Autumn Budget 2024: an overview

On 30 October 2024, the chancellor, Rachel Reeves delivered her first budget and after months of speculation the results are in: the biggest tax-raising budget in a generation, promising to deliver a £40bn increase in tax revenue.

Whilst in certain areas the government’s announcements did not go as far as was previously feared, for some, there will be unwelcome surprises. In this article we seek to provide a summary of the key measures affecting personal taxation. In the coming weeks, and as further details emerge, our more detailed analysis will be published.

Capital Gains Tax (“CGT”)

• CGT rates: CGT was anticipated to increase and this proved to be the case, albeit not to the extent that many expected. The lower rates of CGT, affecting the sale of shares and non-residential property, have been increased from 10% to 18% and 20% to 24%. This brings the rates in line with those already affecting the sale of residential properties.

  Anti-forestalling measures have also been introduced with immediate effect, ensuring the new rates will apply to unconditional contracts which were entered into before 30 October 2024 but complete afterwards.

• Business Asset Disposal Relief (“BADR”): The CGT rate for BADR, which can assist employees and directors on the sale of their unlisted business will also increase over time to align the rates. For disposals on or after 6 April 2025, the rate will increase from 10% to 14% and from 6 April 2026, from 14% to 18%. The lifetime allowance remains at £1m.
• Investors’ Relief: The CGT rate for Investors’ Relief will also increase in line with BADR rates. However, the lifetime allowance will reduce from £10m to £1m, again to align the thresholds, but significantly limiting the benefits for those investing in businesses to which they have no connection – for example angel investors.
• Carried interest: carried interest rates, affecting the profits made by private equity managers, will increase from 6 April 2025 to 32% – from 18%/28%. Again, this increase was not as steep as previously feared after some hard lobbying from the private equity sector. However, further reform is expected from 6 April 2026, with the direction of travel being to align rates with income tax rates.

Importantly, there were no announcements in relation to holdover relief and CGT rebasing of assets on the death of a taxpayer, which for the moment remain as before.

Inheritance Tax (“IHT”)

• IHT thresholds: The freeze on current IHT thresholds was extended, ensuring that the current Nil Rate Band of £325,000 and Residence Nil Rate Band of £175,000 for estates below £2m remain in place until 5 April 2030. Whilst not a direct tax increase, as asset values increase, more estates will come within the IHT net.

• Agricultural and Business Property Relief: The more surprising announcements relate to the availability of key IHT reliefs; Agricultural Property Relief (“APR”) and Business Property Relief (“BPR”). From 6 April 2026, 100% relief will be capped at the first £1m worth of combined business and agricultural property. Assets exceeding this threshold will be limited to 50% relief, essentially creating a 20% rate of tax on such assets. The £1m allowance will not be transferable between spouses. Anti-forestalling measures were announced to ensure lifetime gifts made after 30 October 2024 are subject to the £1m cap. This is a significant shift which will affect many clients, who will now need to review their succession plans to take into account the potential IHT liabilities.

  A technical consultation is due in early 2025 to consider how the changes to the reliefs will affect trusts holding qualifying assets. Currently, it appears trusts established before the Budget will benefit from the £1m allowance per trust, but trusts established post-budget will have the £1m allowance shared between all trusts created by the settlor.

• AIM shares: Such shares previously qualified from 100% BPR if held for the qualifying period, will from 6 April 2026 only benefit from 50% relief. Importantly, AIM shares will not come within the new £1m allowance.

  Whilst opting to pay the tax liability in instalments over 10 years on affected assets may be an option for taxpayers it should be noted that from 6 April 2025, the interest charged by HMRC on unpaid tax will increase by 1.5% to 4% above the Bank of England’s base rate.

• Pensions: Another significant policy shift will see unused pension funds and death benefits payable becoming subject to IHT from 6 April 2027. A formal consultation on these changes will be conducted. However, it will likely prompt changes in the way clients approach their pension pots, where traditionally they may have divested themselves of other assets in priority. Again, this change is likely to bring a significant number of estates with the IHT net.

Interestingly, there were no changes made to the “seven-year rule” for lifetime gifts, the gifts as normal expenditure out of surplus income exemption or exemptions for heritage assets.

Non-doms

The changes previously announced to the abolition of the “non-dom” tax regime have been confirmed, but with some concessions for tax payers.

• Foreign Income and Gains (“FIGs”): From 6 April 2025 the remittance basis regime will be replaced by a new four-year regime, where individuals arriving in the UK – provided they have been non-UK resident for 10 previous consecutive tax years – will not be taxed on FIGs, whether or not they are brought into the UK. Three year transitional arrangements will be in place for those who have previously claimed the remittance basis and who bring previously unremitted FIGs arising before 6 April 2025 into the UK.
• IHT: The current ‘domicile’ based system for IHT will be replaced by a residence based regime. From 6 April 2025, if a taxpayer has been UK resident for 10 out 20 of the last tax years immediately proceeding the taxable event – i.e. death – the taxpayer’s worldwide estate will be within the UK IHT net. A ‘long-term resident’ will remain within the scope of IHT for between three and ten years, depending on the number of years spent in the UK, after they become non-UK resident.

• Trusts: There are also a raft of provisions affecting trusts created by non-doms. At present, non-UK property comprised in a settlement settled by a non-UK domiciled individual is not subject to UK IHT, with the exception of an indirect holding in UK residential property. From 6 April 2025, the IHT status of a trust will no longer be based on the settlor’s domicile status at the time of creating the settlement. Instead, a trust will be within the scope of IHT during the time the settlor is long-term resident. This will have the effect that a trust could move in and out of relevant property regime depending on the settlor’s movements.

  There are however concessions for settlors with an interest in trusts created before budget day, ensuring the trust assets remain outside of their personal taxable estates for IHT purposes.

Stamp Duty Land Tax (“SDLT”)

From 31 October, the SDLT surcharge applying to the purchase of second homes will increase from 3% to 5%.

Income Tax and National Insurance Contributions (“NICs”)

Income tax rate thresholds remain frozen until April 2028, following which thresholds will rise in line with inflation (CPI).

Whilst there are no changes to employees’ NICs, from April 2025 employers’ NICs will rise from 13.8% to 15%. The threshold at which employers are required to pay NICs will also fall from £9,100 to £5,000. To help mitigate the cost for smaller businesses, the employment allowance will increase from £5,000 to £10,500. The majority, £25bn of the £40bn tax increases, is set to derive from these measures.

VAT on private school fees

The government confirmed its previous announcement that from 1 January 2025 private schools will be subject to VAT at the standard rate of 20%. Fees received from 29 July 2024 for terms from 1 January 2025 onwards will also be caught by anti-forestalling provisions.