Information correct as at 31 October 2024
Rachel Reeves, the new Chancellor of the Exchequer, gave the new Labour Government’s first Budget speech in fourteen years. Statements made over recent weeks by both the Prime Minister and the Chancellor that this was going to be a tough Budget were confirmed when it was shown there was £40 billion in taxes and tax cuts to be made to plug the hole left by the previous Government. There were few surprises in the budget however, as the areas where tax rises were likely to happen had been mooted in the weeks running up to this.
CHANGES WITH IMMEDIATE EFFECT
As is often the case when taxes are increased, there were some immediate changes made in yesterday’s Budget:
- The Capital Gains Tax rates have been aligned to the rates that were payable on residential property gains and carried interest (now one lower rate of 18% and one higher rate of 24%) – effective from yesterday (30 October 2024)
- The SDLT surcharge on the purchase of second homes is now 5% (rather than 3%) – that is effective from today (31 October 2024)
- The changes to Agricultural Relief and Business Relief may encourage more lifetime gifting. Anti-forestalling rules will apply to lifetime gifts made on or after 30 October 2024 which will bring such transfers within the new rules, presumably with immediate effect. It may be weeks or months before the full details of the new rules are known. Therefore, for individuals who currently own assets qualifying for 100% relief (either Agricultural Relief and Business Relief), it may be prudent to wait until these rules become clear before making any lifetime gifts.
THE GOOD NEWS
Despite speculation that several tax reliefs would be amended or abolished, there is some good news in that certain tax reliefs have survived in their current form:
- The Capital Gains Tax rebasing to market value on death has not changed.
- Certain Capital Gains Tax reliefs (rollover, holdover) appear to be unaffected.
- The 25% tax free lump sum for pension pots is unaffected, as is the annual allowance.
- There was no mention of National Insurance Contributions being payable on employers’ pension contributions.
PERSONAL
Income Tax Rates and Bands:
The Income Tax rate bands, which have been frozen since 2020/21, will remain at current levels until April 2028. Thereafter, the allowances and bands will increase with inflation.
The rates of tax for the UK, excluding Scotland, remain at 20%, 40% and 45%. The threshold for the 45% tax band remains £125,140. The personal allowance, the amount an individual can typically earn before paying income tax, will continue at £12,570 and the higher rate tax threshold will remain at £50,270.
Scottish income tax rates for 2025/26 will be confirmed in the Scottish Budget, which is expected to be in December 2024.
There are no changes to the savings and dividend rates of tax. The savings allowance, savings starting rate and dividend allowances have all been maintained at 2024/25 levels.
High Income Child Benefit Charge (HICBC):
It was announced in the Budget in March 2024 that from 6 April 2026, the HICBC will be assessed on household income instead of on an individual’s income. That will not now happen, and it will continue to be assessed on the higher earner in the household. Therefore, Child Benefit will start to taper at £60,000 and be fully withdrawn when a person’s income reaches £80,000 (or more). The Government has also announced it will allow employed individuals to report child benefit payments through their tax code from 2025 and will prepopulate self-assessment tax returns with child benefit data for those not using this service.
Pensions:
In 2015, it became possible for pension funds to be inherited free of inheritance tax. That is to change so that unspent pension funds and death benefits will be brought within the scope of inheritance tax from April 2027.
UK Individual Savings Account (ISA):
The “UK ISA”, which was announced in the Budget in March 2024 is not being implemented. All other ISA allowances remain as they are, being £20,000 for an individual taxpayer, £9,000 for a Junior ISA, £4,000 for a Lifetime ISA and £9,000 for the Child Trust Fund. These limits will be maintained until 5 April 2030.
Capital Gains Tax (CGT):
With immediate effect, the CGT rates will increase from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher rate taxpayers, matching existing rates for property which stay the same. Rates on chargeable gains from selling additional property remain unchanged at 18% and 24%, respectively.
Business Asset Disposal Relief (BADR) and Investors Relief
BADR applies to those who own trading businesses or shares in trading companies. There is a lifetime limit for qualifying gains of £1 million.
There is also a separate Investors’ Relief, where the lifetime limit is £10 million. The government announced that the lifetime limit of Investors’ Relief will be reduced to only £1m of gains (i.e. the same limit as BADR), effective 30 October 2024.
Where either relief applies, the rate of CGT is reduced to 10%. The CGT rates where BADR and Investors’ Relief apply will increase to 14% from 6 April 2025 and a further increase to 18% from 6 April 2026.
Carried Interests
The tax treatment of carried interest will be reformed by increasing CGT rates on carried interest to 32% and then, from April 2026, moving to a revised regime.
Furnished Holiday Lets:
It was confirmed that the FHL rules will be abolished from 6 April 2025. Draft legislation was issued in July 2024. A separate article on this will be available on our website soon
Inheritance Tax (IHT)
The Inheritance Tax Threshold of £325,000 is to remain unchanged until 2030. There was no change in the rates of IHT. Regarding other inheritance tax announcements, there were two particular changes of note announced:
Inheritance Tax – Agricultural Relief (AR) and Business Relief (BR)
From 6 April 2026, the availability of AR and BR at 100% will be limited to the first £1 million of qualifying property. Any excess will then be eligible for relief at 50%. The rate of 50% applying to certain business and agricultural property will remain unchanged. Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.
This new allowance will apply to the combined value of business property or agricultural property and will cover transfers during lifetime and the value of property in a death estate. For example, the allowance could be divided across £400,000 of property qualifying for AR and £600,000 of property qualifying for BR. If the total value of the qualifying property to which 100% relief applies is more than £1 million, the allowance will be applied proportionately across the qualifying property.
AIM shares were treated as unquoted shares and were able to qualify for 100% BR (subject to other conditions being met). These shares will now qualify for relief at only 50%. This does not impact the £1m limit for BR/AR assets.
Anti-forestalling measures will be introduced in relation to lifetime transfers made on or after 30 October 2024 where the transferor passes away on or after 6 April 2026, meaning the £1 million limit could apply to those gifts.
The £1 million allowance also applies to trusts. New trusts created on or after 30 October 2024 will share the £1 million limits mentioned above. Existing trusts may be able to benefit from their own £1 million limit. A consultation is to follow on how this will operate.
The government will introduce legislation to extend the existing scope of AR from 6 April 2025 to land managed under an environmental agreement with, or on behalf of, the UK Government, devolved governments, public bodies, local authorities or approved responsible bodies.
Inheritance Tax – inherited pensions
Currently, the value of most pensions is outside the scope of IHT. From April 2027, the government will bring unused pension funds and death benefits payable from a pension into an estate for IHT purposes.
Stamp Duty Land Tax (SDLT):
The SDLT surcharge payable on the purchase of second homes was increased by 2% to 5% with effect from today (31 October 2024). The increased rate will not apply where contracts were exchanged before 31 October 2024, subject to certain transitional rules.
The current SDLT bands for residential purchases are temporary, having been introduced in 2022, and were due to expire on 31 March 2025. That will go ahead, and therefore, the rates applicable on residential purchases with an effective date on or after 1 April 2025 are:
- The residential nil rate band will revert to £125,000.
- The First-time Buyers’ Relief nil rate band will revert to £300,000. The maximum transaction value for First-time Buyers’ Relief will revert to £500,000.
Alongside the 2% increase in SDLT rates for second homes, the single rate of SDLT payable on residential properties worth more than £500,000 held by some companies and other non-natural persons will increase from 15% to 17%. This increase in SDLT applies to purchases with an effective date of 31 October 2024 and later.
Taxation of non-UK domiciliaries:
A new residence-based regime will replace the current non-dom regime from April 2025 as previously set out, but the planned 50% reduction for foreign income in the first year of the new regime will be removed.
BUSINESS
National Insurance Contributions (NICs):
There were two significant changes announced with effect from April 2025. The first is that employers’ NIC is to increase from 13.8% to 15%. In addition, the threshold, above which employers’ NICs is payable is reduced from £9,100 to £5,000. The combined effect of these changes for an employee paid a gross salary of £36,000 (approximately the average full-time wage in the UK) is to increase employer’s NICs from £3,712 to £4,650 (an increase of £938, or 2.6% of gross salary).
The employment allowance available will increase for qualifying employers from £5,000 per annum to £10,500 per annum
National Minimum Wage
The NMW will rise from £11.44 an hour to £12.21 an hour in April 2025 for those aged 21 or over. The rate for 18 to 20 year-olds will rise from £8.60 to £10 per hour.
Corporation Tax Rate:
No significant changes were announced to Corporation Tax. The main rate of Corporation Tax remains 25% on taxable profits over £250,000. The 19% rate will become a small profits rate payable by companies with profits of £50,000 or less. Companies with taxable profits between £50,000 and £250,000 will be subject to a marginal Corporation Tax calculated at a rate between 19% and 25%.
Company car tax
The government is setting Company Car Tax (CCT) rates for 2028-29 and 2029-30 as follows:
- Appropriate Percentages (APs) for zero-emission and electric vehicles will increase by 2% per year, reaching an AP of 9% in 2029-30.
- For cars with emissions of 1-50 g/km of CO2, including hybrid vehicles, APs will rise to 18% in 2028-29 and 19% in 2029-30.
- All other vehicle bands will see APs increase by 1% per year, with the maximum AP reaching 39% in 2029-30.
Double cab pick ups
The position of double cab pick-ups has again raised its head with the new Chancellor confirming that double cab pick-ups will lose their favourable tax treatment for Corporation Tax and Income Tax from 1st/6th April 2025. From that date any newly purchased vehicles will lose their favourable treatment as vans and instead will be treated for business purposes as cars. This recategorisation will mean that the annual investment allowance for capital allowances will be lost so that the full cost of a new vehicle will not be allowable in the first year, as is the case for regular cars. Where the vehicle is supplied to an employee/director, the van rate for Benefits in Kind will be lost and the much more penal car rate will apply. Existing double cab pick-ups will however benefit from the existing rules until disposal or 5 April 2029 if later.
VAT:
The standard rate of VAT will remain at 20%. VAT at the standard rate will be added to private school fees and boarding services from 1 January 2025.
Business Rates
The current 75% discount to business rates will expire in April 2025 and will be replaced by a discount of 40%, up to a maximum of £110k. Private schools in England will lose business rates charitable rate relief from April 2025.
Excise Duty:
Vehicle excise duty first year rates will change from 2025–26, but rates for zero emission cars will remain at £10 until 2029-30, while rates for hybrid and petrol/diesel cars will rise from 1 April 2025.
Fuel Duty:
Fuel Duty has, once again, been frozen. The planned 5p per litre cut to fuel duty on petrol and diesel also remains in place until 22 March 2026.
Capital Allowances:
The current capital allowances system including permanent full expensing and the £1m AIA will be maintained.
Research & Development
There were no changes made to the current R&D rules and reliefs.
Late payment interest on tax liabilities
From 6 April 2025, the interest rate on unpaid tax liabilities charged by HMRC will increase by 1.5 percentage points. At the moment, late payment interest is generally 7.5% (i.e. 2.5% over the current BoE base rate). This change will increase the interest rate on overdue income tax to 9% (subject to changes in the base rate).
A1 dualling
As part of the Government’s commitment to growth, it states that it will make difficult decisions where there is not a clear value for money case to invest. After a review, the Transport Secretary has decided not to progress with the a number of unfunded and unaffordable road schemes on the strategic road network. Unfortunately, this includes the dualling of the A1 between Morpeth to Ellingham which had been promised by the previous Government.
As always, the information outlined above is for general guidance purposes only. We appreciate that every individual and business has different circumstances and you should always seek appropriate professional advice before you act on any of the information provided.
If you would like more information or advice on the Budget or require wider business planning or financial guidance, please do get in touch.
