Fall Budget 2024
Fall budget overview
A few minutes after 12:30 p.m.th In October 2024, Rachel Reeves stood up and delivered Labor’s first budget in over 14 years.
Before the budget, there was a lot of speculation as to the contents of the budget, with Labor remaining fairly tight-lipped about likely changes to the budget.
We have provided a brief summary of the changes announced in the 2024 fall budget below.
Living Wage/National Minimum Wage Increases
The living wage is set to be increased by 6.7% to £12.21 an hour for those aged 21 and over. This increase aims to support workers amid rising costs of living, particularly given recent inflation and represents an increase in gross income of around £1,500 per year (for a full-time worker working 37.5 hours per week).
The national minimum wage (payable to those aged 18-20) will rise significantly by 16.3% to £10 an hour. This substantial increase aims to address wage disparities among young people and ensure that young workers can keep up with the cost of living. This will equate to an increase in gross income of £2,730 per year (for a full-time worker working 37.5 hours per week)
These increases will lead to increased tax revenue, because the more people earn, the more taxes they will naturally pay in the end. However, these changes come with a higher wage cost for employers, which could strain small businesses, particularly those in high-growth sectors. a large number of minimum wage earners. These changes could cause employers to modify their recruiting strategies to remain profitable.
National Insurance Changes
During the budget, Ms Reeves made it clear that she would not increase personal taxes. She did, however, announce an increase in employers’ NIC from 13.8% to 15% from April 2025, as well as a reduction in the threshold at which employers are required to pay NIC from £9,100 per employee at £5,000 per employee.
These changes mean that employers will have to pay significantly more NICs for their employees.
Capital Gains Tax (“CGT”) Rates
Due to Labour’s manifesto promise not to increase tax rates on income tax, corporation tax and VAT, there has been widespread speculation that the Chancellor will target other taxes such as CGT.
Currently, gains on residential property have higher CGT rates of 18% for gains within the basic rate band, and 24% for higher rate gains.
All other transfers (excluding Carried Interest) benefit from CGT rates of 10% and 20% respectively.
Rachel Reeves confirmed in the Budget that CGT rates would be increased (from today) to 18% and 24% for all future earnings.
Deferred interest gains would attract a new rate of 32%
These increases will see individuals with locked-in assets paying a higher percentage of their gains in tax than before, with the rate of basic rate gains increasing by a staggering 80% and higher rate gains increasing a more modest rate of 20%.
Capital Gains Tax (“CGT”) – Business Asset Disposal Relief (“BADR”)
Individuals who dispose of business assets can currently benefit from a rate of 10% CGT on their capital gains provided that these disposals meet certain criteria.
In line with the CGT increases, BADR eligible earnings will see a staggered change from the current rate of 10% to 14%, then a further increase to 18%.
The BADR lifetime limit will be maintained at the current level of £1 million in winnings.
These changes will see people who dispose of BADR-eligible business assets exposed to an increase in their tax liability of 80% on the first £1 million of gains…!
Inheritance Tax (“IHT”)
A very unpopular tax in the UK is the inheritance tax. Even though successive governments have been quick to point out that only 6% of estates will pay inheritance tax, this tax remains widely criticized because it is an additional tax on assets acquired during life from income. already imposed.
The freeze on IHT thresholds will continue and the IHT rate will not change, which currently stands at 40%.
The government will, however, increase IHT revenues by taking steps to include inherited pensions within the scope of IHT as well as restricting valuable Business Aid (“BR”) and agricultural aid (“AR”).
Currently, in the event of death, shares of closed trading companies, as well as agricultural land meeting certain criteria benefit from 100% BR/AR against IHT, meaning that the total value of these shares/agricultural land does not does not attract IHT.
Under the new rules, a combined limit of £1 million will be imposed on eligible BR and AR assets, with only 50% relief available on the value above the limit. This results in an effective IHT rate of 20% on these assets.
The same applies to Alternative Investment Market shares (AIM shares) which will also see a 100% relief replaced by a 50% relief.
Closure of the Non-Dom regime
The tax regime designed to benefit non-domiciled people who leave their income and gains abroad has proved unpopular, with scandal dominating headlines over the domicile status of Rishi Sunak’s wife.
Initially, Labor pledged to end the non-dom tax regime and replace it with a residency-based system, designed to be fair to people coming to the UK temporarily, but to capture UK taxes on the overseas income and earnings of people who call the UK their country of origin. House.
The Chancellor reaffirmed this position in the Budget, exclaiming that it would close the “tax loophole” created by the non-dom regime.
Income tax freeze and NI thresholds
The outgoing Conservative government has frozen income tax thresholds, resulting in higher tax revenues over time (rising wages with inflation leads to higher tax liabilities without increasing exempt allowances tax/basic rate brackets, etc.).
Rachel Reeves confirmed that the current freezes would remain in place, but we should then expect to see increases to these thresholds.
VAT on private school tuition fees
Another area that was widely expected to be changed in the budget was VAT on private school fees.
Currently, tuition fees at private schools do not fall under the UK VST. The Chancellor confirmed that from January 2025 VAT will be levied on tuition fees, increasing costs by 20%.
This measure would aim to strengthen the capacity to finance public schools which 96% of children in the United Kingdom attend.
Conclusion of the fall budget
There are clearly a number of significant changes in the Budget, including increased obligations for employers who will need to take into account increased staff salaries as well as increased national insurance levels.
Increase in CGT payable on asset sales, as well as IHT payable on business and agricultural assets which were previously exempt.
It will be interesting to see how changes to the non-dominance rules are drafted into legislation to try to provide a fair system.
Next steps in life after the fall budget
These rules will affect different taxpayers in different ways. If you are affected by any of the rules and need help, our team of specialists can guide you through the process, offering solutions to any problems you may encounter. Please contact us
Why not join us at our next live webinar, click here to find out more.
