Budget 2024 in review – Luke Mitchell

A budget for the ‘Workers’

After what seems like an eternity since Rachel Reeves announced that the budget was to be held on 30th October 2024, with endless speculation on how the black hole in the public finances would be addressed, the details of which have finally been revealed. The question is whether this was actually a budget for the workers?

Wages, National Insurance and Income Tax:

The national minimum wage for over-21’s will rise to £12.21 from £11.44 from April 2025. This represents an increase of 6.7%.

The rate paid for those aged 18–20-year-old increases by 16.3% to £10 as the idea of a single adult rate for pay gets ever closer.

There has been no increase in the rate of employees National Insurance, nor the rate of tax on which salaries are subjected to. The chancellor even confirmed that from 2028, income tax band thresholds will rise in line with inflation which will help end the fiscal drag of pulling individuals into higher and additional rate of tax.

On the face of it, I’m sure many employees will be happy with the above, however the same cannot be said for all businesses.

Employers National Insurance will increase to 15% from 13.8% from April 2025 and the point at which employers are subject to these contributions will reduce from £9,100 to £5,000. This reduction of £4,000 will cost businesses £615 for each employee; however, this cost is partially offset by an increase in the employment allowance which increases to £10,500 from £5,000.

In my opinion, the increase in Employers National Insurance and the national minimum wage will have a negative impact on long-term wage growth and may result in businesses reducing potential pay rises and future hires. Businesses will need to pass on price increases to customers as there is only so much they can absorb.

So, whilst Labour has stuck to their manifesto on the face of it by not increasing income tax rates and Employees National Insurance for the working people; it is difficult to see how small business owners are not categorised as a working person as this will directly impact their profitability and therefore what they can withdraw.

 Pensions:

Basic and state pension payments will go up by 4.1% from April in accordance with the triple lock commitment.

The Chancellor resisted the temptation to include an employer’s charge on pension contributions, however, pension pots will form part of an individual’s estate for Inheritance tax purposes from April 2027.

 Capital Gains Tax, Inheritance Tax & Stamp Duty:

There has been an immediate hike in Capital Gains Tax rates. The lower rate of CGT rises from 10% to 18% while the higher rate increases to 24% from 20%. This combined with the reduction in the tax-free allowance from £12,300 a couple years ago to just £3,000 in the current year will result in a much larger CGT bill for those making disposals.

Business Asset Disposal Relief will also increase; the first rise comes in April 2025 where the rate increases to 14% and the in April 2026 where the rate increases to 18%. The delay until April gives you an opportunity to consider and plan on disposing of the business or ceasing all together to benefit from a potential tax rate of 10% on the first £1m, assuming certain conditions are met.

The additional Stamp Duty Land Tax on the acquisition of a second property increases from 3% to 5% with immediate effect.

From April 2026 there are changes to Inheritance tax with changes to business and agricultural property relief. The first £1m of business or agricultural property will be exempt from IHT, with a 50% relief thereafter. IHT will be charged at a rate of 20% on the amount over £1m, after the 50% relief.

The reduction in the reliefs will be a major blow to business owners who have worked hard throughout their lives to grow their businesses, only to see that a proportion of what they have worked for to be taken away by the government.

 Other Key Points:

• The 5p fuel duty cut has been extended for another year.
• There has been a reduction in alcohol duty for draught drinks by 1.7% – good news if you enjoy a pint but not so good if you enjoy spirits or wine as the tax on non-draught alcoholic drink increases by RPI.
• Corporation Tax rates, annual investment allowance and full expensing remain the same.
• Non-Dom status to be scrapped and the introduction of a residence-based scheme to be introduced.
• VAT will be charged on private school fees from January 2025.

 Summary:

As with every budget, there will be winners and losers and time will tell whether the above, combined with the increase in spending following the changes in how debt is measured. As always, if you would like to discuss any of the above in more detail, please do not hesitate to contact me.