Published: October 2024
The first Labour Budget in 15 years promised £40 billion of tax rises and was never going to be a happy watch, especially for those people designated by the government as ‘non-working people’.
And this is how it transpired, with Capital Gains Tax, Inheritance Tax and Employer National Insurance being particularly hard hit.
Capital Gains Tax (CGT)
Increases in CGT rates were widely flagged and, if anything, the increases to 18% at the basic rate and 24% at the top rate were less than expected. These changes, which are immediate, bring CGT rates on investments in line with rates on second properties.
Bigger changes are coming in on the disposal of shares where either Business Asset Disposal relief (BADR) or Investor Relief applies. Currently, the first £1 million of profit (this is a lifetime limit) is taxed at 10%, with gains above this taxed at the normal rate. From April 2025, the first £1 million will be taxed at 14%, increasing again to 18% from April 2026.
Shares in Enterprise Investment Schemes (EIS) remain exempt from CGT.
There is currently no CGT on death and there was speculation that this might change, but nothing has happened here. However, other changes to Inheritance Tax (IHT) will have a much greater impact.
Inheritance Tax
The core allowance of £325,000 dates back to 2009 and is to be frozen until 2030. This can increase to £1 million for homeowning couples, also frozen to 2030.
However, from April 2027, unspent pensions will be brought into the IHT net. The time lag for implementation is to allow for a consultation on the change and how it can be implemented.
It would appear that farmers and private company owners do not qualify as working people as Agricultural Relief and Business Property relief are to be severely curtailed from April 2026. Agricultural relief allowed the family farm, and other agricultural assets, to be passed on free of IHT, whilst Business Property relief had the same effect on unlisted shares, including EIS. From 2026, only the first £1 million in total will be free of tax, with the balance subject to tax at IHT at 20%. For shares quoted on AIM and other exchanges previously qualifying for Business Property Relief, CGT will automatically be payable at 20%.
There is a very real risk that family businesses and farms might have to be broken up on death in order to meet the cost of these significantly increased IHT liabilities.
National Insurance
Labour promised not to increase NI rates in its manifesto, but as widely flagged, they didn’t regard Employer NI as being included in this promise. It wasn’t surprising then, that Employer NI rates increased, by 1.2% from 13.8% to 15%. What was more surprising was that the earnings threshold above which employer NI is payable, was reduced to £5,000, bringing more part-time employees into its orbit.
The changes to NI alone are expected to bring in over £20 billion of additional tax.
There is no mention of levying employer NI contributions on employer pension contributions, and this omission makes salary sacrifice as a means of making pension contributions even more attractive than previously.
Private Education
Fulfilling a long-standing manifesto promise, Labour is adding VAT to private school fees from January 2025.
In another hit to the independent schools’ sector, business rates relief is to be removed from April 2025.
Non-Domiciled
The non-domicile regime is being scrapped as is the whole concept of domicile. This will be replaced with a residence-based tax regime from April 2025. The Chancellor said this would end the use of offshore trusts to shelter assets from IHT.
Other Points of Note….
- No changes to taxation of dividends. With increases to employer NI, this could tip the balance between dividends and salary for business owners.
- Increasing the schools budget by £2.3 billion to support recruitment of 6,500 new teachers in England (presumably to accommodate the pupils returning to the state system from the independent sector).
- The stamp duty surcharge on second homes is increasing, immediately, from 3% to 5%.
- Alcohol duties are increasing in line with RPI, except most alcohol served in pubs and draught beer, the latter reducing by 1.7%, around 1p a pint.
- Fuel duties are also being frozen.
- Tobacco duties are increasing by RPI + 2%, and a new Vaping duty will be introduced from April 2026.
- Soft drinks industry levy to increase.
- Air passenger duty increasing to correct for below inflation uprating in previous years, and increasing by 50% for private jets.
- Business rates relief will continue into 2025/2026 albeit the current discount of 75% for retail, hospitality and leisure will be reduced to 40% which means that businesses affected are likely to see their business rates doubling, rather than quadrupling.
- £500 million increase in the road maintenance budget, partly to fund the filling of 1 million potholes a year. I’ll believe that one when I see it!
- Overall, £100 billion in new capital spending has been promised over 5 years, expected to increase GDP by 1.4%. This includes the completion of the East-West rail between Oxford and Cambridge to “enable Cambridge to reach its potential”.
- Don’t pay tax late – as interest rates generally are going down, the interest rate on unpaid or late paid tax is going up. This could have a particular impact on IHT where properties are concerned, and where it often isn’t possible to pay IHT quickly enough to avoid an interest charge.
With the changes to taxation announced in this year’s Budget, it is clear that the need for financial planning has never been so important.
If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.
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Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The Financial Conduct Authority does not regulate estate planning and tax planning.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
