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Autumn Budget 2024

Autumn Budget 2024: Analysis

 

Autumn Budget 2024

Private Client

It is fair to say that the first ever female Chancellor delivered a commanding performance from the soap box. The headline will be the changes to employer’s National Insurance, which is budgeted to deliver £25bn of the promised £40bn tax rises, but for private individuals there is much to digest.

Capital Gains Tax (CGT)

In advance of the Autumn Budget, talk of a £40bn tax grab had raised severe concerns around alignment of Capital Gains Tax (CGT) to Income Tax. As a result, there was certainly an uptick in transactions across the board as individuals banked the existing rates.

As widely rumoured, CGT was increased with immediate effect – but the increases, from 10% to 18% and 20% to 24%, will be welcomed by investors who were fearing the worst. This aligns the top rate with the current rates applicable to disposals of residential property. So, not as bad as perhaps feared.

Entrepreneurs were rightly concerned about the potential abolition of Business Asset Disposal Relief (BADR), but this has remained with a lifetime allowance of £1m. However, the applicable rate of CGT will increase from 10% to 14% from 6 April 2025, and further to 18% from April 2026. It is difficult to see how this is good news for business owners – BADR will be worth a meagre saving of £60,000 from April 2026, a dramatic fall from Entrepreneur’s Relief which was worth a saving of up to £1m in 2020.

Back to investors, and the lifetime limit for Investors Relief is reduced, effective immediately, from £10m to £1m. In addition, the applicable rate of CGT will be increased as above to align with BADR. This is arguably a relief that did not attract as much attention as BADR but was hugely beneficial for entrepreneurial investors who invested in unlisted trading companies.

Inheritance Tax (IHT)

The reform of the IHT system to a residence-based system will proceed from 6 April 2025. For long-term residents (that is, UK resident for at least ten of the previous twenty UK tax years), their worldwide estate will be within the scope of IHT. For long-term residents who leave the UK, there will be a ten-year tail of IHT exposure, albeit this tail is reduced for those who had been resident in the UK for between ten and nineteen of the last twenty years.

In addition to the continued freezing of the IHT nil rate band and residential nil rate bands beyond 2028 until 2030, and in a blow to the farming community and business owners, there will be changes to the current reliefs for Agricultural (APR) and Business Property (BPR).

Currently where certain property qualifies for APR or BPR there is an unlimited 100% relief from IHT. From April 2026, the 100% relief will be capped at £1m for both APR and BPR, with relief being restricted to 50% thereafter. This means that estates which benefit from APR and/or BPR will have an effective rate of IHT of 20% for value of such assets in excess of £1m.

There will be no £1m limit for AIM-listed shares. Previously AIM-listed shares potentially qualified for BPR in full (being unlisted trading companies). AIM shares will instead receive 50% relief from IHT, and so be subject to an effective rate of IHT of 20%. We have already seen an impact on the AIM market in the period leading up to the Budget – it remains to be seen whether this change will signal further negative impact.

Finally, and in a hugely significant change, with effect from 6 April 2027 unused pension funds and death benefits payable from a pension will be brought into the scope of IHT. Pension scheme administrators will be liable for reporting and paying any IHT due thereon. This will significantly impact the financial planning landscape as pension funds have historically been seen as an IHT efficient way of passing wealth to the next generation.

Non-Dom no more

As expected, Rachel Reeves confirmed that the UK non-dom regime will be abolished from 6 April 2025. In a disappointing move and despite months of representations made to Government, the proposals from earlier this year remain largely unchanged. This feels like a significant missed opportunity to create a world class regime to attract international wealth to the UK.

For non-doms currently resident in the UK, the new regime and transitory reliefs are mired in complexity and will take time to work through.

There are some changes to the previous Labour Government proposals, and our initial summary is below. More detail to come in due course.

  • Residence Based system: Foreign Income and gains (FIG) will not be subject to UK tax for new arrivals for the first four years of residence (provided they have not been UK resident in the ten years prior to arrival). The FIG regime will be available to UK nationals, provided they meet the prior ten-year non-residence condition.
  • Overseas workdays relief will be retained, with the period of relief extended to four years but subject to an annual limit of the lower of 30% of the qualifying income and £300,000.
  •  The proposed temporary repatriation facility (TRF) for previous remittance basis users will be extended to allow individuals to remit untaxed FIG which arose before April 2025 to the UK for three tax years at the rate of 12%, increasing to 15% in 2027/28. There is an extension of the TRF to settlors and beneficiaries of trusts, who are former remittance basis users.
  • Certain remittance basis users will be able to rebase their personally held assets as at 5 April 2017. This aligns with the rebasing date introduced with the previous overhaul of the non-dom regime in 2017.
  • The Trust protections for deemed domiciled settlors will be abolished from 6 April 2025, with income arising in those structures potentially assessed directly on the taxpayer, if they choose to remain UK-resident.
  • FIG arising in certain trust structures will no longer be protected from UK tax, if the UK resident settlor does not qualify for the new FIG regime.
  • The IHT protection afforded to certain trust structures will be lost, where the settlor is a long-term resident (defined above). This test is applied at the date of the tax event, so that old excluded property trusts potentially will be subject to IHT.
  • There is an element of grandfathering for certain trust structures settled prior to 30 October 2024, although this is broadly limited to providing that the value of non-UK trust assets should not be subject to IHT on the death of the UK resident settlor.

Private Equity

From 6 April 2025, carried interest returns will be subject to tax at a rate of 32% (an increase from the previous rate of 28%). This increase maintains the existing 8% differential between tax on investment returns and carried interest but does create an unusual five month period through to 5 April 2025 where that differential is only 4%.

Perhaps unsurprisingly, a revised regime for carried interest will be introduced from 6 April 2026. The changes are subject to consultation but propose to treat carried interest as trading profits and so subject to Income Tax and National Insurance. However, only 72.5% of the carried interest will be taxable – which gives an effective rate of tax of 34.1%.

Making Tax Digital (MTD)

Currently individuals who are self-employed or are landlords will be required to transition to reporting their income on a quarterly basis under MTD, as well as digital record keeping. From April 2026, individuals with income of more than £50,000 will be required to file under MTD. From April 2027, this will be extended to individuals with income of between £30,000 and £50,000. The Government confirmed today that MTD will be further extended to individuals with income of more than £20,000 by the end of this parliament.

MTD has been postponed again and again due to insufficient resource and investment within HMRC. Given that the proposal to remove self-assessment tax returns was announced in 2015 by the then Chancellor Osborne, the progress has been sluggish at best. In addition, there is a lack of free resource available to taxpayers to transition to MTD which will undoubtedly mean that unrepresented taxpayers will be negatively impacted.

Fiscal drag

Finally, and at long last, the Chancellor announced today that the Income Tax thresholds which have been frozen since 2021 will be increased in line with inflation from 2028. This will end the years of fiscal drag whereby increasing numbers of taxpayers have been pulled into higher rates of tax, as their income has increased but the tax thresholds have not. Somewhat cynically one wonders if this will coincide nicely with the next general election.

Business

Cost of employing staff

There were all sorts of announcements relevant to companies at this year’s Autumn Budget, but with one clear headline: it’s going to become more expensive to employ people.
The collection of measures are expected to raise around £24 billion each year for the next five tax years, so form a substantial part of the Government’s plans to alleviate the well-publicised funding pressures.

Desperate times call for desperate measures, but all the same it is disappointing that businesses will bear so much of the brunt. Smaller businesses – and, by extension, the entrepreneurs that own them (surely “working people” by any definition) – are likely to be disproportionately affected by the changes. In that sense, the measures are somewhat surprising coming from a Labour Government.

Increase in Employer’s National Insurance Contributions (NICs)

With effect from 1 April 2025, the rate of Employer’s NICs will increase from 13.8% to 15%, and the Secondary Class 1 NICs threshold (the amount of salary above which Employer’s NICs are charged) will be reduced from £9,100 to £5,000.

As a result of these changes, the cost of employing someone on an annual salary of £35,000 will increase by over £900 per year. It’s possible that many employers will end up offering smaller salary increases in the next few years, to share the burden with employees.

Minimum Wage increases

Furthermore, from April 2025, the minimum wage for over-21s (known as the National Living Wage) will increase from £11.44 to £12.21 per hour, a rise of 6.7%.
The minimum wage for 18-to-20-year-olds will increase from £8.60 to £10.00, a record increase of 16.3%, and for under-18s (and first-year apprentices) the minimum wage will rise from £6.40 to £7.55, an 18% rise.

While these changes will certainly be welcomed by younger employees, they will make it harder for many smaller businesses to employ school leavers that want to pursue work rather than university education.

As a result of these rate increases and the Employer’s NIC changes, the cost of employing a minimum wage worker in a full-time permanent role working 35 hours a week (before employer’s pension contributions) will increase by around £2,160 per year – an increase of almost 11%. High-street businesses such as restaurants, pubs, bars, hairdressers, coffee shops and retailers, are particularly likely to feel the sting.

Rachel Reeves has also confirmed that these increases are a first step towards a single minimum wage rate for all adult workers. Small businesses should bear in mind these further, future changes when looking to employ new staff.

A silver lining for small business?

One bit of good news is the change to the Employment Allowance.

The Employment Allowance currently allows eligible employers to reduce their annual Employer’s NIC liability by a maximum of £5,000 per tax year if their Employer’s NIC threshold was less than £100,000 in the previous tax year.

From 6 April 2025, the Employment Allowance will more than double to £10,500 and the £100,000 cap will be removed.

In the context of the broader changes, this represents a welcome silver lining, particularly for the smallest businesses with only a handful of employees.

Corporation Tax – a promise of long-term stability

Companies will welcome the lack of significant changes to Corporation Tax rules, and the greater level of certainty offered by the Government’s new Corporate Tax Roadmap. Key points of note are as follows:

  • The headline rate of Corporation Tax rate will be capped at 25%, and the small profits rate of 19% maintained, for the remainder of this Parliament.
  • The capital allowances full expensing regime remains untouched, as will the £1 million Annual Investment Allowance. Other capital allowances rates will remain unchanged, including the 100% first-year allowances for zero-emission cars and electric vehicle charging points.
  •  The current rates of R&D tax relief will be maintained.
  • No amendments to the Patent Box regime or the taxation of intangible fixed assets will be made.
  • HMRC will publish extensive guidance to help larger multinational groups comply with their obligations under the Pillar 2 rules.
    Within the detail, however, there are some potentially less welcome observations:
  • At present, small and medium-sized businesses are exempt from full UK transfer pricing rules. However, the Government is considering (and will consult on) removing the exemption for medium-sized businesses. Additional reporting of cross-border related party transactions may be introduced for those companies within the scope of Transfer Pricing rules.
  • Confirming when a company’s Corporation Tax is payable requires an assessment of the number of “associated companies”, the definition of which is unnecessarily complicated. A return to the more straightforward “51% group company” rules previously used would’ve been welcomed, and it is disappointing to see these rules remain unchanged.

Increase in interest on late paid tax

With effect from 6 April 2025, the rate of interest charged on late-paid tax will increase by 1.5% to the Bank of England Base Rate plus 4%.
The interest charged on late quarterly instalment payments is set differently and the rate appears to be unaffected by the announcement. This is welcome given the relative difficulties of accurately estimating those payments.

Unsurprisingly, HMRC are not increasing the interest they will pay on tax liabilities that are paid early.

Other measures

There were several other measures relevant to companies, of which the most relevant ones are as follows:

  • As previously reported, the Enterprise Investment Scheme and Venture Capital Trust relief schemes will be extended to 2035. This is very welcome news for early-stage businesses looking to raise investment.
  • With effect from April 2026, recruitment agencies will be made responsible for operating PAYE on payments made to workers that are supplied by umbrella companies. If an agency is not involved in the supply of the umbrella company worker, the end client will be made responsible for operating PAYE.
  • Additional targeted anti-avoidance rules will be introduced to counteract certain steps taken to circumvent a “loan to participators” (or “section 455”) tax charge. In our view, the measures are entirely reasonable and consistent with the spirit of the legislation, and for most businesses, which don’t engage in contrived tax planning, the rules are likely to slip by unnoticed.
  • The Government has launched a consultation on potential reforms to the tax treatment of Employee Ownership Trusts and Employee Benefit Trusts, to prevent tax advantages from arising where the arrangements are not aligned with the intended policy objectives.

Property Tax

Business Rates

Business Rates are calculated by multiplying the annual rental value of a business property by a standard ‘multiplier’.

The Government has announced that, with effect from the 2026/27 tax year, lower Business Rates multipliers will be introduced for businesses in the retail, hospitality and leisure sectors. In the meantime, 40% relief on Business Rates (up to a cap of £110,000) will be provided to businesses in these sectors.

There is also some good news for small businesses more widely as the multiplier applicable to properties with a rateable value of less than £51,000 has not been increased in line with inflation.

However, the Business Rates multiplier will be increased for properties with a rateable value of over £500,000. The amounts have not yet been confirmed, but this will be unwelcome news for businesses with larger premises, such as factories and warehouses.

Stamp Duty Land Tax (SDLT) changes

The Stamp Duty Land Tax Charge surcharge – which applies to corporate purchasers of residential properties as well as to second homes purchased by individuals – will increase from 3% to 5% with effect from 31 October 2024, with an exception where contracts have been exchanged prior to 31 October 2024. At the same time, the 15% SDLT rate that applies to companies buying residential properties valued at more than £500,000 will increase to 17%.

This represents yet another blow for landlords, many of whom have become disincentivised in recent years by an increasingly penal property tax regime. Renters could well end up bearing at least some of the cost through rental increases.

CGT on residential property

It will come as a relief to landlords that the CGT rate on gains from residential properties will remain unchanged at 24%.

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