AUTUMN BUDGET – October 2024
On Wednesday 30th October 2024, The Chancellor Rachel Reeves delivered the much-anticipated 2024 Budget, marking Labour’s first budget in 14 years and the first ever by a female Chancellor. Here are the main and relevant points with regards to financial planning:
Capital Gains Tax
Capital Gains Tax (CGT) has been increased with immediate effect to 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers (increasing from 10% and 18% respectively). CGT on residential property remains unchanged which was already at a higher rate. This really emphasises the tax benefits of both Pensions and ISAs.
Inheritance Tax
The basic current Inheritance Tax (IHT) thresholds have continued to be frozen and also extended from 2028 until 2030, with the first £325,000 remaining tax-free. (£500k if it includes a residence left to a direct descendant) this will result in more estates being included in IHT
Pensions
After a lot of speculation there have been two changes to pensions;
Firstly, in April 2027 we will see the end of the Inheritance Tax exemption for unused pension values assuming it passes consultation. This may prompt some rethinking of our retirees’ who are in the decumulation stage, as it is not so obvious to draw down on ISA savings before pensions. Your adviser will discuss this with you at your next review.
The second pension change takes effect immediately and pertains only to the transfer of pension funds to the EEA for individuals who remain UK residents. This change makes such transfers significantly less advantageous, aligning them with transfers to other regions around the world.
State Pensions
It was confirmed that the Triple Lock on State Pensions would be maintained for the remainder of this parliament, which means a 4.1% earnings-based increase for April 2025. The full New State Pension will increase to £230.25 a week from 6 April 2025.
The 4.1% increase will also apply to the guaranteed element of Pension Credit.
Stamp Duty Land Tax
The Stamp Duty Land Tax has been increased for second homes from 3% to 5% with effect from 31 October 2024.
Income Tax and National Insurance
Labour’s manifesto promised that “working people” would not face higher income tax or National Insurance (NI). However, they have confirmed that the current freeze on thresholds will remain in place until April 2028. As a result, more individuals will continue to be drawn into paying higher taxes during this period.
The Government did, however, aim its biggest tax increase at employers, increasing employer NI contributions from 13.8% to 15%. This, alongside a drop in the threshold at which employers start to pay NI from £9,100 to £5,000 is expected to raise £25bn.
Business owners should consider opting for dividends instead of a salary and explore the best ways to withdraw funds from their business. The potential for savings by employing a spouse or partner has decreased significantly due to a sharp reduction in the secondary threshold. It’s important to review current arrangements in light of this change. As always, seeking professional advice is crucial.
Non-Dom status
The Government’s decisions to abolish the ‘Non-Dom’ status and end excluded property trusts in this year’s Budget could have an impact on the number of UK high-net-worth individuals settling long term in the UK, which could have a knock-on impact on the UK’s high end property market. The provisions are relatively complex and specialist advice in relation to those affected will be essential.
ISAs
There are no changes to the current subscription limits. These are £20,000 for ISAs, £4,000 for Lifetime ISAs (included in the £20,000 ISA subscription limit), £9,000 for Junior ISAs and the Child Trust Fund. These will be fixed until 5 April 2030.
The ‘British ISA’ proposed in the last budget will not go ahead.
Pre-budget rumours of a cap an accumulated ISA savings have not materialised either.
Summary
Overall, this has been a significant tax raising Budget with lasting implications. It hasn’t been easy for those looking to save and invest for their future. In light of the changes announced, many individuals will understandably seek to grasp how this affects them and how it may alter their personal financial plans.
Please note for the purpose of being concise we haven’t included every announcement within this summary, there have been changes ranging from an increase in the National Living wage to the addition of VAT on private schools fees. We have picked out the points we consider most appropriate, however if you would like a full budget summary, please contact your adviser.
For clarification of any points discussed above and any future independent advice regarding your own financial planning, please do contact us on 01626 833225 or email [email protected]
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