Chancellor Rachel Reeves has presented an ambitious Autumn Budget, marked by £40 billion in tax hikes and increased government borrowing. With Labour’s first Budget in 14 years, the government aims to address public finance gaps and support public services, signalling the most substantial tax increases in decades.
Tax Changes Impacting Individuals and Families
Income and Personal Taxes: A significant announcement is the end of the six-year freeze on income tax thresholds from 2029. The threshold freeze, introduced in 2022, has gradually pushed earners into higher tax brackets due to inflation and wage growth. This lift offers some relief to taxpayers, although gradual inflation may still impact income brackets until the freeze officially ends.
Inheritance Tax (IHT): The Budget brings a considerable shift in inheritance planning by including pensions as part of taxable estate assets from 2027. Although the main inheritance tax nil rate band remains at £325,000, freezing these thresholds until 2030, families may need to revisit estate planning to manage these changes effectively. Agricultural and business property reliefs are also reformed, setting specific rules for properties over £1 million.
Capital Gains Tax (CGT): Investors face higher capital gains taxes, with rates on stocks and shares raised from 20% to 24% for higher-rate taxpayers, and from 10% to 18% for those in the basic-rate bracket. This alignment between CGT and property tax rates is designed to boost government revenue without directly altering headline income tax rates, though small investors may feel a sharper impact.
Stamp Duty Changes: In an unexpected move, stamp duty on second homes and investment properties increases to 5% from 3%. This change may lead to a slowdown in investment property purchases, potentially impacting housing availability in the rental market.
Business-Focused Adjustments
National Insurance Contributions: Employers will face an increase in National Insurance contributions, rising by 1.2% to 15% by 2025. The threshold for employer contributions also drops significantly, from £9,100 to £5,000. However, to counterbalance this rise, Employment Allowance is increased from £5,000 to £10,500, providing some relief for smaller businesses managing payroll expenses.
Private Equity and VAT on School Fees: As anticipated, tax obligations for private equity firms and VAT on private school fees are set to increase. The Chancellor confirmed VAT on private school fees, aiming to generate additional revenue to support public services.
Business Rates and Reliefs: Hospitality businesses gain a 40% relief on business rates, and a modest reduction in draught alcohol duty promises a penny off each pint in pubs, a gesture welcomed by the sector. However, broader changes to business rate relief could alter financial planning for many enterprises, with the current 75% discount reduced to a maximum of £110,000.
Support for Wages, Living Standards, and Cost of Living
National Living Wage and Minimum Wage: In a move affecting over one million workers, the National Living Wage rises by 6.7% to £12.21 per hour, with plans to raise the minimum wage for under-21s to £10 an hour. Additionally, carer’s allowance will increase, ensuring carers can earn more than £10,000 annually while receiving the allowance. These updates underscore the government’s push to address cost-of-living concerns amid rising inflation.
Fuel Duty and Tobacco Tax: Fuel duty remains frozen, maintaining stability at the petrol pumps, while tobacco duty and a new tax on vaping products from October 2026 aim to discourage smoking and vaping, aligning with public health goals.
Additional Investments and Anti-Fraud Measures
Economic Inactivity and Work Initiatives: To address economic inactivity, the government will invest £240 million into 16 projects, aiming to reintegrate inactive citizens into the workforce. This includes a white paper discussing strategies to encourage employment among those who are currently out of work.
Anti-Fraud Initiatives: In a notable pledge, the government aims to save £4.3 billion annually by 2029 through a comprehensive crackdown on fraud, safeguarding funds for public services and infrastructure projects.
Housing and Property Sector Impacts
Right to Buy Scheme: The government has adjusted the Right to Buy scheme, allowing local councils to retain revenue from property sales, potentially leading to increased investment in community infrastructure.
Green Incentives and Environmental Policies
Electric Vehicle (EV) Tax Reliefs: Existing incentives for electric vehicles used as company cars remain intact until 2028, supporting the gradual shift toward low-emission vehicles. Additionally, air passenger duty for private jets will increase by 50%, reflecting a push for more environmentally conscious policies in aviation.
Conclusion
The Autumn 2024 Budget underscores Labour’s approach to balancing economic growth and public sector investment while addressing pressing cost-of-living issues. Although the Budget introduces several measures to increase government revenue, including higher taxes and adjustments to reliefs, certain policies, such as wage increases and fraud prevention, aim to protect household and business interests.
If you would like to discuss your finances and wealth management, please get in touch.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Approved by The Openwork Partnership on 07/11/24
