Key Takeaways from the October 2024 Budget
With advanced warnings of ‘difficult decisions’ from the Chancellor and constant media speculation about the tax rises needed to plug the £22 billion shortfall in the government’s accounts, many of the measures presented in Rachel Reeves’ first budget have come with little surprise.
Capital Gains Tax
One of the chief measures of the budget, and one widely anticipated, was an increase in the rates of Capital Gains Tax (CGT). This will see the lower rate rise significantly from 10% to 18%, with the higher rate rising from 20% to 24%. There will, however, be no increase on the 18% and 24% capital gains rates imposed on the sale of second homes, keeping these on par with the new rates mentioned above.
There is also no change to the annual CGT allowance, which will stay at £3,000. However, this figure has been reduced considerably over the last few years, down from £6,000 in 2023/2024 and £12,300 in 2022/2023. This considerable reduction means there is no longer a huge amount to play with before CGT becomes liable. As a result, anyone who disposes of qualifying possessions or assets will need to pay the tax on any profits above the £3,000 threshold in that tax year. The allowance resets annually on April 6 when the new tax year begins.
For investors, the new CGT rates will also apply to profits from the sale of shares. However, if you hold investments within an ISA, some venture capital trusts, Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS), or in government bonds (gilts) and some corporate bonds, then these are all exempt from CGT. Furthermore, the Chancellor announced in the budget that the EIS and Venture Capital Trust (VCT) schemes have now been extended to 2035.
Business Asset Disposal Relief and Investors’ Relief
Two other changes related to CGT were also introduced during the budget. From 6 April 2025, the rate applying for individuals claiming Business Asset Disposal Relief and Investors’ Relief will increase from 10% to 14%. This will increase again to 18% for disposals made on or after 6 April 2026. However, while the relief rates have increased, the lifetime limit for Investors’ Relief will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. It is important to note that this limit takes into account any prior qualifying gains where the relief was claimed.
Inheritance Tax
Despite speculation to the contrary, the Chancellor has made the decision to extend the current freeze on the threshold for Inheritance Tax (IHT) by two years, to 5 April 2030. This maintains the status quo where estates valued at up to £325,000 can be inherited without having to pay IHT. Moreover, where a family home is included in the inheritance and passed on to direct descendants, then an additional £175,000 is added to the nil rate threshold, bringing the total IHT-free allowance to £500,000. Those who inherit estates from their spouses or civil partners continue to be exempt from paying the tax.
A major change is the government’s decision to bring unused pension funds and death benefits payable from a pension into the scope of Inheritance Tax from April 2027. Given the amount that people hold in their pension pots, this move is expected to land many more families with a hefty IHT bill and means individuals will need to plan their estates carefully.
The budget also saw the Chancellor announce that reliefs will be reformed for business and agricultural assets. The most significant outcome of these changes is that combined business and agricultural assets valued above £1 million will now attract Inheritance Tax at the rate of 20%. The drop in business and agricultural property relief to 50% comes into effect on 6 April 2026.
Employer NI Rates
The increase in the employer NI contribution rate from 13.8% to 15%, which comes into effect at the beginning of the 2025 tax year, was of little surprise given the forewarning hinted at by the government. However, the lowering of the starting threshold from £9,100 to £5,000 was unexpected. While these, combined, will have an impact on businesses, there was better news regarding the Employment Allowance, where there was an increase in the deduction from £5,000 to £10,500. Moreover, this is now available to all eligible employers, not just those with an annual employer NI cost of £100K or less.
National Living Wage and National Minimum Wage
Businesses should also be aware of the increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2025.
For the NLW, the rate for over 21-year-olds rises to £12.21 per hour, for 18-20-year-olds to £10.00 and for 16-17-year-olds and apprentices, to £7.55. An NLW worker aged 21+ who works 37.5 hours per week will therefore see their annual gross pay increase by £1,505.54 and their monthly gross pay by £125.46.
Stamp Duty Land Tax
There are several changes to Stamp Duty Land Tax (SDLT) due to come into effect. From April 2025, the threshold for paying the 2% duty on properties will fall from £250,000 to £125,000. For first-time buyers, the threshold will fall from £450,000 to £300,000.
The biggest increases, however, will be faced by those buying a second or subsequent property, including buy-to-lets. Here the additional rate of SDLT increased from 3% to 5% above the standard residential rates, on 31 Oct 2024. At the same time, Company SDLT Rate, the charge that businesses and non-natural persons pay for purchasing a residential property valued at over £500,000, has risen from 15% to 17%. It is worth noting that these rates apply to all transactions completed on or after 31st October 2024.
If you are concerned about how the changes introduced during the autumn budget might affect you and would like to discuss your options, the team at Wilkinson Woodward are here to help.