Budget 2024 in review – Lucy Orrow

Having taken a much-enjoyed personal day with my bestie and her boy, at Harry Potter World, I checked in very quickly to the highlights on #Budget2024. My first reaction was ‘Hmm, that’s not so bad’…

I talked to clients over recent weeks about my “biggest budget ever” and “if they do the big changes now, it’ll all be forgotten about by election day”, Rachel Reeves seems to have gone for a little bit of everything, rather than wholesale change.

So what were the main highlights?

Income Tax – no changes were expected or delivered in respect of income tax.  However, there are always consultations announced in the background, seeking feedback in respect of potential future changes.  

Capital Gains Tax

Rate changes – The expected mass increase, or realign, of CGT rates did not arrive.  Instead, a more measured alignment of the rates to those currently paid by residential property.  Therefore, from Budget Day (30 October) all disposals (not BADR – see below) will pay tax at 18% or 24%, subject to the taxpayer’s marginal rate.  For Trustees, this will mean all disposals will be liable to CGT at 24% with immediate effect.

BADR – The big pre-budget scare of Business Asset Disposal Relief being removed, did not, thankfully happen.  Instead, a period of grace has been given, allowing the 10% rate to continue through to 5 April 2025, followed by an incremental increase to 14% and then to 18% from 6 April 2026, to match the new basic rate of CGT.

Corporation Tax – no changes are proposed, with the 25% main rate and 19% small profits rate being maintained for the financial year beginning 1 April 2026.

National Insurance – Employers NIC will increase to 15% from April 2025 and the threshold at which it becomes payable will reduce to £5,000.  The Employment Allowance will, however, increase to £10,500.  These increases were not seen as a tax on ‘workers’ ahead of the Budget, although today, Rachel Reeves has accepted that it could impact pay rises next year, where employers absorb those costs.

Inheritance Tax – now we’re getting into the scary part…

The ever-present nil rate band allowance of £325,000, which is meant to exclude estates from IHT, has been stuck at this level.  There were some thoughts that this would be increased, in line with a removal of the residence nil rate band but instead, both have been retained with an extended timeline of 2030.  This will result in more and more estates becoming liable to IHT and in conjunction with the pension changes (see below), more families will be required to pay 40% IHT.

Now the first of the scary news.  Pensions, which have been exempt from IHT in the main, will now be caught for IHT from 6 April 2027.  A consultation has been opened to discuss the finer points and determine how this will be enacted so more news will follow.  One area up for discussion is Group Schemes which are currently taxed under pension rules and death in service payments.

Agricultural Property Relief and Business Property Relief – this was an area of huge concern before the Budget and although Rachel Reeves didn’t go the whole hog, a significant change was dropped in, seemingly under the guise of a ‘50% tax relief’.  Previously 100% relief has been available but now, this is being restricted to the first £1m, with everything over being taxed at 50% from April 2026.  Where continuity is key in a business, finding cash to settle IHT could have a significant impact.  If the business is not cash-rich, will it force the sale of assets, which could, in turn, result in CGT being due?

The important part to note is that this is a combined allowance so where there are agricultural and business assets, the £1m will be the total for both.

This change will also impact trusts which hold such assets.  Legislation is being drawn up to ensure where there are multiple trusts for one settlor, the allowance is divided up.

Gifting – thankfully, the rules on lifetime gifting have not changed, so making gifts and surviving 7 years, will still allow assets to fall outside of an estate.

Stamp Duty Land Tax – where individuals purchase an additional property, they have, up to now, paid a 3% surcharge.  From 31 October, this will now increase to 5%. 

Looking at each section in isolation, the news doesn’t appear too impactful but collating it together shows that employers will be hugely affected by national insurance changes, national minimum wage increases (not even mentioned here), and future exit planning, either by selling and suffering CGT or on death with IHT.  We were all expecting some tough news, but it will take some time to digest all the information being released.

If you want to talk about planning options for yourself or your business, please do get in touch.