Budget 2024 in review – Sean Wiegand

This was probably the Budget that gave me the most anxiety of all time. It was the first Budget for Labour in 14 years and our Chancellor, Rachel Reeves, has been warning of a huge black hole to fix. So much information in the press before the Budget felt like suggestions were being made just to see what the public reaction would be.

Firstly, Mrs Reeves gave lots of information regarding the growth of the economy over the next 5 years which is good to hear – if it can be achieved. She also maintained the fuel duty freeze for another 12 months which was a surprise, but a good thing as fuel duty effects everything we buy throughout the supply chain.

Here is a summary of the main points of interest:

Capital Gains Tax (CGT)

This was a pleasant surprise. There was so much talk of much higher Capital Gains Tax and we have a taxation history of CGT being equal to Income Tax. To hear that the main rates of CGT have only been increased to the same level as residential property rates being 18% for basic rate taxpayers and 24% for higher rate taxpayers was a pleasant surprise. This change took effect from Budget Day (30 October 2024).

In combination with this, business asset disposal relief has remained at 10% on the first £1m of lifetime disposals until 5 April 2025. From this point, it increases to 14% and then in 2026 18%. Although an increase, it does still give entrepreneurs an incentive to build a business and sell with the reward of a lower rate of taxation on the first £1m.

Inheritance Tax (IHT)

No changes to the main rate of tax and as mentioned by Mrs Reeves, this will not affect the average estate. However, there were some major changes that will have significant consequences for some.

• Agricultural property relief (APR) and business property relief (BPR) are currently available to reduce inheritance tax on agricultural and business assets for an individual’s estate at death.

For example, take a business owner with a trading company worth £5m that has involved their whole family. They may have planned to pass down ownership to children at death and under current rules there would be no direct inheritance tax as BPR provides 100% relief. From April 2026 only a 50% reduction is available on APR and BPR assets after the first £1m combined value. In this example the estate would now have an effective tax bill of 20% on the value of the business over £1m which will amount to £800,000 in tax. This tax is on shares in a company so there may not actually be cash in the estate to pay the tax. I worry businesses may have to be broken up and sold just to pay the tax.

If you consider farmers who would currently benefit from APR, these are individuals that quite often have high-value assets but very little cash. Think about the food we eat that has been grown in the UK… Farmers rely on the ability to pass their farm down to the next generation and tax advantage of APR. With this being restricted, land may have to be sold for no other reason than to pay tax. Ultimately this will make farming even more difficult when it is far from easy to make any money in the first place. Will this lead to increased food prices?

• Pension funds have been hit hard. Currently, undrawn funds in defined contribution pension schemes at the date of death are outside the estate for IHT. Many people have paid into a pension during their working life on the basis that it is outside of the scope of IHT. Come April 2027, undrawn funds now come under attack as they form part of an estate for calculating IHT. This could be a significant tax cost that was not expected by pensioners before budget day.

I have now seen a consultation paper that was released yesterday, and this illustrates if the person dies over 75, then the benefits drawn by the beneficiary are still subject to income tax at the beneficiaries marginal rate. So, we will have a situation where the pension is potentially taxed at 40% at death and then again at 20%/40%/45% when the beneficiary draws on the funds.

National Insurance

If we think about this with hindsight, Mr Hunt should never have given the extra 2% employees National Insurance cut in April 2024. Mrs Reeves has agreed to keep this in place, but has put a massive burden on the employer by increasing Employers NI from 13.8% to 15% in April 2025. Worse than this, she has also reduced the starting level at which it is paid from £9,100 to £5,000. There is no nice way to put this, it is a huge cost to the employer. The only saving grace is for small businesses as their employment allowance (where they currently do not need to pay the first £5,000 of employers National Insurance) has increased to £10,500.

Let’s consider an employer that has an employee on a £25,000 salary. The current cost of Employers NI is £2,194 for that employee. This will increase to £3,000 in April 2025, which is approximately 3% increase in total wage cost for one employee. Now, what if you have 100 of those employees, and what if you combine that with the huge increase in the national minimum wage from April 2025, especially for 18-20-year-olds? This will have to be passed on to customers to ensure that the business survives and so ultimately will be paid by “working people”

Child Benefit

The Chancellor has cancelled Mr Hunt’s aim for child benefit repayment to be on household income rather than an individual’s income from 2026, and so the system will remain as unfair as it is now.

Stamp Duty

Stamp duty payable on second properties or those held in companies currently has a 3% surcharge. This has been increased to 5%.

Final thoughts

Mrs Reeves wants to achieve growth, but in my opinion that comes from business– the same businesses that are being asked to find extra national insurance and extra money for the national minimum wage. I can’t understand how that will help growth.

I am concerned with the IHT changes. We now have elderly citizens who may have planned and saved for retirement using pensions and we have a cliff edge where IHT will not apply to pensions on 5 April 2027 but will on 6 April 2027. Personally, I think this drastic policy change is just not safe. If it must come in, it should be with a tapered effect and Income tax on withdrawing the pension by the beneficiary should be removed.

Finally, Mrs Reeves has just seriously affected succession plans for family businesses leading them to potentially be broken up just because of IHT. It’s not fair on business owners who have worked hard all their life.

All this begs the question – why should you work hard and save for retirement?

If you have any questions regarding the 2024 Autumn Budget, then please call your local Lambert Chapman contact on 01376 326266.