Budget 2024 – the devil in the detail

Hopefully, you have seen our Budget coverage and now is the chance to look at things in more detail…

Income Tax:

No changes were expected or delivered in respect of income tax.  However, consultations are always announced in the background, seeking feedback regarding potential future changes. One of these is related to foreign investment income and the reporting requirements.  Currently, taxpayers are required to report their income and gains on a worldwide basis, to 5 April each year.  With much of the rest of the world and certainly those in the EU reporting to 31 December, HMRC is considering allowing the option of reporting that income thus.  This would stop the need to potentially have to wait until after 31 December in the year following the tax year to submit your tax return and risk being late.  I would see this as a welcome modification.

In addition, tax rate bands which had been frozen by the previous government, will now have an inflationary increase from 2028/29.

The abolition of the Furnished Holiday Lettings tax regime was announced by the previous Government and will disappear from April 2025.  This will mean these types of properties will then be taxed in the same way as other rental properties.  This will impact the mortgage relief currently available, removing the capital allowance options, CGT reliefs, and pension earnings option.

Company Car benefit rates have been maintained through to the previously notified increase of 9% in 2029/30.  100% first-year allowances for zero-emission cars and electric vehicles will continue through to 2026.

Under current legislation, umbrella companies who employ workers, are required to deduct PAYE.  However, non-compliance has created a hole, which will now be plugged by requiring the agency or end user to deduct PAYE and national insurance.

 

Domicile:

From April 2025 it has already been announced that the current rules for the taxation of non-domiciled individuals will end.  The previous Government introduced proposals and the current Government is providing the detail.  The new concept will focus on a residency position for taxation.  A separate article will be published on this matter.  Interestingly, with these rules being based on ‘residency’ a “UK” person will now be able to benefit by leaving the UK for 10 years and can access the FIG on return.

Payrolling of benefits (P11d):

As we already know, all benefits, except loans and accommodation, will be reported via the payroll, instead of the current year-end reporting via a P11d form.  This has been reconfirmed.  Where benefits cannot be accurately determined in the year, an end-of-year adjustment will be possible – although, how, has yet to be announced.

Class 1A national insurance due on those benefits will increase to 15% from April 2025.

 

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, with an incremental increase to 14% and then to 18% from 6 April 2026 to match the new basic rate of CGT.

Investors relief – this is a little-known or used relief but the reduction in the lifetime allowance from £10m to £1m will have a big impact on those who are able to access it. It will also be impacted by the same rate increases as BADR mentioned above.

Carried Interest – another niche area that mainly relates to fund managers.  This has been under the spotlight due to the concern that it is being taxed at the wrong rates.  Confirmation that it will be liable to 32% CGT from April 2025 and then transferred to the income tax regime from April 2026, clarifies the position.

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

CPI will be used to uprate Class 2 and Class 3 national insurance for 2025/26 and similarly the rate bands for Class 1 and Class 2.

Employers NIC will increase to 15% from April 2025 and the threshold at which it becomes payable will reduce to £5,000.  From April 2028 the threshold will increase by CPI.

The Employment Allowance will increase to £10,500.

 

VAT

As of 1 January 2025, all education, boarding, and vocational training provided by a private school will be subject to VAT at the standard rate, currently 20%.  This was a previously announced change, which had been widely expected.

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.

Pensions – 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.

Subject to consultation, IHT can be paid from the pension fund, but income tax will still be payable on withdrawals from funds where the person was over 75 on death.  This will constitute a double-taxation position.

The 25% tax-free withdrawal in life remains available and there may now be consideration of planning with regards to this pot, in that funds can be gifted tax-free in life, to reduce your IHT burden in the future.

Agricultural Property Relief (APR) and Business Property Relief (BPR)

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.  Currently, trusts set up before Budget Day will each get an allowance but new trusts, which are connected, are likely to have to share the relief.

AIM holdings will also be impacted, but from 6 April 2026, will only be eligible for 50% BPR relief.  They will not be eligible for the £1m allowance.

Where lifetime gifts are being made after Budget Day, and the donor dies on or after 6 April 2026, the new rules will apply.  It is assumed that gifts made before this date will not be caught, but clarification is sought on this matter.

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%.  Companies will also be affected by this increase.  For purchases over £500,000, made by companies or non-natural persons, not covered by an exemption, the rate will increase from 15% to 17%.

The starting rate threshold is being reduced to £125,000 from April 2025, this is from the current £250,000 allowance.  First-time buyers relief will also be capped at £300,000 instead of the current £450,000 limit.

Making Tax Digital

HMRC has been working hard to get up-to-speed on the introduction of MTD from April 2026.  This will require sole traders and property owners with revenue in excess of £50,000 to report on a quarterly basis.  Thereafter, the limit was reducing to £30,000 and now a further limit of £20,000 will be introduced by the end of the Parliament.

Tackling Avoidance 

Each Government promises to tackle tax avoidance better than their predecessor and Rachel Reeves has been no exception.  Picking up on the offshore piece and aiming to ensure better compliance from companies with foreign income and individuals where funds are held in countries not currently required to report.

 

There is a lot to digest, and as always, we would always recommend speaking to a professional before making any financial decisions. Tax Partner Lucy Orrow would be happy to answer any of your questions. Please contact at the Braintree office.