Chancellor Rachel Reeves announced her highly anticipated Autumn Budget 2024 on Wednesday, 30th October 2024, the first Labour budget in 14 years. Confronting a reported £22 billion “black hole” in public finances, the budget provides clarity and certainty following many weeks of speculation.
The need to balance a challenging fiscal situation with election promises raised concerns over possible tax increases and the broader economic impact.
The previous budget, delivered by Jeremy Hunt in the Spring Budget 2024, included measures such as a 2% reduction in National Insurance and a 4% reduction in higher-rate Capital Gains Tax.
As the economy continues to recover from the impacts of the pandemic, the measures introduced in this budget reflect a delicate balance between encouraging investment and addressing the cost-of-living crisis affecting many households.
The article will provide a comprehensive overview of the UK government’s Autumn Budget 2024, exploring its impact on individuals and businesses.
Table of Contents
Autumn Budget 2024: Impact on Businesses
National Insurance
The Chancellor has announced an increase in the rate of National Insurance Contributions (NICs) for employers, from 13.8% to 15%. This is combined with a reduction in the threshold at which they will start paying that rate, from £9,100 to £5,000 per year.
As the government’s second-largest revenue source, this latest increase in NI is predicted to raise £25 billion per year. The Spring Budget 2024 saw a 2% reduction in NIC for employees; in essence, this latest increase by the chancellor reversed this tax saving, passing the raise onto employers.
Small businesses will see a slight relief, with an increase in the employment allowance tax relief scheme from £5,000 to £10,500. This means that any small business that pays less than £10,500 a year in NI will not have to pay any NIC for the year.
Creative Industry Tax Reliefs
To bolster the UK’s creative industries, the Chancellor has announced over £15 billion of support over the next five years. These include enacting proposed reliefs from the Spring Budget 2024 and increasing business rate relief to 40% for film studios for the next ten years.
Business Rates Relief
The Chancellor has continued business rate support for small businesses in the retail, hospitality, and leisure sectors. The previous 75% tax reduction for eligible businesses has been reduced to 40%, with a cap of up to £110,000. In addition, the small tax multiplier will continue to be frozen for 2025/26. While this announcement sees a reduction in support, the decision was welcomed by smaller enterprises, among fears it would be removed entirely.
EIS and VCT
As part of the drive for economic growth, the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) have been extended by 10 years from April 2025 to April 2035. Combined, the schemes raised £2.9 billion in funds in 2022/23, with over 1,280 companies using the EIS for the first time in this period.
Energy Profits Levy
The Energy Profits Levy, introduced to tax the unexpected profits of large oil and gas companies, remains in effect but will be modified. The government has announced that the levy will be increased from 35% to 38%. The changes include scrapping the levy’s 29% investment allowance, which enables companies to offset tax from capital it has re-invested.
This increase brings the headline tax rate on oil and gas activities to 78%, among the highest in the world. Its duration has been extended by a year to March 2030.
Company Car Tax
Starting at a low Benefit-in-Kind rate of 2% in the current tax year, the government will implement a new structure for company car tax, differentiating fully electric and low-emission vehicles. Under the new company car tax, fully electric vehicles will qualify for a low Benefit-in-Kind rate:
- 2024/25: 2%
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
A further 2% yearly rise has been made for 2028/29 and 2029/30, meaning Benefit in Kind will increase to 7% and 9%. The tax will be based on emissions, with zero-emission vehicles paying no tax and hybrids facing a reduced rate. This change aims to incentivise companies to transition their fleets to greener alternatives, supporting the government’s reinstated objective of a 2030 ban on new cars with internal combustion engines.
Umbrella Companies
An Umbrella company is a business often used by recruitment agencies to pay temporary workers. These companies have been repeatedly accused of failing to comply with their tax obligations. HMRC estimates that £500 million was lost due to ‘disguised remuneration tax avoidance schemes’ in the 2022/23 tax year.
To enhance protections for workers employed through umbrella companies and obtain lost tax revenues, the government has introduced new regulations requiring these companies to be more transparent about their fees and employment practices. As part of these legislation changes, the agency or the employer would be legally liable for any tax shortfalls from the umbrella company.
Autumn Budget 2024: Impact on Individuals
Income Tax and National Insurance Thresholds
The Chancellor has announced further freezes in Income Tax and National Insurance thresholds until 2028.
The threshold freeze means that the personal allowance will remain at £12,570, with the higher rate threshold remaining at £50,720. Given the significant impact of inflation on pricing across the UK economy and rising wages, a larger proportion of individuals will be pulled into higher tax brackets. This ‘stealth tax’ is estimated to generate £33.5 Billion in tax income for the Labour Government by 2028/29 and will present a further squeeze, particularly for middle-class earning individuals.
National Living and Minimum Wage
The government has announced a substantial increase in the National Minimum Wage. The following wage increases will be subject from April 2025:
- Apprentices: £6.40 to £7.55 (+17.9%)
- Under 18s: £6.40 to £7.55 (+17.9%)
- Between 18-20: £8.60 to £10 (+16.3%)
- Aged 21+: £11.44 to £12.21 (+6.7%)
Despite these significant wage increases, according to the National Living Wage Foundation, the ‘National Living Wage’ is £12.60 an hour in England and £13.85 in London.
Capital Gains Tax
The Autumn Budget 2024 will introduce legislation in Finance Bill 2024/25 that will raise the level of Capital Gains Tax (CGT) rates:
- Lower Rate: 10% to 18%
- Higher Rate: 20% to 24%
- CGT Allowance: Remaining at £3,000
These rates came into immediate effect as of 30th October 2024.
The budget also significantly impacted Business Asset Disposal Relief (BADR) and Investor Relief (IR). The current rate of 10% will remain until 6th April 2025, after which it will rise to 14%. Another increase to 18% is set to take effect from April 2026.
While these changes increase the tax rate on gains, the lifetime allowance of £1 million for BADR remains available. However, new anti-forestalling rules will be implemented to prevent tax planning strategies that could circumvent these rate changes.
Despite increases in BADR and IR, these schemes remain a valuable tool for business owners planning asset sales.
No adjustments were made to the capital gains tax rates on residential property, which will continue at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers.
VAT
The standard VAT rate remains unchanged at 20%. However, since January 2025, it has been confirmed that private schools will no longer be exempt from VAT. This move will impact 2,500 schools in the UK, educating 7% of pupils in England.
It is estimated that the introduction of VAT on Private school fees will raise an additional £1.7bn by 2029/30, of which £460m would be used on extra state school spending. The move has been controversial, with the Independent Schools Council arguing that the VAT charge would increase the burden on the state sector and result in the closure of many independent schools in England.
Inheritance Tax
From April 2027, pensions will become subject to Inheritance Tax (IHT), meaning unused pension pots and death benefits will be subject to IHT charges. This key announcement is predicted to result in 10,000 additional estates being liable for IHT in the 2027/28 tax year, while 40,000 estates currently eligible for IHT will see greater amounts payable. The Chancellor stated that the aim is to prevent pensions from being used as a tool to avoid IHT.
A continuation in the freezing of inheritance tax thresholds to 2030 was also announced during the budget. Previously frozen by the Conservatives until 2028, the nil-rate band will continue to stand at £325,000 and the residence nil-rate band at £175,000. While not a direct increase, this rate has been frozen since 2009/10. With significant increases in inflation and the rise of property values in the UK, threshold freezes will result in a larger proportion of estates being applicable for IHT charges.
Rachel Reeves’ final announcement to IHT was to Business Property Relief (BPR) and Agricultural Property Relief (APR). For the first time, BPR and APR will be subject to a £1m combined cap of 100% relief, with values exceeding this amount only benefiting from 50% relief from April 2026.
This change will significantly impact landowners’ ability to pass assets such as farms onto the next generation. The Chancellor claimed that the £1m band would help protect smaller farms. However, it is unlikely that this will be sufficient even for the smallest farms. Trusts or gifts could be used to help protect the transfer of land to the next generation.
Inheritance tax presents a significant financial burden on the next of kin, and steps must be taken to plan appropriately for succession.
Non-Domiciled Tax Regime
As expected, from April 2025, the UK will abolish the concept of domicile as a factor in determining an individual’s exposure to taxation for income and gains (FIG) and inheritance tax (IHT). As a result, individuals will no longer be able to elect for the remittance basis of taxation.
Assuming an individual is a long-term resident of the UK, their assets will be subject to IHT, and their earnings will be subject to income tax.
You can read our comprehensive guide on Understanding Non-Domicile Status in the UK for information on the current scheme.
Fuel Duty
Fuel duty will be frozen for another year, a move aimed at providing relief to motorists and businesses. The UK-wide tax on petrol and diesel will remain at 52.95p a litre, an extension in the 5p cut until March 2026. There has been increased pressure to ensure that retailers pass this tax saving onto motorists.
Stamp Duty Land Tax Surcharge
Effective 31st October 2024, the chancellor raised the Stamp Duty Land Tax Surcharge (SDLTS) on additional residential property purchases. These include residential properties purchased by both individuals and companies.
The changes in SDLTS on additional residential property purchases by individuals are as follows:
- ≤ £250,000: 3% to 5%
- £250,000 to £925,000: 8% to 10%
- £925,000 to £1.5m: 13% to 15%
- The remainder, if any: 15% to 17%
For companies that purchase residential properties worth more than £500,000, the rate increases from 15% to 17%. It is important to note that there is no relief from the surcharge for property landlords, and this increase in SDLTS presents a significant additional cost to the purchase of investment properties.
Although not directly referred to in the Autumn budget, there will be further changes to stamp duty in England from 1st April 2025 that will impact virtually all homeowners. These changes will include:
- Reduction in stamp duty threshold from £250,000 to £125,000
- First-time buyer stamp duty relief reduced from £425,000 to £300,000
Right to Buy
The chancellor has announced that the discounts to the Right to Buy scheme will be further reduced, a policy move aimed at stimulating housing growth. Introduced in the 1980s by the then-Prime Minister Margaret Thatcher, the scheme enabled council tenants to buy their council homes at a discount.
Under the Right to Buy scheme, qualifying individuals could receive discounts of £102,400 in England and £136,500 in London on purchasing a council property. From November 2024, this discount will be cut to a minimum of £16,000 and a maximum of £38,000, varying across England. The scheme had previously been abolished in both Scotland and Wales.
Formerly, councils had to give a proportion of receipts from any sale to the treasury, typically between 20% and 25%. Local authorities can now keep these funds and reinvest in building affordable and social housing.
It is estimated that local authorities are expected to save nearly £1.2 billion by 2029/30 from Right to Buy reductions and be able to retain full receipts from social housing sales.
Pension Changes
Despite anticipated adjustments to annual pension tax relief, the annual contribution limit remains unchanged at £60,000. This limit continues to be the maximum you can contribute each year while benefiting from tax relief. The abolishment of the lifetime allowance will persist, eliminating any cap on the total pension accumulation over an individual’s lifetime. However, higher earners will still be subjected to a tapered allowance for earnings over £260,000.
It is important to consider that the overaccumulation of pension funds may be less appealing due to upcoming changes in inheritance tax. As mentioned, starting in April 2027, unused pension pots and death benefits will be subject to inheritance tax and included in an individual’s estate valuation for IHT.
The Chancellor reaffirmed the previous government’s commitment to the ‘triple lock’ guarantee, ensuring a 4.1% increase in basic and new state pensions in April 2025. This means recipients of the new state pension will see their weekly payments rise from £221.20 to £230.25, while those on the old state pension will see an increase from £169.50 to £176.45 weekly. On-going increases will continue to be subject to the greatest CPI price inflation or average earnings growth.
The final measure of change is pensions transferred to the European Economic Area (EEA), bought in line with the conditions of the Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS). This adjustment affects UK residents transferring pension funds to the EEA, making such transfers less advantageous but consistent with transfers in other parts of the world.
Employee Ownership Trusts
The government has proposed a framework of changes to the Employee Ownership Trusts (EOTs) following years of consultation and due to previous tax abuse. The EOTs scheme was initially introduced by the coalition government in 2014 with the ambition of encouraging employee ownership models. The EOTs enable capital gains tax relief for owners of companies that sell shares of their companies to trusts set up for the benefit of the company’s employees. In addition, EOTs enable tax-free bonus payments of up to £3,600 to qualifying employees.
The proposed changes in the Autumn Budget 2024 bring forward a wide range of draft legislation and rules for EOTs aimed at reducing tax abuse while aligning with the government’s vision of a more inclusive economy.
The draft legislation still needs to be debated and edited to a final version, but it can be read at HMRC Draft Finance Bill Measures.
Conclusion
The Autumn Budget 2024 was forecast to present significant tax increases across all aspects of the UK economy. While the Chancellor has repeatedly ensured the public that ‘working individuals’ would not be affected, there is no doubt that threshold tax freezes and increases to capital gains tax will impact most working individuals.
The budget has presented a financial gain for basic rate earners with increases to the national minimum wage, although continued inflationary price pressure is likely to erode these economic gains.
The budget has delivered a significant impact on businesses. Increases in national insurance contributions from employers and a reduction in allowances will present significant costs that could result in wage growth stagnation.
The impact of Inheritance Tax charges on pensions and Capital Gain tax increases on the disposal of assets presents a significant future tax implication on personal estates. It is very important that steps are taken for appropriate succession planning.
Our expert team at DS Burge and Co can offer professional support and advice on how these changes might affect you and your finances. Speak to one of our expert team today.