All Budgets are political. This one more so than most. Rarely can there have been such a striking contrast between the rhetoric of an incoming government and that of its predecessor.
Committing in advance to abjure increases in Income Tax, VAT or National Insurance contributions (well, employees’ NICs at least, as it turns out) might well be a good electoral strategy: but it makes it hard to raise large amounts of money: even Robin Hood would have found it a challenge to ply his trade with one hand tied behind his back.
National Insurance and Employment Allowance
By far the largest contribution comes from increasing employers’ NICs, both by increasing the rate from 13.8% to 15% and reducing the threshold over which it is payable by £4,100 to £5,000. The changes apply from April 2025 and the threshold will remain at that level for three years (our old friend fiscal drag again) before increasing with the Consumer Price Index (‘CPI’) from April 2028.
The blow is softened by increasing the Employment Allowance (essentially a waiver of employers’ NIC) from £5,000 to £10,500: at the same time, the rule restricting eligibility for Employment Allowance to smaller employers is removed. Nonetheless, a tax change which makes it more costly to employ people might be seen by some as unfortunate for a government avowedly focussed on ‘working people’.
Capital Gains Tax and reliefs
As expected, rates of Capital Gains Tax (‘CGT’) are increased, though not perhaps by as much as some had feared. From Budget Day (i.e. 30 October 2024), the rate for basic-rate taxpayers increases from 10% to 18% and for higher-rate taxpayers from 20% to 24%, aligning them with rates on residential property (which remain unchanged).
It was expected that the rate of tax on ‘carried interest’ (effectively the performance-related reward of fund managers) would be increased. From April 2026, carried interest will be chargeable to Income Tax, after applying a ‘multiplier’ of 72.5%; meanwhile it will remain within the CGT code, albeit at the rate of 32% from April 2025 (which, for a 45% payer, amounts to pretty much the same thing).
As for CGT Business Asset Disposal Relief (‘BADR’), the lifetime limit was reduced to £1m in 2020 and it continues to wither. From 6 April 2025 the rate of tax increases to 14% and from 6 April 2026 to 18%.
Investors’ Relief, BADR’s lesser-known and neglected sibling, escaped the lifetime limit reduction in 2020. That is now remedied: the limit is reduced to £1m from Budget Day and the same changes to the rates of tax will apply as for BADR.
Although nothing is said in the Budget about the future of these reliefs, we would be surprised if they were still around at all by the time of the next General Election.
All of these rate changes are accompanied (again, as widely expected) by anti-forestalling rules which potentially apply the new rates to contracts entered into before the change in rates but completed after the change.
Inheritance Tax, reliefs and pensions
Major changes are announced to Inheritance Tax (‘IHT’), though the Nil Rate Band and the Residence Nil Rate Band remain unscathed (albeit frozen until 2030) and there are no changes to the rules on Potentially Exempt Transfers.
Business Property Relief (‘BPR’) and Agricultural Property Relief (‘APR’) are ‘reformed’ from 6 April 2026. While the existing 100% reliefs continue for the first £1m of combined agricultural and business property, thereafter the rate of relief will be 50%. But the uplift to market value which applies for CGT purposes on death, which some had feared would be removed, remains. In many cases it may still make sense, in tax terms at least, to hang on to assets qualifying for BPR or APR and pay IHT on death rather than lose CGT rebasing by making lifetime gifts.
The other major change to IHT is that from 6 April 2027, the balance of any pension fund unused at the date of death (and death benefits payable by a pension scheme) will be brought into the pension owner’s estate for IHT purposes. This is obviously aimed at countering the use of pension schemes as IHT planning strategies, rather than as a way to fund retirement.
It remains to be seen how any IHT charge will interact with the charge to Income Tax which is in many circumstances levied on amounts paid out by an inherited pension (typically if the ‘owner’ of the pension scheme died after reaching age 75, though the rules can be complicated). The prospect of a 40% charge on the undrawn fund, and further charge to Income Tax when the depleted fund is paid out, would be oppressive: but we shall have to wait and see.
One side effect of the inclusion of a pension fund in the IHT estate is that it may in many cases have the result that the total estate now exceeds £2m, thus reducing the “residence nil rate band” by £1 for every £2 of the excess. Thus, the pension fund may not only itself be taxable, but its inclusion may increase the tax payable on the remainder of the estate.
Non-UK domicile tax regime
There’s been much speculation about the approach the Government would take to people domiciled outside the UK (‘non-doms’). Now we know: Chancellor Rachel Reeves branded the concept “outdated” and stated that “if you make Britain your home, you should pay your tax here.”
From 6 April 2025 the remittance basis of taxation is to be abolished and replaced with a residence-based regime, giving a limited tax break to people newly arriving into the UK. If you haven’t been resident in the UK in any of the 10 consecutive years preceding your arrival, you won’t pay tax on foreign income and gains for the first four years of tax residence (regardless of whether you bring that income or those gains into the UK).
One interesting point is that this relief would appear to extend to long-term expatriates returning to the UK after a lengthy period working abroad, regardless of their domicile status – one of the few groups benefitting from the change. Inevitably, there are complex transitional rules, including the potential for current and past remittance basis users to rebase foreign assets to their April 2017 value for CGT purposes, and for historic non-remitted income and gains to be taxed at a favourable rate if remitted before April 2029.
Property: Stamp Duty Land Tax
The chipping away at landlords of residential property continues. Where the additional rate of Stamp Duty Land Tax (‘SDLT’) is payable on purchases of additional dwellings (whether as second homes or for letting), this increases from 31 October 2024 by 2% to 5%.
International tax
Companies operating internationally will be interested to note that the Government intends to consult on modernising three elements of international tax legislation, namely transfer pricing; permanent establishments; and Diverted Profits Tax (albeit that this last affects only the largest businesses).
On the one hand, UK-to-UK transfer pricing will potentially be removed from the rules; less helpfully, it’s suggested that medium-sized businesses may be brought within the scope of the UK’s transfer pricing rules by reducing the existing thresholds of the small and medium-sized enterprise (‘SME’) exemption ‘to align with international peers and protect the UK tax base’. There is however an undertaking that small businesses will remain outside the scope of the transfer pricing rules.
Late payment interest rates on unpaid tax liabilities
Easy to miss was the Chancellor’s mention of interest on late paid tax. Sometimes tax disputes last for years, and the interest bill on eventual settlement (which HMRC will virtually never reduce, regardless of the reasons for the delay in closure) can come as a shock. From 6 April 2025 the 7.5% interest rate will be increased by 1.5%.
And, finally, what about the rabbit which Chancellors are wont to pull out of the hat as the welcome finale to their Budget Statement?
No chance: fiscal myxomatosis is rife in the Treasury, we fear.
More Autumn Budget 2024 insights from BKL
- Autumn Budget 2024 Explained: watch our webinar
- Bite-sized insights: our video series with Neil Lancaster, Private Client Tax Partner
- Inside Autumn Budget 2024: our guide to the announcements