The Autumn Budget has been highly anticipated since Labour’s general election victory in July, marking the first Labour Budget since 2010 after over a decade of Conservative leadership.

Whilst Keir Starmer’s premiership had a turbulent start, the first real challenge his government faced was delivering this initial Budget. Rachel Reeves previously hinted at how “painful” it might be, given the estimated £22 billion gap in public finances left by the previous Conservative administration. The most straightforward approach to addressing this shortfall involves widespread tax changes. Realistically, the beginning of a new parliament is often the safest time for a party to introduce substantial changes to tax policies.

Prior to the Budget, both Reeves and Starmer ruled out potential hikes to headline rates of Income Tax, employee NICs, and VAT, effectively keeping the majority of the population out of the firing line. The only confirmed changes were Labour’s increased VAT on private schools, the replacement of the £2 bus fare cap in many areas of England with a new £3 cap, and reforms to the non-domiciled regime—both of which went ahead as planned.

Whilst this Budget may seem rather aggressive, it is far from unusual; in every election since 1992 (except for 2017), a tax rise has followed shortly after. In this article, I have summarised the main changes regarding taxation and personal finances. As always the devil is in the details and we will be reviewing the guidance notes provided by the government to get further clarity on these changes.

Tax on Pensions

• Labour has not reintroduced the lifetime allowance on pension pots.
• Labour has retained the 25% tax-free lump sum for individuals drawing from their pensions.
• Starting in 2027, Labour will introduce Inheritance Tax (IHT) on pensions, meaning they will form part of the deceased’s estate.
• Labour has maintained the triple lock system on the state pension. Basic and State Pensions will be uprated by 4.1%. This will mean £9,175 a year for the basic state pension and £11,975 a year for the full state pension.

Income Tax and National Insurance

• Income Tax has not been altered for basic, higher or additional rates. Personal tax thresholds, initially frozen under Conservative leadership until 2028, have been maintained by Labour, meaning fiscal drag will continue as planned.
• From 2028/2029, thresholds are expected to increase in line with inflation.
• A big fiscal hitter of the budget came from National Insurance. Employees will not pay more but employers’ national insurance contributions will raise by 1.2% to 15% from April 2025, with the secondary threshold dropping from £9,100 to £5,000.

Capital Gains

• A rise in Capital Gains Tax was in line with budget expectations, but the increase was not as bad as many expected. The lower rate will be raised from 10% to 18%, while the higher rate will rise from 20% to 24%. However, there will be no increase on the 24% capital gains rate imposed on second properties. These changes will be implemented from today (30 October 2024).
• As previously indicated by Starmer, primary residences will continue to be exempt from CGT.
• Business Asset Disposal Relief (previously known as Entrepreneurs’ Relief before 6 April 2020) which allows you to sell all or part of your business for lower capital gains tax will increase from 10% to 14% from 6 April 2025 and then again to 18% from 6 April 2026. The lifetime limit has been kept to £1 million.
• Carried interest represents a portion of the share of profits of a fund’s investments paid to a fund manager in connection with its fund management activities which can be subject to CGT. The budget saw an increase in this rate from 28% to 32%.
• Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes have been extended to 2035.

Inheritance Tax

• The Inheritance Tax (IHT) nil rate band remains frozen at £325,000 for individuals, while the residence nil rate band remains at £175,000 for estates over £2 million. Both thresholds are frozen until 2030.
• Starting April 2026, the first £1 million of combined business and agricultural assets, will continue to be exempt from IHT. For assets above this threshold, a 50% relief will apply, resulting in an effective IHT rate of 20%. However, the cap will not apply to AIM shares which will just qualify for 50% relief.
• Starting in 2027, Labour will introduce Inheritance Tax (IHT) on pensions, meaning they will form part of the deceased’s estate.

Stamp Duty

• The purchases of second homes and buy-to-let residential properties will rise from 3% to 5% from tomorrow.

Other changes to note

• A highly discussed Labour policy has been formally announced, which means that VAT at the standard rate of 20% will be added to private school fees from January 2025. How much extra that means you might pay depends on the decision of individual schools.
• From 6 April 2025, the current rules for the taxation of non-UK domiciled individuals will end. The concept of domicile as a relevant connecting factor in the UK tax system will be replaced by a system based on tax residence.
• If you are a Long Term Resident (“LTR”)in the UK which is someone who has been resident in the U.K. for 10 of the last 20 years then any foreign trusts holding foreign property (previously “excluded property trusts”) will no longer enjoy perpetual exemptions from IHT.  The taxation of the trust will follow your status – if you’re a non-LTR then the trust will be excluded property.  If you become an LTR then it will become relevant property.

What happens next?

Realistically, there are typically two main phases in any Budget process before it becomes law. First, Parliament conducts a series of votes and debates on the proposed changes to taxation. Following this, the Budget must be formalised through a finance bill, which solidifies the changes to the tax regime.

While a government could theoretically be defeated on a specific Budget proposal, this is highly unlikely given Labour’s considerable majority. Some of the new rules will likely take effect at the beginning of the next tax year.

We’re here to support you

If you would like to discuss how these changes in tax policy may affect you and/or your business, please do not hesitate to contact me to set up a call.

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