The first Labour budget for 14 years, what does it mean for you?
“Restoring stability to public finances and rebuilding public finances. This budget raises taxes by £40bn.”
The Autumn Statement has been announced for the first time in 14 years by a Labour Chancellor and the first time ever by a female chancellor. Rachel Reeves has announced a series of changes in her first budget but stated that there will be no increases to rates of income tax, national insurance or VAT.
Some of the key changes that we see impacting you and your financial plans are as follows:
Capital Gains Tax (CGT) – The lower rate of CGT is increasing to 18% (from 10%) and the highest rate will now be 24%, we see these changes increasing the comparison of which tax wrappers to use and hold any investments outside of the usual pension and ISA option.
Pensions – The £268,275 (maximum) tax-free lump sum withdrawal from pension pots has survived Rachel Reeves’ first Budget, to the relief of many pension savers. There had been speculation that the Chancellor would slash the tax-free rate to as little as £100,000 as part of an attempt to raise billions of pounds in additional tax revenue.
What is changing is the freedom from Inheritance Tax for pension death benefits (from April 2027). This could fundamentally change how you fund your future lifestyle and which assets you choose to use and in which order. Currently, ISAs and other savings were generally used before pensions, but, and subject to the finer detail in the Budget, we may see pensions accessed earlier as they will form part of your estate from 2027. This change is likely to see many more people now with taxable estates and an Inheritance tax liability than before.
One piece of good news was the spousal exemption on inheritance will be applicable to pension death benefits in the same way as other assets in the estate.
Inheritance Tax – Again, we await the finer detail, but it would appear that Business Relief (BR) is unchanged for “unquoted” BR assets up to the value of £1M, any unquoted BR assets exceeding £1m will have a reduced rate of saving (50%), on the excess above 1m, which will result in an IHT charge of 20% on that amount.
All Alternative Investment Market (AIM) BR shares will now have a reduced rating of saving (50%) and therefore an IHT charge of 20% on any amount.
As always, we are here to help and answer any questions you may have about how these changes may impact upon your own future plans and lifestyle.
The following article is a summary of the announcements. Please look out for our more detailed PDF download that will be available in the next few days.
Announcements:
- Borrowing for 2024 will be £127 billion.
- The OBR says CPI inflation will average 2.5% this year, 2.6% in 2025, then 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2.0% in 2029.
- A commitment to maintain the 2% inflation target.
- Specific funding for those infected and affected by the infected blood scandal.
- Fund of £1.8bn to compensate the Post Office Horizon scandal victims.
- HMRC systems to be modernised, extra compliance and debt staff, interest rate on tax debt to be increased and the pursuance of tax avoidance schemes – will raise £6.5 billion.
- National Living Wage will rise to £12.21 an hour in April and a single adult rate phased in over time to bring all over 18s onto the same rate.
Key tax announcements
Fuel duty
Fuel duty will remain the same to avoid a £3bn burden. The rate is frozen at 5p.
State pension
In 2025-26, the state pension rises due to a commitment to the Triple Lock, up to £470 a year to the average pensioner.
Employer’s NI
The government has announced an increase in employer’s NI contributions of 1.2% to 15% from April 2025, with a reduction in the secondary threshold from £9,100 to £5,000, raising £25 billion a year.
Employment allowance
The employment allowance will increase from £5,000 to £10,500, meaning many small businesses won’t pay any NI at all and over 1 million will pay the same or less than previously. A business will be able to employ up to four people on National Living Wage without paying NI.
Capital gains tax
The lower rate is increasing from 10% to 18% and the higher rate from 20% to 24%. Capital gains tax on residential property will remain at 18% and 24%.
The lifetime limit for business asset disposal relief is capped at £1m.
Inheritance tax
The current freeze on the IHT threshold will remain until 2030. The first £325,000 of any estate can be inherited tax-free, rising to £500,000 when including a primary residence left to a direct descendent.
From April 2027, IHT will be due on pensions left in an estate on death and from April 2026, the first £1m of business assets will not attract IHT, then with be given a 50% relief.
There will also be a 50% relief on shares in the Alternative Investments market.
Stamp Duty Land Tax
SDLT will stay the same apart from for second homes with a rise to 5%, effective from 31 October 2024.
Tobacco and alcohol duty
From 1 Oct 2026, they government will introduce a vaping duty for the first time at £2.20 per 10ml of liquid. There will be a one off tobacco duty rise to keep the incentive to choose refillable vaping over smoking.
Draught duty will be reduced by 1.7% to cut a penny off a pint in the pub. Alcohol duty rates on non draught products will increase in line with RPI from February 2025.
Non domicile tax regime
The government will abolish the non domicile status from the tax system from 6 April 2025 and create a residence based regime with ‘internationally competitive arrangements’ for those coming to the UK on a temporary basis…under a package of changes aiming to raise £12.7 billion over five years.
Business rates
From the year 2026-27, permanently lower rates bills will be introduced for retail, hospitality and leisure properties. From 2025-26, 250,000 RHL businesses will receive 40% relief on their rates bills, up to a cash cap of £110,000 per business.
Corporation tax
Corporation tax remains capped at 25%.
Electric cars
The government will maintain existing incentives for EVs in company car tax from 2028. It will also increase the differential between fully electric and other vehicles in the first rates of vehicle excise duty beginning in April 2025.
20% VAT on UK private schools
From 1 Jan 2025, VAT will apply to all education, training and boarding services provided by private schools.
Public services
“There will be no return to austerity, but there will be difficult choices in the next stage of the spending review. We can’t simply spend our way to improving services. We will use technology to improve services and ensure taxpayer money is spent as efficiently as possible”.
Day to day spending from next year onwards will grow in 1.5% in real terms.
Schools
The core schools’ budget will increase by £2.3 billion. Thousands more breakfast clubs will be provided. A further £300m will be provided for further education.
There will be a reform for Special Educational Needs children, with a £1 billion uplift in funding, which is a 6% real term increase on this year’s spending.
A £2 million fund for Holocaust education schemes will be set up.
Defence
A £2.9bn increase to the military’s defence budget to adhere to NATO agreements and support for Ukraine ‘for as long as it takes’. There will be funding to commemorate the 80th anniversary for VE and VJ day in 2025.
Crime
The chancellor insists on cracking down on shoplifting, including on low value items, to support the retail sector.
The NHS
The chancellor stated, ‘in the spring we will publish a ten year plan for the NHS, to move from hospital to community, from analogue to digital, from sickness to prevention’.
There will be a £22.6 billion increase in the day to day spending budget of the NHS and a £3.6 billion additional growth budget.
There will be £1 billion of capital investment in 2025, to repair and rebuild NHS buildings. The seven hospitals affected by the RAC (concrete) crisis will be immediately aided.
A further £1.5 billion will be provided for new beds in hospitals and capacity for more than a million more diagnostic tests.
Waiting lists will reduce, with a target of waiting times to be no longer than 18 weeks.
If you have any questions about how the Autumn Statement might affect you or your business, please get in touch with by completing the form below or call us on 01825 76 33 66 and we will be able to advise you further.
