Autumn Budget October 2024
31 October 2024 • HMRC
Despite media speculation in the run up to this Chancellor's first Budget speech, we saw no changes to the tax-free lump sum from pension funds and no extension of the freeze on income tax bands beyond April 2028.
However, there were immediate rises in the rates of Capital Gains Tax, confirmation of a VAT charge on private school fees, and the abolition of most of the tax advantages of being a ‘non-dom’.
The biggest tax increase was in Employers’ National Insurance Contributions, which will apply from the beginning of the next tax year.
Below is a summary of the latest tax changes announced. If you would like to discuss what these measures mean for you or your business's individual circumstances, we would be pleased to help.
Significant points
- Personal tax rates and allowances on income continue to be frozen at current levels – no increases until 2028/29
- No changes to income tax reliefs on pension schemes
- Substantial increases in Employers’ National Insurance Contributions from 6 April 2025
- Increase in Capital Gains Tax rates from 30 October 2024
- Stamp Duty Land Tax surcharge for buying additional dwellings increased from 31 October 2024
- Confirmation that VAT will apply to private school fees from January 2025
- Major changes to taxation of ‘non-doms’ from April 2025
- IHT agricultural and business property reliefs restricted from April 2026
Personal Income Tax
Rates and allowances – 2025/26
The previous Chancellor had announced that the main personal allowance, and the 40% threshold, would remain at 2022/23 levels until the end of 2027/28.
The income level above which the personal allowance tapers away also remains £100,000, reducing to zero when income is £125,140 (the threshold for paying 45% tax). This creates an effective marginal rate of 60%, and annual increases in income will bring more people into these higher rates.
Chancellor Rachel Reeves declared that the inflation-linked increases to the main bands and allowances, which applied in most years before 2022/23, will resume for 2028/29 and later years.
High Income Child Benefit Charge (HICBC)
The HICBC continues to apply to the higher earner of a couple where one receives Child Benefit and either of them has income of more than a set threshold. For 2024/25 the threshold is £60,000; the band of income over which the clawback is calculated is £20,000, so the whole benefit is lost when income reaches £80,000. The HICBC is one reason that an individual might have to register for self-assessment and file a tax return.
The previous Chancellor had announced plans to reform the HICBC from April 2026 to take into account the combined income of the household, rather than just the higher earner. Chancellor Rachel Reeves has decided not to proceed with this plan, so the charge will remain dependent on the income of the higher earner of the couple.
Scottish rates – 2025/26
The Scottish government has the power to set its own income tax rates for Scottish taxpayers for non-savings, non-dividend income. Many Scottish taxpayers now pay at higher rates of income tax than those elsewhere in the UK, although some low earners pay less. The Scottish Budget, which will confirm the rates for 2025/26, takes place on 4 December 2024.
Dividend income
The dividend allowance exempts some dividend income from tax, although that income still counts towards the higher rate thresholds. For 2025/26, the allowance is unchanged at £500. As HMRC does not routinely receive information about dividends received by taxpayers, more people may have to file tax returns to declare tax liabilities which previously would have been covered by the allowance (which was £2,000 up to 2022/23).
The tax rates on dividend income over £500 remain unchanged. The ordinary rate, paid by basic rate taxpayers, is 8.75%, the upper rate is 33.75%, and the additional rate is 39.35%. These rates apply across the UK.
The 33.75% rate also applies to tax payable by close companies on ‘loans to participators’ that are not repaid to the company within 9 months of the end of the accounting period.
Recent reductions in the dividend allowance and increases in the tax rates on dividends and capital gains add to the relative attractiveness of holding shares in a tax-free ISA or in a Venture Capital Trust (VCT). Dividends arising in an ISA or a qualifying VCT are not taxed and do not count towards the allowance.
Savings income
The savings allowance remains £1,000 for basic rate taxpayers, £500 for 40% taxpayers and nil for 45% taxpayers. People with savings income above these limits may have to declare it in order to pay tax.
The savings rate band remains at £5,000. Non-savings income is treated as the ‘first slice’ of income, using the tax-free allowance and the savings rate band; if any of the £5,000 band is not used by this ‘slice’, any savings income falling within that band is taxed at 0%.
Foreign domiciled individuals
Rachel Reeves is taking forward (with some modifications) the principal changes outlined by Jeremy Hunt in the March 2024 Budget. These complex changes are briefly summarised here. Anyone who is or may be affected by the changes can contact us for more detailed advice.
Abolition of remittance basis
From 6 April 2025, those who are resident in the UK but domiciled overseas will no longer have access to the ‘remittance basis’ of taxation which, up to now, has allowed them to elect to not be taxed in the UK on foreign income and gains if they leave the money overseas.
New basis of taxation
The new regime will be known as the FIG (foreign income and gains) regime. UK residents will be taxable on their worldwide income and gains, regardless of whether they are remitted to the UK. However, new arrivals will not be taxed on foreign income and gains for their first 4 years of residence if they have not been UK resident in the previous 10 years.
There are transitional rules to deal with people taxed on the remittance basis before 6 April 2025 with unremitted income and gains, and the removal of some of the protection from tax that has been available using certain types of trust. For the first three years of the new rules, a reduced rate will apply to people bringing previously unremitted income and gains to the UK – they will pay tax, but they will then have free access to the money.
CGT rebasing
As a transitional provision, those who have claimed remittance basis in the past will, for CGT purposes, be able to rebase the CGT cost of any foreign assets that they held on 5 April 2017 to their value at that date. In some cases, this will significantly reduce the CGT liability on a disposal from 2025/26 onwards.
Other aspects
There are also significant changes to the assets that will be within charge to IHT for those previously regarded as foreign domiciled, and to Overseas Workday Relief that can exempt them from UK tax on earnings derived from non-UK duties.
Employees
Company cars (and fuel)
Annual increases in the rates for use of the car had been set up to 2027/28, and a further two years have been added (to 2029/30) ‘to provide long-term certainty for taxpayers and industry’.
The rates will continue to provide a strong incentive to use electric vehicles, while rates for hybrids will be increased to align more closely with the rates for internal combustion engine vehicles.
The figure used to calculate the benefit of free use of business fuel for private journeys increases with inflation from £27,800 to £28,200.
The taxable amounts for the availability of a van for more than incidental private use, and for an employee’s private use of fuel in a company van, increase in line with inflation: the van benefit will rise in 2025/26 from £3,960 to £4,020, and the fuel benefit will rise from £757 to £769.
National Insurance Contributions (NIC)
Thresholds and rates
There has been a significant increase in Employers’ NIC (ERNIC), which increases the cost of employing people.
The increases, from 6 April 2025, are twofold: the rate of ERNIC will rise from 13.8% to 15%, and the Secondary Threshold – the level of pay above which ERNIC applies – will fall from £9,100 to £5,000.
Employment Allowance (EA)
EA allows businesses with Class 1 ERNIC of £100,000 or less in the previous tax year to deduct £5,000 from their Class 1 ERNIC bill (as long as there is more than one employee earning above the secondary threshold). This allowance will be increased to £10,500 and the £100,000 cap is removed with effect from 6 April 2025.
Class 2 NIC
Self-employed people have for many years had to pay flat rate Class 2 NIC, which have conferred entitlement to State pension, as well as profit-related Class 4 NIC. From 6 April 2024, Class 2 NIC are not required to secure benefits for anyone earning above the small profits threshold, which will rise in 2025/26 from £6,725 to £6,845. Anyone earning less than that can still pay Class 2 voluntarily (£182 in 2025/26) in order to maintain a full contribution record.
Savings and Pensions
Individual Savings Accounts (ISA)
The investment limits for ISA have not changed since 2017/18; £20,000 for a standard adult ISA (within which £4,000 may be in a Lifetime ISA), and £9,000 for a Junior ISA or Child Trust Fund. These will remain fixed until 5 April 2030.
Pension contributions
There have been no changes to tax relief on pension contributions – rules on drawing benefits or employer contributions to employees remain as before.
The maximum amount that can be withdrawn as a tax-free lump sum remains £268,275 unless the person is entitled to ‘protection’ in relation to the original introduction of the Lifetime Allowance or any of the subsequent reductions of the limit.
The only changes relating to pension funds were a specific change to the rules involving transfers of UK pension funds to other foreign arrangements, with effect from 30 October 2024, and the inclusion of unused funds and death benefits in the IHT estate on death from 6 April 2027, described in the IHT section below.
Capital Gains Tax (CGT)
Annual exemption
From 30 October 2024, the main CGT rate for all assets is now 24% (other than receipts of carried interest, which remains at 28%). This 24% rate previously only applied to residential property that was not exempted under principal private residence (PPR) relief. Where the gain can be matched against the taxpayer’s basic rate band, the rate is now 18% for all assets. Previously it was 10%, except for residential property and receipts of carried interest.
From the same date, the CGT rate payable by trustees and personal representatives increases from 20% to 24% (other than receipts of carried interest, where it remains 28%).
From 2025/26, the rate of CGT on carried interest will increase to a flat rate of 32% for individuals, estates and trusts. From 2026/27, carried interest will be brought within income tax, subject to a multiplier of 72.5% in some cases.
The CGT annual exempt amount remains £3,000 for individuals and estates and £1,500 for most trusts.
Business Asset Disposal Relief (BADR)
The lifetime limit for qualifying gains, which attract a 10% tax rate, remains £1 million. However, for 2025/26, the BADR rate will rise to 14% and, in 2026/27, it will become 18%.
Another relief, Investors’ Relief, can also give a 10% tax rate to qualifying investors in qualifying companies for which they do not work. The lifetime limit is cut from £10 million to £1 million from 30 October 2024 and the rate of tax will rise in line with BADR.
There are anti-forestalling rules that may prevent taxpayers benefitting from the previous lower rates, where contracts are entered before the dates of change and do not complete until afterwards.
Inheritance Tax (IHT)
Rates
The IHT nil rate band has been fixed at £325,000 since 6 April 2009 and the Chancellor has extended the freeze on this figure until the end of 2029/30. Holding the threshold at the same rate amount for 21 years (2009 to 2030) will bring more people into the scope of the tax. However, the £175,000 ‘residential nil rate band enhancement’ on death transfers can reduce the impact where it applies.
A married couple may be able to leave up to £1 million free of IHT to their direct descendants, but the rules are complicated, and the prospect of the nil rate band being fixed for another 5 years increases the importance of proper IHT planning. If you are unsure about your position with regards to Inheritance Tax, please get in touch.
Reliefs
The Chancellor announced two significant changes to Reliefs used to protect the value of an estate from IHT, to apply from 6 April 2026.
Agricultural Property Relief and Business Property Relief can currently provide a 100% deduction from the value of qualifying assets. From 6 April 2026, this will only apply to the first £1 million of total value of agricultural and business property in an estate. Above that value, the relief will be restricted to 50%.
Shares quoted on certain markets of recognised stock exchanges, such as AIM, have been eligible for 100% relief once they have been owned for two years (provided the company is a qualifying trading business). This relief will be restricted to 50% for any such shares, regardless of total value, from 6 April 2026.
Pension savings
The Chancellor has announced an end to the ability to leave a pension fund free of IHT on death. This change will take effect from 6 April 2027 when unused pension funds and death benefits payable from a pension into a person’s estate will become chargeable, restoring the position before the 2015 pension reforms.
Business Tax
Business rates
Temporary business rates relief, introduced to support the retail, hospitality and leisure (RHL) sectors during COVID-19, is due to end on 31 March 2025.
The government plans to bring in permanently lower business rate multipliers from 2026/27 for RHL properties with rateable values under £500,000. For properties over this rateable value a higher multiplier will apply, affecting the majority of large distribution warehouses used by online companies.
To provide support in the interim, business rates relief will be extended from April 2025 but reduced to 40% and capped at £110,000 per business. Many high street businesses, pubs, restaurants and shops may see higher business rates as a result.
The small business multiplier will be frozen for 2025/26 at 49.9p, while the standard multiplier will be uprated by inflation to 55.5p.
Private schools
Private schools will no longer be eligible for charitable rate relief from April 2025. Private schools which are wholly or mainly concerned with providing full-time education to pupils with an Education, Health and Care Plan will remain eligible for relief.
Umbrella companies
To tackle tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, this responsibility will fall to the end-client business. This will take effect from 6 April 2026.
Furnished holiday lettings (FHL)
The tax advantaged treatment of FHL will be abolished from 6 April 2025. Anyone who has benefited from this treatment up to now, and who has not yet taken advice about the consequences of the change, should do so as soon as possible.
Corporation Tax (CT)
Rate of tax
The government has published a Corporation Tax Roadmap in which it is committed to capping the main rate at 25% and maintaining the small profits rate and thresholds, as well as key features such as full expensing, Annual Investment Allowance, Research & Development relief rates, and the Patent Box. This appears to be a commitment for the whole life of this Parliament.
The main rate of 25% applies to companies with profits over £250,000. The ‘small profits rate’ remains 19% for companies with profits of up to £50,000. Between £50,000 and £250,000 there is a tapering calculation that produces an effective marginal rate of 26.5% on profits between these limits, but an average rate on all profits of between 19% and 25%.
The limits are divided between companies that have been under common control at any time in the previous 12 months, whether UK resident or not (subject to certain exceptions, such as dormant companies).
Capital allowances for plant and machinery
In 2023, ‘full expensing’ was introduced for most plant and machinery. It is not currently available to companies that buy plant to lease out to other businesses however, as in the previous budget, the October 2024 Budget states ‘the government will seek to extend full expensing to leased assets when fiscal conditions allow’.
The government will extend for a further year the 100% first year allowances for qualifying expenditure on zero-emission cars and plant and machinery for electric vehicle charge points. These will continue to be available to 31 March 2026 for corporation tax and 5 April 2026 for income tax.
Value Added Tax
Registration threshold
The VAT registration and deregistration thresholds increased to £90,000 and £88,000 with effect from 1 April 2024. The March 2024 Budget stated that they will be again frozen at these new levels, but it does not say for how long. No further details have been given in October.
Private school fees
VAT will be charged on private school fees from the beginning of January 2025. The boundaries between what is chargeable and what remains exempt are not straightforward; the rules on the recovery of input tax on expenditure are particularly difficult for ‘partially exempt’ businesses; and the school has to make sure it has registered with HMRC at the right time and has the systems in place to record and account for the unfamiliar tax correctly. If you are a private school seeking advice on how to deal with VAT please contact a member of our team.
Property Taxation
Higher Rates on Additional Dwellings (HRAD)
HRAD – a surcharge on the normal rates of Stamp Duty Land Tax (SDLT) – applies to the purchase of a residential property for more than £40,000 by someone who already owns an interest in such a property, unless they are replacing their main residence. From 31 October 2024, the surcharge increases from 3% to 5%.
Where someone buys a new home before they have sold their existing residence, it is possible to claim the surcharge back if the sale of the old house is completed within 3 years (as long as that leaves the individual with only one dwelling).
Rate of SDLT
A temporary reduction in the normal SDLT rates expires on 31 March 2025. Up to that date, the first £250,000 is charged at nil; from 1 April 2025, the band from £125,001 to £250,000 will once again be charged at 2%. There is also a reduction in the thresholds for first-time buyer relief: from 1 April 2026, the nil rate will apply to the first £300,000 of a property costing up to £500,000, down from the first £425,000 of a property costing up to £625,000.
The higher rate of SDLT that applies to certain purchases of residential property costing over £500,000 by companies increases from 15% to 17% on 31 October 2024.
Annual Tax on Enveloped Dwellings (ATED)
ATED applies to residential property worth above £500,000 that is owned through companies and other corporate structures, unless the situation qualifies for a relief. The rates increase automatically each year with inflation and will rise by 1.7% from 1 April 2025, in line with the September 2024 Consumer Prices Index.
Other measures
Making Tax Digital for Income Tax Self-Assessment (MTD)
The requirement to file tax returns using MTD is due to come into effect from 6 April 2026. Those initially affected by the rules will be those with annual income from a sole trader business or property, or both together, of £50,000. This will drop to £30,000 from 6 April 2027. The government is committed to delivering MTD and will expand the rollout to those with incomes over £20,000 by the end of the Parliament. Anyone who will be affected by these rules should make sure they are ready to comply with them in good time: understanding the requirements and making sure that it is possible to comply with them is not something that should be done at the last minute. Please contact us if you require any help with implementing this change.
Compliance and debt management
The Budget includes spending on 5,000 additional HMRC compliance staff and 1,800 additional debt management staff – an ‘investment’ of £1.662 billion over the next five years aimed at raising £4.7 billion per year by 2029/30 by ‘making sure people pay the tax that they already owe’.
Fuel duty
The Chancellor will maintain the freeze in fuel duty rates for another year, and retain the 5p cut in fuel duty until 22 March 2026.
National Living Wage (NLW)
From 1 April 2025, the NLW for those aged 21 or over will rise from £11.44 per hour to £12.21, considerably above the rate of inflation.
There are also increases to the rates that apply to workers aged 18 to 20 (£10) and under 18s and apprentices (£7.55).
Interest on late paid tax
HMRC currently charge interest at 7.5% on tax that is paid late, and credit a taxpayer with 4% on repayments of tax. These rates rise and fall with the Bank of England base rate, and the ‘turn’ of 3.5% is built in to the calculation.
The Budget includes an announcement that the rate on late payments will increase by 1.5 percentage points from 6 April 2025. This appears to be a straightforward increase in HMRC’s turn to 5%.
To discuss how these changes may impact your own situation, please get in touch with your usual Warrener Stewart contact or email us on info@warrenerstewart.com