Autumn Budget 2024
A new Government, a new Chancellor and a new approach to the UK’s fiscal policies.
Rachel Reeves entered her first Budget with a strong message that her measures would lead to “an economy that is growing, creating wealth and opportunity for all”.
To achieve this, she made it clear that the “only way to drive economic growth is to invest, invest, invest”.
Echoing the last Labour Government’s pledge on “Education, Education, Education” more than 14 years ago, the Chancellor was quick to recognise that there was difficult work ahead with slow economic growth and a £22 billion hole in the public purse.
Recognising her position as the UK’s first female Chancellor of the Exchequer, she pulled no punches about the inheritance that the Government had found and the impact that it would have on her plans as she set out to raise taxes by £40 billion.
She launched into a speech containing a series of policies that would not seek shortcuts but would instead focus on generating economic stability in the long term.
Labour promised a “painful” Budget and the measures confirmed will certainly be challenging for many, as her speech focused on:
Before the Budget, the Chancellor and Prime Minister reaffirmed their commitment to not increase Income Tax, VAT and National Insurance for ‘working people’.
Interestingly, the rumoured extension to the tax freeze beyond 2028 also did not go ahead, with personal tax rates in 2028-29 rising in line with inflation.
Instead, Ms Reeves set out changes to employers’ National Insurance Contributions (NICs) that will raise an additional £25 billion.
This huge injection of cash into the public finances will be raised by increasing the rate of employer NICs by 1.2 percentage points from 13.8 per cent to 15 per cent from 6 April 2025.
If this change wasn’t significant enough, the threshold (per employee) at which employers begin paying NICs will decrease from £9,100 to £5,000 per year.
To help the smallest of businesses, the Employment Allowance will increase from £5,000 to £10,500, – so if you are running a really small business with few employees, or there are only 2-3 of you in your own company you may pay no Employer National Insurance at all.
The National Living Wage (NLW) will rise by 6.7 per cent to £12.21 per hour from April 2025 – adding £1,400 to the annual earnings of a full-time worker on the NLW.
The National Minimum Wage (NMW) for 18-20-year-olds will also increase by 16.3 per cent to £10.00 per hour – (the largest rise ever in both cash and percentage terms), the aim being to eventually remove the differential based on employee age.
One of the most immediate and substantial changes in the Budget was an increase in the standard Capital Gains Tax (CGT) rate.
From today, the main rates of CGT will change as follows:
- Lower rate – Increases from 10 per cent to 18 per cent
- Higher rate – Increases from 20 per cent to 24 per cent
The separate CGT rates for property disposals will remain unchanged.
However, those looking to dispose of a business or a significant shareholding via a sale or succession should take note of changes to Business Asset Disposal Relief (BADR).
The CGT rates for BADR and Investors’ Relief will increase to 14 per cent from 6 April 2025 and match the main lower rate of 18 per cent from 6 April 2026. Just maybe an incentive to accelerate your retirement?
For those hoping to pass on wealth to the next generation, there was more bad news with significant changes to two key elements of an individual's estate.
The Government is tightening the Inheritance Tax (IHT) system by imposing the tax on unspent pension pots from April 2027 and cutting back the benefits of agricultural property relief and business property relief.
Despite existing nil-rate bands and exemptions, the 100 per cent relief will only apply to the first £1 million of combined agricultural and business assets, dropping to 50 per cent after that – adding pressure on family farms and businesses. So, if your business is worth less than £1M – no change, still exempt.
The Government also plans to reduce business property relief to 50 per cent across the board for shares “not listed” on recognised stock exchanges, like AIM.
Also, while the tax rates on Income Tax will be unfrozen from April 2028, for IHT the nil-rate bands will remain unchanged until April 2030.
To provide certainty to businesses looking to invest and grow, the Chancellor left the existing Corporate Tax rates and reliefs relatively untouched.
In its Corporate Tax Roadmap, the Government has confirmed that it will retain the cap on the rate of Corporation Tax at 25 per cent.
It also reiterated that it remained committed to maintaining the UK’s generous R&D tax reliefs and world-leading capital allowance offer. Full Expensing, the Annual Investment Allowance, and the Patent Box scheme will all stay the same.
Businesses will also be able to benefit from an extension to the 100 per cent first-year allowances for zero-emission cars and electric vehicle charge-points to 31 March 2026 for Corporation Tax and 5 April 2026 for Income Tax.
For small and medium-sized companies this latest Budget may be a blow, both for the organisation itself and its owners.
The significant hike in National Insurance and the National Living Wage may limit job creation, suppress wage increases and add unwanted ongoing on-costs to businesses still struggling with a cost-of-living crisis.
Changes to Capital Gains Tax and Inheritance Tax will also restrict the ability of business owners to generate wealth from their enterprise and pass it on.
However, if Labour can achieve its promised investment in national growth and calm the markets with its promises of innovation and Corporation Tax certainty then the nation may benefit from greater economic prosperity.
Those people who find themselves facing uncertainties about their future plans as a result of this Budget must seek professional advice urgently.
To read the full Autumn Budget document, please click here.
