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

Labour Chancellor Rachel Reeves has commended her first Budget to the house.

Over recent months, the financial landscape has been marked by relentless speculation and uncertainty. Many of the rumoured changes, such as the alignment of Capital Gains Tax with Income Tax and a cap on pensions tax-free cash failed to materialise, but there were a mixture of tricks and treats to address the £22bn fiscal hole inherited from the previous Conservative administration.

This Budget delivered the second largest package of tax and spend rises in recent memory, raising approximately £40 billion aimed to restore economic stability, protect working people and “invest, invest, invest”.

Like any budget there is a lot to unpack but we have summarised the key announcements below:

Economy

• The OBR forecasts the economy to grow by 1.1% in 2024, before increasing to 2.0% and 1.8% in 2025 and 2026.
• The OBR expects annual CPI inflation to remain close to the 2% target throughout the forecast period. The OBR forecasts inflation to average 2.5% in 2024, before increasing to 2.6% in 2025.

Wages & Income Tax

• From April 2025 the National Living Wage will increase to £12.21 per hour for all eligible employees, and the National Minimum Wage for 18-20 year olds will increase to £10.00 per hour for all eligible workers.
• The Starting Rate for Savings will be retained at £5,000 for 2025-2026, allowing individuals with less than £17,570 in employment or pensions income to receive up to £5,000 of savings income tax-free.
• The government will not extend the freeze to Income Tax and employee National Insurance contributions thresholds. However, these personal tax thresholds will be uprated in line with inflation from April 2028.

What it means for you: The removal of a freeze will prevent more people from being pushed into higher tax brackets due to wage increases. This has the effect of reducing the tax burden on working individuals and preserving more of their income.

National Insurance (NI)

• The government will increase the rate of employer National Insurance contributions (NICs) from 13.8% to 15% from 6 April 2025.
• The Secondary Threshold is the point at which employers become liable to pay NICs on employees’ earnings and is currently set at £9,100 a year. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.
• To help smaller businesses with this additional cost, the Employment Allowance will be increased from £5,000 to £10,500. The £100,000 threshold for eligibility will also be removed, expanding this to all eligible employers with employer NICs bills from 6 April 2025.

What it means for you: Employers will face higher NI contributions, while employees and the self-employed have escaped any rises. This adjustment is expected to be the biggest revenue generator in the Budget.

Individual Savings Account (ISA)

• The annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs and £9,000 for Junior ISAs and CTFs until the 5 April 2030. The government will not be moving forward with the British ISA.

Capital Gains Tax (CGT)

• The lower and higher rates of Capital Gains Tax will increase from its current levels of 10% and 20% to 18% and 24% respectively – for disposals made on or after 30th October 2024. These new rates now align to residential property rates, which were confirmed to remain unchanged. The £3,000 Annual Exempt Amount remains unchanged. Trustees and personal representatives will pay the higher rate of 24%.

What it means for you: Investors will face higher tax bills on their gains, while business owners will see a phased increase in the CGT rate on the sale of their businesses, losing the benefit of the current reduced rate over the next few years.

Pensions

• The government will maintain the State Pension Triple Lock for the duration of this parliament. The basic and new State Pension will increase by 4.1% from April 2025, in line with earnings growth, meaning over 12 million pensioners will gain up to £470 each in 2025-26.
• The government will bring unused pension funds and death benefits payable from a pension into scope for inheritance tax from 6 April 2027. This “will restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pensions reforms.” A consultation document has been published which can be found here.

Inheritance Tax (IHT) & Reliefs

• The inheritance tax nil-rate bands already set at current levels until 5 April 2028 will stay fixed at these levels for a further two years until 5 April 2030. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability,

What it means for you: If you are planning your estate, the unchanged thresholds provide some stability. However, the announcement that inherited pension pots will now be subject to inheritance tax will significantly impact estate planning strategies, especially for those with larger pension pots.

• The government will reform agricultural property relief and business property relief from April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter, and in all circumstances for quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.
• The rate for Business Asset Disposal Relief and Investors’ Relief will increase to 14% from 6 April 2025, and will increase again to match the lower main rate at 18% from 6 April 2026.

Housing

• The government will also extend the current Help to Save scheme until April 2027.
• From 31 October 2024 the Higher Rates for Additional Dwellings surcharge on Stamp Duty Land Tax (SDLT) will be increased by 2 percentage points from 3% to 5%.

Non-Domicile Abolished

• The government will legislate to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence-based regime, which will take effect from 6 April 2025. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains for the first four years of tax residence. From 6 April 2025 the government will introduce a new residence-based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT, and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.

The Chancellor summarised this Autumn Budget as fixing the foundations of the economy and beginning a decade of national renewal. The government is protecting working people, fixing the NHS, and boosting investment to deliver growth and prosperity for all parts of the country.

UK markets showed a mixed response to the Budget, with investors carefully analysing the key announcements on tax policies, public spending, and economic growth measures. UK government bond markets initially appeared to react positively to the Budget announcement.

Perhaps the most notable moves were centered around smaller companies. Specifically, the UK’s Alternative Investment Market (AIM) equity index which saw strong gains following the Budget, as the Chancellor’s move to apply a 50% relief from inheritance tax for AIM shares is better than some expectations had feared.

The Autumn Budget 2024 introduces several changes that could significantly impact your wealth. Hugh James Independent Financial Advisers provide tailored advice and help you navigate any changes that might affect your tax liabilities, pension contributions or investment strategies. To discuss the impacts of the 2024 Autumn Budget on your finances, please don’t hesitate to contact us.