Autumn Budget 2024

Income Tax and National Insurance

What was announced?

The government will not extend the freeze to income tax and National Insurance contributions thresholds. From April 2028, these personal tax thresholds will be uprated in line with inflation.

What does it mean?

The fiscal drag will unfortunately continue until April 2028 and result in more people paying tax that may not currently do so and resulting in others falling into higher rates of tax. However, the news of a mid-spring thaw in April 2028 will be an important consideration for financial planners when considering investment horizons or when to draw pension income.

For some clients, it might be more tax-efficient to delay these events until the income tax thresholds increase. In the meantime, making use of tax wrappers where appropriate to switch off taxable savings and investments income remains a key part of the overall tax planning considerations. And, if access is still required to supplement income, ISAs and Investment bonds can be used to meet those withdrawal requirements without triggering an income tax event.

Savings allowances and Dividend Nil Rate

What was announced?

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.

What does it mean?

Financial planners should make use of these allowances where possible, and if savings or investments will take clients above the savings allowances or dividend nil rate, consider appropriate tax wrappers to place these in. 

Other Allowances

What was announced?

The government will uprate Married Couple’s Allowance and the Blind Person’s Allowance by the September 2024 CPI rate of 1.7% from 6 April 2025.

What does it mean?

The maximum amount of Married Couple’s Allowance will increase from £11,080 (2024/25) to £11,270 on 6 April 2025. The minimum amount of Married Couple’s Allowance will increase from £4,280 (2024/25) to £4,360 on 6 April 2025.

The blind persons allowance will increase from £3,070 (2024/25) to £3,130 from 6 April 2025. 

High Income Child Benefit Tax Charge (HICBC)

What was announced?

The government announced it will not proceed with the reform to base the HICBC on household incomes. This is because it would have come at a significant fiscal cost of £1.4 billion by 2029-30 if setting the threshold to £120,000-£160,000, where no families would lose out.

To make it easier for all taxpayers to get their HICBC right, the government will allow employed individuals to pay their HICBC through their tax code from 2025, and pre-prepopulate Self-Assessment tax returns with Child Benefit data for those not using this service.

In addition, although not explicit to the HICBC, the government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5 percentage points. This measure will take effect from 6 April 2025.

What does it mean?

It means there will be no change to those at risk of being subject to the HICBC, which since 6 April 2024, applies to those with adjusted net income between £60,000 and £80,000 then the charge will be 1% of the total benefit for every £200 of income over £60,000. The charge applies to the partner with the highest adjusted net income regardless of who actually receives Child Benefit.

However, for those affected, the ability to pay the charge through their tax code will be welcome as many individuals are often caught out by this charge and may not have the savings available to pay the tax on time.

From a financial planner point of view, it’s important to highlight this charge to clients with children. It’s not just those who already have adjusted net income of £60,000 or more who start to claim the benefit, but those who are getting close to this threshold and a pay rise or even one-off bonus pushes them above the threshold. The fact the interest rate for late payment of tax will increase from the current rate of 7.5% to 9% is another reason to make sure they are aware of the HICBC tax charge and the need to self-assess for those who normally pay their tax via PAYE only.

In addition, financial planners can also discuss planning options such a pension contributions to reduce or negate a client’s liability to the HICBC. 

Employer National Insurance

What was announced?

The government will increase the rate of employer NICs from 13.8% to 15% from 6 April 2025. The Secondary Threshold is the point at which employers become liable to pay NICs on employees’ earnings, and is currently set at £9,100 a year. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.

To support small businesses with these changes, the government is increasing the Employment Allowance from £5,000 to £10,500 and removing the £100,000 threshold, expanding this to all eligible employers with employer NICs bills from 6 April 2025. This means that 865,000 employers will pay no NICs next year.

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2024 CPI rate of 1.7% from 2025-26. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs rates by September CPI of 1.7% in 2025-26. The LEL will be £6,500 per annum (£125 per week) and the SPT will be £6,845 per annum. The main Class 2 rate will be £3.50 per week, and the Class 3 rate will be £17.75 per week.

What does it mean?

Changes to NI rates and thresholds is fairly business as usual in tax terms. These changes may however see business owners reviewing the remuneration strategy they employ.

There is no doubt salary sacrifice for those not currently using it will be more beneficial as described in Pension Matters. 

Corporation Tax

What was announced?

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.

What does it mean?

The main takeaway from the financial planners point of view will be the commitment to maintain the tax rates and marginal relief at current levels. This will provide some predictability when advising corporate client on their employer pension contributions and the tax implications of investing surplus company cash. 

Pension Tax Lock

What was announced?

Despite much speculation, most things in the pension world have been left untouched. Pre budget there was request for a pension tax lock i.e. no tax changes. Whilst this was not described as a lock, other than changes to the tax treatment for IHT purposes, nothing much changed in the pensions world.

What does it mean?

Keep calm and carry on planning, pension commencement lump sums, tax relief and the annual allowance(s) remain unchanged. Pensions, have maintained their tax advantage status during the members lifetime and remain a vital part of retirement planning. 

State Pension

What was announced?

Under the triple lock rules, the state pension goes up each year by the highest of either 2.5%, inflation (the September CPI figure), or earnings growth (based on the average increase in UK wages from May to June).

The chancellor announced that the state pension will increase by 4.1%.

What does it mean?

Simply that those who receive state pension will have more next year! The current state pension is £221.20 a week. Increasing this figure by 4.1% will make this £230.27 a week. Broadly an increase of £471 a year. This will take the annual rate (assuming 52 weekly payments) up to £11,974, which is still below the personal allowance of £12,570. 

Pension Death Benefits

What was announced?

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

Currently some pension death benefits are paid to whomever the deceased member has asked them to, it’s called a power of disposal and this means the pension is included in the estate. This applies to both DB and DC pensions. Most pension death benefits are usually paid out at scheme discretion which means they do not form part of the estate. The planned change is basically to including schemes with discretionary disposal into 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 spouse spousal exemption will apply.

The consultation runs until 22^nd January 2025.

What does it mean?

Many people use their pensions as intergenerational wealth transfer vehicles. So plans for passing on wealth will need to be reassessed.

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.

But as stated earlier pensions remain a vital part of retirement planning.

Reducing tax-free overseas transfers of tax relieved UK pensions

What was announced?

Nothing was said in the budget speech itself, however in the budget paperwork there is the following information 

Since the abolition of the LTA there was the introduction of the Overseas Transfer Allowance (OTA).

Any payment above this limit would be subject to an Overseas Transfer charge of 25%.

Separately, from 9 March 2017, the overseas transfer charge applied on the total value of funds transferred abroad if the member was not moving to the country that the pension was being transferred to (e.g. transferring to a QROPS and remaining in the UK). This charge is levied at a rate of 25% of the transferred value. The member could get this charge refunded if they moved to that country within 5 tax years of the transfer .

However, this charge was not applied on pensions transferred to a QROPS inside the EEA and Gibraltar, if the member will remained a UK resident. As of 30 October 2024, this exemption will no longer apply.

Any transfer where the member remains UK resident will be subject to 25% OTC on the total value transferred.

What does it mean?

Given the OTA does not interact with the UK allowances, there was potential for an individual to get two full sets of tax free allowances.

Losing 25% of your pension fund on transfer will deter some from transferring overseas unless they are also intending to move overseas. 

Employer considerations

What was announced?

There was nothing specifically said about employers and pension contributions. The rumours of NI being applied to employer pension contributions did not materialise. With the corporation tax rates unchanged the value of employer contributions has changed.

The increase in employers NI may have a second order impact.

What does it mean?

Some small owners will be looking at their mix of salary, dividends and income and deciding what tax/NI they would rather pay. Salary may be more attractive.

There is no change for the undoubted tax benefits of an employer pension contribution.

Employer pension contributions made through salary sacrifice have become more beneficial.

If we consider an individual with UK median earnings of £37,430 (from the ONS) paying 3% gross (£1,122.90) into a pension and the employer paying 5% (£1,871.50) on the total earnings what does this mean?

For the current year (and not using salary sacrifice) this gives the employer a total cost of £43,211 (£37,430 salary, £1871.50 pension contribution and NI of £3,910 (based on 13.8% between £9,100 and £37,430).

Next year factoring in the lowering of the secondary threshold to £5,000 and the increased NI rate of 15% the NI bill will be £4,865. Making the total cost to the employer £44,166. An increase of £955 for this employee.

If the member enter into a sacrifice agreement next year, whilst keeping their take home pay the same and the employer passing on 50% of their NI savings could mean that a total of £3,213 would go into the members pension (an increase of £218 from £2,944 going in). this would also reduce the employers NI by £94 to £4,677 owing to the salary reducing to £36,182.

Below are the figures for no NI saving passed on and all of the NI saving passed on for reference for the 2025/26 tax year.

Saving the employer some cost and increasing the member pension funding.

IHT thresholds 

What was announced?

In Autumn Statement 2022 it was announced that the existing IHT thresholds were to be maintained until 5 April 2028. This kept the NRB at £325,000, the RNRB at £175,000 and the RNRB taper starting at £2m. The Chancellor announced that the IHT thresholds are to be further maintained at current levels for tax years 2028/29 and 2029/30

What does it mean?

The £325,000 NRB is available to all individuals and can be set against all asset types on their death. The NRB can also be used both:

To allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an IHT liability

In calculating the periodic and exit charges on relevant property (discretionary) trusts

The £175,000 RNRB is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the RNRB by £1 for every £2 that the net value of the estate is more than £2m.

The measure is not expected to have any significant macroeconomic impact but it does provide some certainty for IHT planners. It’s interesting to remember that the NRB has been fixed at £325,000 since the tax year 2009/10. This policy is only forecast to increase the number of taxpaying estates by 1,400 in 2028/29 and 2,900 in 2029/30. This means that the proportion of all UK deaths subject to IHT will rise by 0.2 and 0.4 percentage points in 2028/29 and 2029/30 respectively. 

Agricultural Property Relief (APR) and Business Property Relief (BPR) reforms

What was announced?

A bit niche perhaps but the government is extending the existing scope of APR 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 relevant approved responsible bodies.

There are also more mainstream changes from 6 April 2026, which reform APR and BPR from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets. The 100% rate of relief will continue for the first £1m of combined agricultural and business property to help protect family farms and businesses, and it will be 50% thereafter. For example, the allowance will cover £1m of property qualifying for BPR, or a combined £400,000 of APR and £600,000 BPR qualifying for 100% relief. If the total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately across the qualifying property. For example, if there was agricultural property of £3m and business property of £2m, the allowance for the agricultural property and the business property will be £600,000 and £400,000 respectively. Assets automatically receiving 50% relief will not use up the allowance and any unused allowance will not be transferable between spouses and civil partners.

We can’t forget about trusts! 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 million 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.

The government will also reduce the rate of BPR available from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM. A full list of recognised stock exchanges can be found here.  

What does it mean?

According to the government, the majority of claims for these reliefs will be unaffected. The reforms are expected to only affect around 2,000 estates each year from 2026/27 with around 500 of these claiming APR and around 1,000 of these holding shares designated as “not listed” on the markets of recognised stock exchanges. Essentially, the government has decided to retain these reliefs but better target them. At first sight, the details of these reforms from 6 April 2026 appear to be somewhat complicated. 

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 inure the additional tax liability that may arise.

Reforming the taxation of non-UK domiciled individuals

What was announced?

From 6 April 2025, the current rules for the taxation of non-UK domiciled individuals will end. The concept of domicile as a relevant connecting factor in the UK tax system will be replaced by a system based on tax residence. Under the current rules, UK resident non-domiciles who haven’t become deemed-domiciled can choose to be taxed on the remittance basis. This means that whilst they pay tax on their UK income and gains in the same way as other UK residents, they only pay tax on their foreign income and gains when these are remitted to the UK. With regard to IHT, that is currently a domicile-based system. A new residence-based system for IHT will be introduced from 6 April 2025. This will affect the scope of property brought into UK IHT for individuals and settlements.

There is a 34 page technical note devoted to this complex subject.

What does it mean?

The government is abolishing the remittance basis of taxation for non-UK domiciled individuals and replacing it with a simpler and internationally competitive residence based regime, which will take effect from 6 April 2025. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence. From 6 April 2025 the government will also introduce a new residence based system for IHT, ending the use of offshore ‘excluded property’ trusts to shelter assets from IHT, and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.

For CGT purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met. Overseas Workday Relief will be retained and reformed, with the relief extended to a four-year period and the need to keep the income offshore removed. The amount claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income. The government is extending the Temporary Repatriation Facility to three years, expanding the scope to offshore structures, and simplifying the mixed fund rules to encourage individuals to spend and invest their FIG in the UK.

With regard to IHT, the test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises. The time the individual remains in scope after leaving the UK will be shortened where they have only been resident in the UK for between 10 and 19 years. Subject to transitional points, the excluded property status of non-UK settled assets will not be fixed at the time the assets are added to a settlement. Instead, they will only be excluded property (and so not subject to IHT charges) at times when the settlor is not long-term resident. When a settlor is long-term resident, any assets they have settled (even when not long-term resident) will be subject to IHT.

For those wondering about excluded property trusts, from 6 April 2025 the excluded property status of non-UK settled assets will not be fixed at the time the assets are added to the settlement. Instead, assets comprised in a settlement will only be excluded property (and so not subject to IHT charges) at times when the settlor is not long-term resident. When a settlor is long term resident, any assets they have settled (even when not long-term resident) will be subject to IHT. This test will apply to all settlements regardless of when the property became comprised in the settlement, subject to the provision for deceased settlors. Where the settlor of a trust has died before 6 April 2025, non-UK assets will be excluded property based on the old test, namely the settlor’s domicile at the time the property became comprised in the settlement. Where the settlor of a trust dies on or after 6 April 2025, the excluded property status of the trust will depend on the settlor’s long-term residence status at their death; if they were not long-term resident when they died then non-UK settled assets will be excluded property and if they were long-term resident at death then all UK and non-UK settled assets will be in scope for IHT for the duration of the trust.

Finally, an excluded property trust set up before now is likely to have the settlor as a potential beneficiary on the understanding that there is no charge under gift with reservation rules where the property meets the definition of excluded property at the donor’s death. From 6 April 2025, the scope of what is excluded property will change as described, so it is based on the long-term residence test. This will feed through into the GWR provisions which may or may not apply given the particular situation. There are also potential relevant property regime charges to be considered. These matters are discussed in more detail in the 34 page technical note referred to above. 

Rate changes

What was announced?

The main rates of CGT are currently charged at a lower rate of 10% and a higher rate of 20%, and these will be increased to 18% and 24% respectively from 30 October 2024. These new rates will match the residential property rates, which are not changing. 

What does it mean?

There was a lot of discussion before the budget about the possibility of an increase to CGT rates. With the Annual Exempt Amount already having been reduced from £12,300 in 2022/23 to £3,000 in the current tax year, an increase in rates will not be welcome for those holding assets subject to CGT (albeit those clients who did crystallise gains prior to the budget will be feeling very pleased with themselves).

The previous changes to the CGT and dividend tax allowances in the last couple of years has already led to an increased use of other tax wrappers such as insurance bonds so this trend is likely to continue. One of the benefits investments under the CGT regime have had in the past over investment bonds is the lower rate of tax payable on capital gains. UK bonds pay up to 20% corporation tax on capital gains arising within the fund whereas a basic rate taxpayer holding an OEIC would only pay 10% where the gain exceeded their annual exempt amount. Increasing the CGT rates to 18% and 24% reduces, or in some cases eliminates this tax advantage which could make an alternative investment approach more attractive for some clients.

The comparison of the tax suffered by different investments is relatively simple for investment of new money but with the increase in CGT rates applicable from the 30^th October, there is no window of opportunity to benefit from the lower rates for those who wish to crystallise gains on existing investments. Professional advice should be sought when considering whether a new investment approach is suitable taking into account any tax charge on disposal in addition to the future taxation of a new investment.

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 (BADR) and Investors’ Relief (IR)

What was announced?

There are two reliefs which offer access to a lower rate of CGT: Business Asset Disposal Relief (BADR), and Investors’ Relief (IR). The rate for both BADR and IR will increase gradually, to give business owners time to adjust to the changes. The BADR and IR rates will rise to 14% from 6 April 2025, and will match the main lower rate of 18% from 6 April 2026. 

What does it mean?

Business Asset Disposal Relief (BADR) allows business owners to benefit from a lower rate of CGT up to a lifetime limit on qualifying gains when they dispose of their business. Investors’ Relief differs in that it applies to individuals holding shares in unlisted companies as long as certain conditions are met.

While the increases to the rates could drive investors in shares to dispose of holdings sooner rather than later, the effect on business owners is less certain.

For those who were already considering disposing of their business (and have a buyer in place!) the changes could push them to try and get this completed before the new tax year begins to benefit from the lower rates. However, for a lot of business owners there are various reasons why the changes will have no effect on their plans. Ultimately, the specific circumstances of those involved will dictate what course of action to take but the tax tail should not wag the business dog.

Business owners with a successful business providing them with a good income are unlikely to make a spur of the moment decision post budget to sell their business purely down to increases in the rate of CGT.

For those with the intention of selling the business in a few years to live off the proceeds in retirement, is it realistic to bring forward retirement to benefit from the reduced rates? Or postpone retirement until a time when tax rules might change? For many the answer will be no and they will just accept a higher tax charge.

Common sense would also suggest that the increase in rates won’t have much impact on those considering starting up a new business as the chances are the potential tax payable on ultimate disposal many years down the line has not even entered their minds.

The increase in tax payable on disposal will depend on the gain involved but also the tax position of the individual involved. Essentially the lower the gain the less increase in tax there is likely to be. However, it isn’t just the change to BADR that needs to be taken into account. If the gain on disposal exceeds £1m then the main CGT rate changes would cause a further increase in tax payable.

*assuming the higher rate of CGT applies to gains in excess of the BADR limit

It will be interesting to see to what extent the changes to CGT have on the behaviour of business owners and individual investors as the government have predicted the combination of the changes will raise a significant amount of additional tax. In the projections published alongside the budget it is stated that these CGT changes will increase over the coming years to a sizeable £2.49 bn in the 2029/30 tax year. Whether this will help plug the “black hole” as intended we’ll have to wait and see. 

Individual Savings Accounts (ISAs) and Junior ISAs

What was announced?

The subscription limits for Adult ISAs and will remain at the current levels from 6 April 2025 to 5 April 2030.

It should also be noted that the government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.

What does it mean?

Since 6 April 2024, the government allows subscriptions to multiple ISAs of the same type, with the exception of Lifetime ISA and Junior ISA, within the tax year, removing the previous limit on subscribing to one ISA of each type per year. All subscriptions must remain within the overall ISA limit. This change was not mandatory, and managers can choose to limit subscriptions to only one ISA held with them in any tax year. Note that:

• investors with a LISA are still restricted to subscribing to one LISA a year
• investors with a JISA are still restricted to subscribing to one of each type in a year

Under 18s affected by the transitional arrangements are not permitted to subscribe to more than one cash ISA in a tax year.

Since 6 April 2024, the government removed the requirement for an investor to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year. This change is not mandatory and, an ISA manager, can choose whether or not to request a new ISA application each subscription year or following a gap in subscriptions.

Subscription limits are as follows:

• Adults ISAs - £20,000
• Junior ISA - £9,000 

Child Trust Funds

What was announced?

The subscription limits Child Trust Funds will remain at the current levels from 6 April 2025 to 5 April 2030.

What does it mean?

A Child Trust Fund is a long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011. The Child Trust Fund scheme closed in 2011 but can continue to add up to £9,000 a year to an existing Child Trust Fund account. The money belongs to the child and they can only take it out when they’re 18. They can take control of the account when they’re 16. 

Stamp Duty Land Tax

What was announced?

From 31 October 2024 the Higher Rates for Additional Dwellings (HRAD) surcharge on Stamp Duty Land Tax (SDLT) will be increased by 2 percentage points from 3% to 5%.

The single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporate bodies will also be increased by 2 percentage points from 15% to 17%.

What does it mean?

Quite simply, it means an increase in tax for those purchasing second homes, buy-to-let residential properties, and companies purchasing residential property. 

EIS and VCT

What was announced?

In Autumn Statement 2023, it was announced that the previous government would legislate to extend the existing sunset clauses for the EIS and VCT from 6 April 2025 to 6 April 2035.

In the Autumn 2024 budget the government confirmed it will extend the Enterprise Investment Scheme and Venture Capital Trust schemes to 2035.

What does it mean?

This will be welcome news for financial planners who will be able to make use of the income tax and capital gains tax advantages of these schemes for their clients.

Please see our What is EIS, VCT or SEIS article for more information on the general planning and tax considerations.