to 50%.

Planning options will not change, but with estate values generally growing year on year more people will be dragged into the IHT net. Earlier planning during lifetime and ensuring that wills are properly drafted to maximise benefits from the residence nil rate band is essential.

Those relying on business relief for their IHT planning may wish to revisit those plans to consider a more tax efficient strategy or perhaps look to insure the additional tax liability that may arise.

Capital gains tax (CGT)

Capital gains tax rates will increase to 18% for basic rate taxpayers and 24% for higher rate and additional rate taxpayers, up from 10% and 20% respectively. This will happen from 30/10/2024. There is no change to CGT rates on residential property which continue to be taxed at 18% and 24%.

There is no change to the CGT annual exemption of £3,000 for individuals and £1,500 for trusts.

One good outcome on the CGT front is that (under current and proposed rules) there is still no CGT payable on death. It was rumoured before the budget that the CGT uplift on death would be removed but no changes on this were announced.

Business Asset Disposal Relief (Entrepreneurs’ Relief)

This relief provides a special rate of CGT of 10% on disposals of business assets up to a lifetime allowance of £1 million. From 6 April 2025, the rate of CGT will increase to 14% and from 6 April 2026 to 18%, on disposals up to £1 million.

	£500,000 gain	£1m gain	£2m gain	£5m gain
Tax on disposal in 2024/25*	£50,000	£100,000	£300,000	£900,000
Tax on disposal in 2025/26*	£70,000	£140,000	£380,000	£1.1m
Tax on disposal in 2026/27*	£90,000	£180,000	£420,000	£1.14m

ISAs

There are no changes to the current subscription limits. These are £20,000 for ISAs, £4,000 for Lifetime ISAs (included in the £20,000 ISA subscription limit) and £9,000 for Junior ISAs and the Child Trust Fund. These will be fixed until 5 April 2030.

The ‘British ISA’ proposed at the last budget will not go ahead.

Income tax and NI for individuals

The freeze on income tax and NI thresholds will continue until 2028 as announced by the previous government, but beyond that the thresholds will increase in line with inflation.

The threshold at which child benefits are withdrawn was increased from £50,000 to £60,000 from the beginning of this tax year and this will continue. Benefits are withdrawn at the rate of £1 for every £200 in excess of the £60,000 threshold. This means all child benefits are lost once the highest earner in the household has income over £80,000.

The starting rate for savings will remain at £5,000 for the 2025/26 tax year, maintaining its current level.

The Personal Savings Allowance will be £1,000 for those with adjusted net income of £50,270 and below, £500 for those with adjusted net income between £50,270 and £125,140 and will be £0 for those with adjusted net income above £125,140, maintaining the current levels.

The Dividend nil rate of taxation will remain at £500.

State Pensions

It was confirmed that the triple lock on State Pensions would be maintained for the remainder of this parliament, guaranteeing a 4.1% earnings-based increase in April.

This means that the full New State Pension will increase to £230.25 a week from 6 April 2025. We expect the full Basic State Pension to increase to £176.45 a week (single person) or £282.15 a week (married couples and civil partners).

The 4.1% increase will also apply to the guaranteed element of Pension Credit.

Corporation Tax

The government has published a Corporate Tax Roadmap.

The Roadmap includes a commitment to:

• cap the Corporation Tax Rate at 25%
• maintain the Small Profits Rate and marginal relief at current rates and thresholds
• maintain key features as such as Full Expensing, the Annual Investment Allowance, R&D relief rates, and the Patent Box

The Roadmap also outlines areas for further exploration including a new process for advanced assurance for major projects and simplifying and improving tax administration.

Transfers to QROPS

The Government are closing a loophole where UK pensions are transferred overseas to a QROPS. Normally, if the transfer is being made overseas but the member is not resident in the country the transfer is going to, then there is a 25% Overseas Transfer Charge levied on the transfer value.

However, there was an exemption if the transfer was being made to a country in the EEA or to Gibraltar and the member was resident in the UK or within the EEA.

This is being withdrawn for all overseas transfers from 30 October 2024.

So if a transfer is being made to a QROPS in the EEA or Gibraltar, but the member remains resident in the UK, the transfer will be subject to the Overseas Transfer Charge. The Government believes this will reduce the risk of individuals receiving double tax-free allowances.

Changes to the taxation of non-UK domiciles

The Chancellor confirmed that the abolition of the remittance basis and removal of the concept of domicile for tax purposes will be go ahead from the 6 April 2025. This is to be replaced with a new Foreign Income and Gains (FIG) regime which is determined by UK residency rather than domicile.

Individuals who become UK resident having been non-resident for more than 10 years will not pay UK tax on their overseas income and gains for the first four tax years of UK residence and will be free to bring these funds to the UK free of any additional tax. They will continue to pay tax on their UK income and gains in the normal way.

Currently someone who is non-UK domicile is only subject to UK IHT on assets situated in the UK. However, they become subject to IHT on their worldwide assets if they become UK domicile or deemed domicile.

From 6 April 2025, IHT will apply on worldwide assets where someone is deemed to be a long-term resident. This is typically where someone has been resident in the UK for more than 10 years in the last 20 years. Where someone ceases to be UK resident, they will remain subject to IHT for up to 10 years after leaving the UK.