Autumn budget 2024: Key announcements and analysis

It is time to approach accountants in London to acquire the best accounting and tax services as Autumn Budget 2024 is announced in the UK.

Rachel Reeves is the first woman to present the budget since her appointment to the UK’s office of Chancellor of the Exchequer. She presented her first budget with £40bn in tax rises.

We will be discussing the main announcements and doing an analysis for autumn budget 2024 in this blog.

Key Budget Announcements

This budget is an important one, and Rachel Reeves has termed it a budget to ‘Rebuild Britain’. The budget announces dramatic increase in taxes, public spending, investment, and government borrowings. According to different analysis conducted by accountants in London, this effect will be temporary economic growth and will most likely lead to higher inflation in the coming days.

Income Tax thresholds to remain frozen until April 2028

The Chancellor has announced that Income Tax and employee National Insurance (NI) thresholds will remain at current levels until April 2028 and then increase in line with inflation. This will mean that more taxpayers are pulled into higher tax bands over the next three years, a phenomenon referred to as ‘fiscal drag’. That process will be exacerbated this year by the increase in the National Minimum Wage (NMW), which will bring more low earners into the Income Tax net. If the personal allowance had risen with inflation, but the NMW remained the same, low pay would only have been taxed through Income Tax if individuals were working more than 20.7 hours per week, but the announcements made today mean that people working just 19.8 hours per week will be taxed through Income Tax.

Capital Gains Tax (CGT) applied to Private Equity carried interest increased to 32%

Labour will raise the CGT rate applied to carried interest to 32% (currently 28%), effective from 6 April 2025. From April 2026, carried interest will then be taxed as Income Tax, although there will be “bespoke rules to reflect its unique circumstances”. This announcement has not been especially surprising, given that Labour had already stated it would seek to close tax loopholes around carried interest. Labour will have to find the right balance on how this change will affect the private equity sector, so that the UK remains competitive.

CGT increases to 18% and 24%

Labour has raised the primary CGT rates, effective immediately (starting from 30 October 2024). The lower rate will increase to 18% while the higher rate will go up to 24%, aligning them with the existing rates for residential property sales. Regarding CGT rates, this change will elevate the UK from being average to being in the top third among European countries.

The Chancellor additionally stated that the cap for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will continue to be £1 million. These reliefs typically lower the amount of CGT that must be paid when selling an unincorporated business or shares in a trading company that is not listed on the stock exchange. The UK has become a less desirable location for living and conducting business, leading to many considering moving elsewhere and potentially delaying expansion projects. The Government must monitor this closely, and its effect on economic growth.

Taxation of pension death benefits

Tax relief on contributions, tax-free investment growth, and tax-free inheritance of funds upon death have made the taxation of pension death benefits seem extremely lenient.

Pensions will now be included in the estate for IHT purposes starting April 2027, so it is not surprising. Initial statements also indicate that taxes on inheritance and income may be required for individuals who pass away at 75 years old or older. This may result in a 67% tax charge on pension death benefits that is highly impactful. Once again, the important thing is to pay attention to the small details and carefully think through any alterations to existing plans before making a decision.

Business Relief (BR) and Agricultural Property Relief (APR) restricted

The Government has additionally revealed a change to BR and APR. At present, assets eligible for BR or APR can receive complete exemption from Inheritance Tax (IHT) up to 100%, without any maximum threshold. Starting in April 2026, only the first £1 millions of both agricultural and business property will receive full relief at 100%. Any value beyond this limit will only receive 50% relief, effectively cutting the main IHT rate in half from 40% to 20%. This could greatly affect businesses, especially family-owned ones, as some families may need to sell business assets to cover a tax payment.

Furthermore, starting in April 2026, the Business Relief rate for AIM shares will be cut in half from 100% to 50%, and the previous full exemption of £1 million will no longer apply.

Pensions tax-free cash and annual allowance limits remain unchanged

Speculation suggested that tax-free cash allowances might decrease or be eliminated, and yearly contribution limits could also be lowered. The Budget did not address any of these changes, so individuals without protections can expect tax-free cash limits to remain at £268,275. The typical Annual Allowance stays at £60,000 per year for the majority and is set at a minimum of £10,000 for those with higher incomes.

Triple lock pensions remain unchanged.

Labour will maintain the triple lock on pensions and will raise the state pension by the highest of either inflation, average earnings, or 2.5%.

IHT Nil Rate Bands (NRB) and Residents Nil Rate Bands (RNRB) remain frozen until 2030

A greater number of people will be affected by the gradual increase of Inheritance Tax as the Government intends to prolong the freeze on the Normal Residence Bands and Residential Nil-Rate Bands until 2030. Individuals are already witnessing a rise in the value of their properties and other possessions, leading to a larger number being included in the group responsible for paying taxes on their assets. The freeze highlights the increased importance of proper estate planning.

VAT on private school fees

The Chancellor announced that starting on or after January 1, 2025, VAT will be applied to private school education, with a 20% VAT rate on fees for education and boarding services. Measures against forestalling are in place to ensure that VAT is applied to any advance payments linked to terms beginning on or after 1 January 2025.

Local authorities and devolved Governments funding students with special educational needs at private schools will have the option to recover VAT. Slight modifications were made to the original rules, which included changes to definitions and only allowing limited exceptions. Still, the main choice to impose VAT on private schools and boarding fees, as well as the schedule for when it will take effect, stays the same.

Other Key Announcements

• The increase in the higher rates for additional dwellings, from 3% to 5% above standard rates, will apply to individuals in England or Northern Ireland purchasing a second property on or after 31 October, excluding main residence replacements.
• From 31 October, the flat rate for purchasing a dwelling over £500,000 in England or Northern Ireland will rise to 17% for corporate bodies, unless relief is applicable, in which case the rates for individuals buying additional properties will apply. If agreements were made before 31 October but are only finished or mostly carried out after that date, the old rates may still be in effect if specific criteria are met. There will be no adjustments to SDLT for commercial properties.
• The National Minimum Wage (NMW) and National Living Wage (NLW) in the UK are set to rise from 1 April 2025. Individuals aged 21 and above will see their hourly wage increase by 6.7%, going up from £11.44 to £12.21, which translates to an annual income of approximately £25,500 for someone working a 40-hour week.
• Individuals aged 18 to 20 will see their hourly wage increase by 16%, rising from £8.60 to £10. This will result in a yearly income of approximately £21,000 for someone working 40 hours per week.
• Apprentices who meet the requirements will receive a raise of 18% from £6.40 per hour to £7.55 per hour, resulting in an annual salary of approximately £16,000 for someone working 40 hours per week. These revisions will result in increased labor expenses for employers, especially due to the rise in pensionable wages.
• Employer NIC will increase from April 2025 to 15%.
• The reduced price for electric company vehicles, which will increase by one percentage point annually until 2027/28 for all tax categories, will stay in place. The prices are as follows:
• 2 percent for the fiscal year 2024/25
• 3 percent in the year 2025 or 2026
• 4 percent for the fiscal year 2026/27
• 5 percent allocated for 2027/28

Starting in April 2028, the electric company car rate will rise to 7%, and then to 9% in 2029/30. Even though it is still over four years in the future, it is crucial for businesses and individuals to stay informed to efficiently plan for cost management, especially when using a salary sacrifice scheme.

• Today’s Budget confirmed the Government’s dedication to requiring the payrolling of all benefits (excluding beneficial loans and accommodation) starting from the tax year 2026/27. Hence, employers should start evaluating their ability to manage benefits through payroll and create a project plan to implement this. Planning carefully is advised as it is not an easy task for businesses.
• The FIG scheme will include a provision equivalent to Overseas Workdays Relief (OWR). Where a taxpayer qualifies for the FIG scheme and makes a FIG election, the portion of their employment income related to their overseas workdays will be exempt from UK income tax for the first four tax years they are tax resident in the UK. This applies regardless of the amount of the employees’ earnings that they remit to the UK. However, this OWR will be limited to the lower of £300,000 or 30% of the employee’s net employment income.
• Delaying changes to income tax thresholds until 5 April 2028 may result in increased expenses for employers who equalize the taxation of their internationally mobile workers’ salaries.
• Greater importance is now put on organizing the duration of employees’ assignments to countries with lower social security rates to lessen the impact of changes to employer NIC.

Final Word

This blog has covered nearly all aspects of the Autumn 2024 Budget and provided a brief analysis as well.

Taxation and Compliance Services in London, UK

For all companies, navigating the rough tides of taxation is critical. The worst part about handling tax is the ever-changing tax compliance rules. This is where the expertise of our professional accountants comes in. As a top consultancy in London, we, at SSCO Global offer comprehensive tax compliance services in the UK. With us, managing your company taxes will never be a problem.