Tughans Solicitors

Autumn Budget 2024 – Impact on businesses and individuals

After much anticipation, the details of the first Labour Budget in 14 years have now been disclosed. Chancellor, Rachel Reeves, suggests the Budget will raise taxes by £40 billion. Below we have highlighted some of the key issues which are likely to affect our clients, both businesses and individuals.

 

Rise in Employer National Insurance Contributions

  • National Insurance Contributions (NICs)are a direct tax paid by employees and employers on employees’ earnings. The Government has stated there will be no increase on Employee NICs, due to reluctance to further increase the tax burden on “working people”. Instead, as anticipated, a hike of 1.2% on Employer NICs will be implemented next April, with the rate rising from 8% to 15%. It has also been confirmed that the threshold at which businesses start paying NICs on workers’ earnings will be lowered from £9,100 to £5,000.

 

  • It is hoped that this increase will raise £25 billion a year for the government.

 

  • This increase will undoubtedly have a considerable impact on businesses, as the increase will be an added expense for all employers, which could lead to repercussions, such as a downturn in recruitment or an increase in prices. On the other hand, it will also affect employees, as it may result in lower pay and hinder future salary increases.

 

  • To help soften the blow on smaller businesses, it has been confirmed that the Employment Allowance will increase from £5,000 to £10,500, which the Chancellor says will mean 865,000 employers won’t pay any National Insurance at all next year.

 

  • Rates of income tax and NIC paid by employees and of VAT, remain unchanged.

 

  • The “freeze” on Income Tax and National Insurance will not be extended. From 2028 to 2029, personal tax thresholds will be uprated in line with inflation.

 

  • While anticipated, the Chancellor did not announce any change to NICs on Employer Pension Contributions.

 

Increase minimum wage  

The National Living Wage will increase from April 2025 as follows:

  • For people aged 21 or older it will rise by 6.7% from £11.44 an hour to £12.21.
  • For people aged between 18 and 20-years old it will rise from £8.60 to £10.
  • Apprentices will benefit from the biggest increase, with hourly pay increasing from £6.40 to £7.55.

 

Capital Gains Tax (CGT)

  • There was great discussion and speculation surrounding the Budget’s impact on CGT. It was feared by some that the Labour government would  abolish the current £3,000 annual exemption and raise rates to bring them into line with Income Tax, and perhaps get rid of the value uplift on death (which prevents assets becoming subject to CGT and IHT at the same time). However, it came as a pleasant surprise that this was not the case. Rather the Chancellor announced an increase to the lower rate of CGT from 10% to 18% with the higher rate increasing from 20% to 24%. These increased rates are effective from the date of the Budget, 30 October 2024. The rates on disposals of real property will remain at 18% and 24%, whilst the CGT rates for trustees will also increase to 24%.

 

  • For those selling a business, the lifetime limit for Business Asset Disposal Relief (BADR) remains at £1 million but the applicable rate is set to change from April 2025 from 10% to 14% and will rise again to 18% from April 2026. It remains to be seen whether this rise will prompt a rush to sell before the new rate is introduced.

 

Inheritance Tax (IHT)  

  • The Labour government have opted not to alter the current nil rate band thresholds. Rather, they have decided to extend the freezing of the inheritance tax thresholds from 2028, as implemented by the previous Conservative government, until 2030. This means that individuals can continue to utilise their individual nil rate band whilst the residence nil rate band will continue to sit at £175,000. Generally speaking, this will continue to allow spouses and civil partners with children to leave up to £1 million of assets free of IHT, however the continued freezing of the thresholds will of course bring more families into the reach of IHT as property prices rise.

 

  • There is to be a significant change to Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026. Individuals and trusts will no longer enjoy 100% APR and/or BPR on the full value of qualifying assets. Instead, the reliefs will be subject to a combined limit of £1 million of assets, with assets surpassing the £1 million threshold attracting a 50% relief at an effective IHT rate of 20%.

 

  • Additionally, BPR on shares quoted on the alternative investment market (AIM) will only attract relief at 50% in all circumstances, resulting an effective IHT rate of 20%. This shift will have a considerable impact on IHT planning, particularly for older clients seeking to shelter assets from IHT.

 

Pensions

  • Another “hot topic” in the media in the lead up to the Budget was the favourable IHT treatment of pensions. Until now, unused pension pots could be passed down to beneficiaries free of IHT, meaning that pensions have been a significant IHT planning tool. Describing this as a “loophole” to be closed, inherited pensions will now be brought within the scope of IHT from April 2027.

 

Stamp Duty Land Tax (SDLT)

  • In a surprise move, the SDLT surcharge on second properties will increase from 3% to 5%. As this surcharge applies per band, this will significantly increase the cost for those thinking of purchasing additional property as an investment or holiday home.

 

For legal guidance and advice regarding the Autumn Budget for 2024, please contact Emma Doherty in our Employment team or Anna Thompson in our Private Client Team.

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.