UK Autumn Budget 2024: What does it mean for your wealth?

The Chancellor, Rachel Reeves, has unveiled the Autumn Budget 2024, aiming to address a £22-billion fiscal “black hole” inherited from the previous government.

The Budget seeks to raise approximately £40 billion to support government programmes, while modifications to her fiscal rules will permit additional government borrowing to invest in initiatives designed to “boost long-term growth.”

Here, we break down the key measures that impact personal finances and investments, followed by insights from Guy Foster, our chief strategist, on the implications for the UK economy and its growth prospects.

Key highlights

Capital gains tax (CGT)

Announcement

• From 30 Oct. 2024 CGT rates will increase to 18 percent for lower rate taxpayers and 24 percent for higher rate taxpayers.
• The CGT rates for residential property will remain at 18 percent for lower rate taxpayers and 24 percent for higher rate taxpayers.

Impact

• The main rates of CGT are currently charged at a lower rate of 10 percent and a higher rate of 20 percent.
• Changes will increase the tax payable on disposals, equalising the tax rates for residential property and non-residential property.

Planning opportunities

• If you have previously used carried forward losses, consider revisiting prior year tax returns to reduce losses utilised and bring the losses forward to the current higher rate environment.
• Investment in Enterprise Investment Schemes (EIS) offers the opportunity for deferring capital gains where the reinvestment of the gain is made into EIS-qualifying shares between 12 months before and three years after the gain was made. EIS are higher risk than traditional investments and can be harder to sell, so it is important to seek financial advice.
• Where making philanthropic gifts, it might be worth considering in specie gifting (i.e. asset gifting rather than cash gifting) as the gain on the asset gifted will not be subject to CGT.
• Those with significant capital gains may wish to consider relocating from the UK to another jurisdiction. This will involve a period of over five years of non-UK tax residence and special consideration should be given to your new home jurisdiction.
• International bonds continue to be exempt from income tax and CGT on assets within the bond, and become more attractive given the changes.
• For those with significant assets, the use of private funds will be more attractive due to the potential CGT deferral.
• Investors may wish to consider the use of collective investment vehicles (such as unit trusts and open-ended investment companies) for portfolios held in their name for the inherent CGT deferral that these vehicles offer. This must be weighed against the potential of additional costs and the underlying investment strategy.
• Defer realising the gain on an asset in the hope of a reduced rate in future.
• The use of corporates for holding investments (Family Investment Companies and Personal Investment Companies) may need to be revisited as the arbitrage between corporate tax rates (up to 25 percent) and CGT rates (up to 24 percent) has been reduced. However, the main drivers of succession planning and efficient income growth remain.

Inheritance tax (IHT)

Announcement

• Pensions are to become subject to inheritance tax from 2027.
• The freeze to the IHT threshold of £325,000 per person has been extended from April 2028 to April 2030.

Impact

• Currently pensions largely sit outside of your estate for inheritance tax purposes. This allows you to pass your pension on to future generations without being subject to a 40 percent tax charge. The change will mean individuals will no longer see pensions as part of their estate planning strategy. It’s not clear how this will interact with income tax, particularly for those who die before 75, where currently the pension scheme would be inherited free of inheritance tax and income tax. 
• More individuals’ estates will be pushed over the taxable threshold due to inflation and growth on asset values. The IHT threshold has now been frozen at £325,000 for 15 years. Were it linked to Retail Price Index inflation, it would now stand at £599,181¹.

Planning opportunities

• Withdrawing the tax-free lump sum allowance and utilising this during lifetime to fund spending or make gifts to family members could offer an efficient way to reduce the value of one’s pension subject to inheritance tax. This may be by making gifts to children and grandchildren and then surviving seven years from making the gift, meaning the gift is not subject to inheritance tax.

Business Asset Disposal Relief (BADR) and Investors Relief (IR)

Announcement

• Rates for BADR and IR (both currently at 10 percent) will rise to 14 percent from April 2025, and to 18 percent from April 2026.
• From 30 October 2024, the lifetime limit for investors relief will reduce from £10 million to £1 million. The £1 million limit for BADR will remain the same.

Impact

• Individuals looking to sell their businesses or qualifying investors who would benefit from these reliefs will face a tax rise of £40,000 for a sale made from April 2025, and £80,000 for a sale made from April 2026 (assuming a gain of £1 million on sale).
• Those with lifetime gains above £1 million who would benefit from IR will see the standard rates of CGT now apply to the excess.

Planning opportunities

• Married couples could consider transferring shares to each other to make use of both sets of allowances at the reduced rate of tax.
• Where appropriate, sales could be expedited to benefit from the current tax rate ahead of the proposed increases.
• Individuals open to relocation may wish to take tax advice to consider future position on sale.

Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)

Announcement

• Both the EIS and VCT schemes will be extended to at least 2035.

Impact

• Giving these schemes the greenlight for another 10 years provides reassurance to both start-ups looking to raise external funds, as well as investors who benefit from the schemes and the generous tax reliefs available.

Planning opportunity

• Investors should have the confidence to either continue using or explore using these investment options where appropriate, especially in the context of a rising tax environment which can be offset by the associated tax reliefs. Significant risks are involved with these types of investments and advice is strongly recommended.

Reform to Business Relief (BR) and Agricultural Property Relief (APR)

Announcement

• From April 2026, the current full relief from IHT will only apply to the first £1 million per individual of combined BR- or APR-qualifying assets, with a 50 percent rate of relief (an effective tax rate of 20 percent) applying thereafter.
• From April 2026, investments not listed on markets of recognised stock exchanges, including AIM, will no longer benefit from full relief with the 50 percent rate applying to the entire sum.
• The government announced they will publish a technical consultation in early 2025 on how this will impact trusts holding APR or BR assets. It has been indicated there will be a £1 million allowance available to trustees.

Impact

• Those with significant business assets, working farms, or qualifying AIM shares may for the first time face an IHT liability on those assets. For a business owner with a shareholding of £10 million, the IHT liability could increase from zero under current rules, to £1.8 million from April 2026.

Planning opportunities

• Individuals could explore simple options such as taking out insurance to cover the liability on business assets to ensure there is not a forced sale to pay an IHT bill.
• For married couples, the full relief applying to the first £1 million per individual of BR or APR assets cannot be transferred to the survivor on death. Couples could consider the use of a Business Relief trust to retain the £1 million relief on first death, allowing the potential for the full £2 million of relief to be utilised.
• Individuals looking to manage their succession planning could consider utilising the current unlimited relief on their business assets by tax-efficiently transferring shares into trust for the next generation.

VAT on private school fees

Announcement

• 20 percent VAT to apply to private school fees with effect from 1 Jan. 2025.

Impact

• Day pupils will see an increase of £2,130 per annum and boarders an increase of £7,100 per annum (based on the Independent Schools Council’s 2023 national average across all age groups). 

Planning opportunities

• Early planning to make use of tax-efficient savings including ISAs, together with a mix-and-match approach combining state and private provision, can be effective.
• Grandparents or other family members can also support costs through regular gifting, whether direct or through trusts. Provided gifting this money comprises surplus income which doesn’t affect their lifestyle, or is within gifting allowances, they are exempt from a future inheritance tax (IHT) liability (limits apply).

Stamp Duty Land Tax (SDLT)

Announcement:

• The higher rates for additional dwellings (covering second homes, buy-to-let residential properties and businesses purchasing residential property) will increase from three percent to five percent from 31 Oct. 2024.
• The single rate of SDLT that is charged on the purchase of dwellings costing more than £500,000 by corporates will also be increased by two percent, from 15 percent to 17 percent.
• Welsh land tax rates and stamp duty on second homes are devolved.

Impact

• This change is designed to improve the prospects of first-time buyers when competing with property investors.
• Those who exchanged contracts prior to 31 Oct. 2024 are not affected by this rate increase.

Planning opportunity

• Investing in property through collectives such as Real Estate investment Trusts (REITs) could provide exposure to property with less upfront costs.

ISAs

Announcement:

• The government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.
• Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2030.

Impact

• The freezing of ISA allowances will reduce the benefit of ISAs in financial planning over time.

Planning opportunity

• ISAs remain attractive savings vehicles and should continue to be used as much as possible.
• Over time, additional planning may need to be considered for tax-efficient investing.

UK non-dom tax status abolished and replaced with new regime

Announcement

• From 6 April 2025:
  • The current remittance basis of taxation will be abolished for UK resident non-domiciled individuals (non-doms).
  • This method of taxation will be replaced by a new regime for individuals who become a UK tax resident (after a period of 10 tax years of non-residence). Eligible individuals will not pay tax on foreign income or gains in the first four tax years of UK residency and will be able to bring these funds to the UK free from any additional charges.
  • Eligibility for Overseas Workday Relief (OWR) will be primarily based on whether employees are eligible for the 4-year foreign income and gains (FIG) regime.
  • A new residence-based system for IHT will be introduced.

• The test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises.
• For those who are resident between 10 and 13 years, they will remain in scope after leaving the UK and become non-resident for three tax years. The timeframe they remain in scope will increase by one tax year for each additional year of residence.
• Currently, non-UK assets comprised in a settlement are excluded property and not subject to IHT if the settlor was non-domiciled at the time the assets became comprised in the settlement. From 6 April 2025 the excluded property status of non-UK settled assets will be determined by the settlor’s residence. When a settlor is long term resident, any assets they have settled (even when not long-term resident) will be subject to IHT.

Impact:

• UK residents whose permanent home (domicile) is outside of the UK currently only pay UK tax on income and gains generated in the UK, not outside the UK (unless they bring it into the UK). In addition, non-UK assets are outside the UK IHT net.
• These individuals will have to pay UK tax on their overseas income and gains from 6 April 2025 if they arrived in the UK before 6 April 2022.
• The new regime will offer a simpler, albeit shorter, “tax holiday” on foreign income or gains. Importantly, in a large shift from the current regime, these gains or income will be able to be brought into the UK free from tax.
• Pre-existing trusts settled by individuals who become long term resident will now fall in scope for IHT alongside other non-UK assets held outside of trust.

Planning opportunities:

• Those looking to move to the UK should seek professional tax advice prior to moving to ensure they understand the tax implications.
• For those currently in the UK, the planning window within the current regime is limited. Understanding the impact of the changes alongside your options with an appropriate professional could help you make proactive choices to navigate and take advantage of the upcoming changes. In this regard, the transitional arrangements may provide opportunities.
• For those concerned about remaining in scope of for UK IHT after leaving, insurance solutions may offer a simple, cost-effective method of mitigating UK IHT exposure while it exists.

Transitional arrangements for existing non-doms

Announcement:

• A number of changes have been made to the transitional arrangements originally proposed by the former Conservative government.
• Non-doms who will lose access to the remittance basis on 6 April 2025 and are not eligible for the new four-year FIG regime, will no longer benefit from a single year reduction to the rate of tax owed on foreign income and gains.
• Current non-doms who have claimed the remittance basis will be able to rebase capital assets to 5 April 2017 (previously 5 April 2019) levels for disposals that take place after 6 April 2025. This means that when foreign assets are disposed of, affected individuals can elect to be taxed only on capital gains since that date.
• Non-doms will be able to remit foreign income and gains that arose before 6 April 2025 to the UK at a flat rate of 12 percent under a new temporary repatriation facility (TRF) in the tax years 2025-26 and 2026-27. The TRF has been extended by one year to include remittances in 2027-28 at a higher rate of 15 percent in that year.
• From 6 April 2025, all foreign income and gains arising within a settlor interested trust (where the settlor is also a named beneficiary) will be taxable on the settlor, unless the settlor is able to benefit from the new four-year regime. Pre-6 April 2025 income and gains will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than four years – or matched to worldwide trust distributions.
• The TRF will also be available for qualifying UK resident settlors or individuals who receive a benefit from an offshore trust structure during the three tax years, from 6 April 2025.

Impact:

• For current non-doms who will stay in the UK, the transitional arrangements offer some significant, albeit time-limited, potential benefits. Taking advantage of these may help lessen the future impact of the upcoming changes.
• Non-doms who are deemed long term residents will potentially face a significantly increased exposure to UK inheritance tax on their worldwide estate and may wish to review this with their advisers.

Planning opportunities:

• Those wishing to spend foreign income or gains in the UK should look to take advantage of the time-limited opportunity to bring these in at a 12-to-15 percent tax rate. The amount brought into the UK should reflect what is required and take into account wider planning.
• Individuals able to control the timing of their income may wish to consider realising foreign income gains in the 2024-25 tax year in order to be able to take advantage of the TRF if intending to remit that income in future.
• Those who are eligible for rebasing will likely want to obtain valuations of assets as of 5 April 2017 in order to compare to the original base cost.
• With the TRF applying to distributions from formerly protected trusts it may present an opportunity to extract historic gains and income at a favourable rate of tax. Those with existing trusts should review the suitability of these and consider whether additional structuring may be required, such as international bonds, private funds and companies or winding up the structure.
• It’s essential to seek tax advice to understand the complex nature of the proposed changes as they apply to individual circumstances.

Income tax bands remain frozen

Announcement

• The income tax bands will remain frozen until April 2028. They will then increase in line with inflation as part of Labour’s pledge to protect working people.
• Income tax rates will remain as they are now and can be found here .

Impact

• Income tax thresholds have been frozen since 2021 and keeping them so until April 2028 will cause more people to be pushed into paying higher income tax rates as a result of inflation, known as fiscal drag.

Planning opportunities

• Individuals could consider whether a pension contribution or a charitable donation would be beneficial to extend their basic rate tax band, thus lowering the overall tax payable. Reducing your overall income may also positively impact your ability to claim benefits such as child benefit.

Carried interest

Announcement

• Carried interest can be subject to CGT where certain conditions are met.
• From April 2025 the CGT rates currently applied to carried interest will be increased from 28 percent to 32 percent.
• From April 2026, carried interest will be taxed fully within the income tax framework, with bespoke rules to reflect its unique characteristics with a 72.5 percent multiplier applied to qualifying carried interest that is brought within charge.
• The government will also consult on introducing further conditions of access into the regime.

Impact

• Labour is attempting to balance a perceived unfairness within the tax system while retaining the international competitiveness of the UK as a fund management hub.
• From April 2026, an additional rate taxpayer would have an effective income tax charge of 32.625 percent on carried interest.

Planning opportunity

• The change in treatment to income tax could result in carried interest potentially being within scope of the inheritance tax exemption for gifting out of excess income.
• It may be possible to reduce the tax charge using investments into EIS and Venture Capital Trusts (VCTs) where the gain will be charged to income tax in future.

Increase to employers’ National Insurance (NI)

Announcement

• Class 1 Employers National Insurance contributions (NICs) will be increased from 13.8 percent to 15 percent from 6 April 2025.
• The employment allowance was increased from £5,000 to £10,500.

Impact

• NICs are paid by employees, employers and the self-employed on earnings. Currently, employers pay NI at 13.8 percent on earnings over £9,100. Today’s announcement will see the headline rate of 13.8 percent increased to 15 percent and employers will start to pay NICs on earnings over £5,000.
• The change in minimum threshold will cost employers £615 for employees earning over £9,100 per annum. The 1.2 percent increase will affect all employers with employees earning over £9,100.
• In an effort to soften the impact on employers, the employment allowance increase means 865,000 businesses will not pay any NI at all next year, with another one million paying the same or less as they did previously.

Planning opportunities

• Employees making use of salary sacrifice arrangements, such as cycle to work, childcare vouchers, pension payments and ultra-low emission cars will continue to benefit themselves from income tax and NI savings, and their companies will benefit more than previously. As a result, these arrangements have become more attractive for companies who may wish to promote the benefits to their workforces.
• Where possible companies could consider expediting the payment of income subject to NI (such as salary) before the higher rate takes effect.
• Those with Family investment Companies (FICs) or Personal Investment Companies (PICs) may wish to reconsider how much is extracted from the company using salary versus dividends and the use of salary sacrifice arrangements as above.

Increase to the national minimum wage

Announcement

• From April 2025, the minimum wage is set to increase 6.7 percent to £12.21 per hour for those aged over 21.
• 18-to 20-year-olds will have an increase of 16.3 percent increase to £10 per hour.
• Under 18s and apprentices will have an increase to £7.55 per hour from £6.40.

Impact

• Ultimately, business owners are going to need to pay more for their staff. This may lead to them reducing their workforce, not taking on additional staff, or indeed not being able to pay their current obligations or any pay increases.
• To cover higher wage costs, businesses may need to pass on these increased costs to the consumer through charging higher prices for their products or services, particularly when taken together with increased employers’ National Insurance.

Planning opportunities

• For those eligible to contribute to a workplace pension, it would be important to consider planning for the future and in particular any matched contributions that may be available through their workplace pension.

The economy

Commenting on the outlook for the UK economy, Guy Foster, chief strategist at RBC Brewin Dolphin, said:

“The Chancellor’s budget saw a lot of change but there will be some relief about the overall economic impact, especially as the Chancellor vowed to raise over £40 billion through tax increases. Despite this, this was technically a generous budget as the government spent more than they plan to raise in new taxes. As a result, taxes are forecast to rise to their highest share of GDP on record by 2026.

The government’s focus on protecting ‘working people’ from direct tax impacts will lead to a limited impact on households. However, businesses will bear the biggest burden through an increase in their NI contributions. The Office of Budget Responsibility (OBR) estimate that three-quarters of the impact will ultimately be passed on to employees through lower effective wage growth, with the remaining quarter being reflected in lower profit.

The budget’s impact on markets was relatively modest. Small companies on the Alternative Investment Market (AIM) performed well, as the changes to tax breaks were less severe than anticipated. UK borrowing costs also increased only moderately, and the pound strengthened. Looking ahead, the OBR expects positive UK growth over the next two years, albeit at a slightly slower pace in the following years.

With regards to inflation, having fallen back to around the two percent target in mid-2024, the OBR expect consumer price inflation to pick up to 2.6 percent in 2025 partly due to the direct and indirect impact of Budget measures. This could see interest rates reduce at a slower pace than expected.”

Looking ahead

While this list of measures is not exhaustive, we have highlighted what we consider the main points impacting personal finances and investments. For more detail, speak to an appropriate professional adviser.

Please note: The information provided should not be mistaken for formal planning advice; it is imperative that you seek relevant advice for your own personal circumstances. RBC do not provide tax or legal advice and we would recommend that you seek appropriate advice in these areas. Rates of tax will be based on individual circumstance and tax rules are subject to change. The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance.

Sources:

1. Inflation Calculator | Free RPI Inflation Calculator UK | HL

This article was updated in Nov. 2024.