Key Tax Changes from the 2024 Autumn Budget

Labour’s first Budget Announcement was made by Rachel Reeves on Wednesday 30^th October. Their manifesto pledged to not increase taxes for the working people, but for many it was disappointing that this did not include small business owners or landlords. This therefore means that tax changes announced will affect 5.5 million SMEs in the UK (the majority of the UK’s private business population) which includes 3.1 million sole traders, and just under 3 million UK landlords.

What is a Budget announcement?

The Budget announcement is where the UK government, or specifically – the Chancellor of the Exchequer – who is the government’s chief financial minister, outlines their plans on what taxpayers’ money will be spent on and how much. Normally, it is expected to fund necessary public services as well as other key infrastructure for the country. However, not only does the Budget lay out what money will be spent on, but the Chancellor is also expected to explain how the country will be able to afford to do this. It can include raising of taxes (the most straightforward but least popular option) or offering tax relief and tax cuts to incentivise and stimulate the UK economy (often the more favourable choice for taxpayers but does not always result in the desired outcomes) or borrowing (a more short-term solution as money will always have to be repaid).

When is the Budget announcement?

The Budget is usually held once a year, either in the autumn or the spring. It is then followed up by a Statement announcement which is where the Chancellor presents a review on the Budget plans and how effective it has been. The Budget has no fixed date in the calendar year, so it is up for the government in power to decide and set a few months in advance. Labour’s first Autumn Budget announcement will take place on Wednesday 30^th October. It is expected to start around 12:30pm or shortly after Prime Minister’s Question Time which occurs every Wednesday from 12pm in the House of Commons.

The top 5 key tax changes that will affect you

Whilst the Chancellor announced a host of new tax measures, we’ve picked out the top 5 that will have the greatest impact on you:

1. Income Tax

Reeves upheld her promise not to increase income tax and confirmed that income tax thresholds would remain frozen as initiated by the Conservative government. Yet, as we all know, ‘fiscal drag’ is one of the most effective ways to collect more taxes. In fact, the Office of Budget Responsibility (OBR) estimates that this stealth tax will raise over £33.5 billion a year in 2028/29 which is when Reeves says the freeze will end and thresholds will increase in line with prices.

Surprisingly, our prediction that the Chancellor may decide to make a raid on dividend taxes never appeared so investors should feel more relaxed about supporting UK projects.

2. Capital Gains Tax

As predicted, Capital Gains Tax (CGT) was prime for a tax hike. We now see CGT rates increase, with the lower CGT rate rising from 10% to 18% and the higher CGT rate rising from 20% to 24%. It’ll be a relief to landlords that disposals of residential properties that may give rise to a CGT liability remain charged at the same rates of 18% and 24% for the basic rate and higher rates respectively.

However, the Chancellor took a more cautious move when it came to our expectation that Business Assets Disposal Relief (BADR) would be scrapped. Instead, it remains at 10% this year before rising to 14% from April 2025 and increasing to 18% by April 2026/2027 to bring it in line with current CGT rates.

3. Stamp Duty Land Tax

Whilst no one expected a “rabbit out of a hat” (the phrase commonly used to describe the Chancellor announcing a surprise and often generous tax cut), there was certainly still a shock announcement made in Reeve’s first budget that no one saw coming. Stamp Duty Land Tax (SDLT) for second and additional properties faces a 2% increase to 5% tax effective from tomorrow (31^st October 2024). It is perhaps the speed in which this new measure has been implemented which is particularly surprising, but it overall falls in line with Labour’s crackdown of furnished-holiday-lets (FHLs).

4. Inheritance Tax

No changes were made to the 7 year gift rule that we were expecting from the Chancellor’s Autumn Budget. Not only that, but the current inheritance tax rate and thresholds remain in place. Despite this, we continue to expect that more and more estates will become liable to inheritance tax due to the growing value of property in the UK as well as the reduction of some inheritance tax reliefs. These include the removal of pension inheritance tax relief where unused pensions left to beneficiaries were tax-free but now become fully subject to inheritance tax rates where over the threshold. Other inheritance tax reliefs which will be reformed include agricultural property relief and business relief where, from April 2026 onwards, only the first £1 million in assets remains inheritance tax-free. Thereafter, there will be 50% relief on eligible assets making the effective tax rate 20%

5. Employer’s National Insurance

Finally, the Chancellor’s autumn budget may have been one for the working people, but the changes to Employer’s NI arguably fail small business owners of the UK. Employer’s NI is due to increase by 1.2% to 15% come April 2025. Although the Chancellor has made some recompense towards this by more than doubling Employment Allowance from £5,000 to £10,500, we would argue that this is futile given that she has also more than halved the Secondary Threshold from £9,100 to £5,000.

Reeves argues that this means up to 4 employees on the national living wage can be employed without the employer having to pay NI but we would contest that the average UK salary far exceeds the national living wage, therefore affecting more small businesses. As an example to illustrate, an employer would previously have paid £3,570 in Employer’s NI for an employee earning the average UK salary of £34,963. This will go up to £4,494 at 15% Employer’s NI equating to an increase of £924.

Tax changes made before the Budget Announcement

Labour provided assurances that they will not look to increase National Insurance, income tax or VAT, but this wasn’t necessarily official until the Autumn Budget announcement. In fact, they made some changes in advance which are now in effect:

1. Cuts to winter fuel payments

Winter fuel payments are seen as a lifeline to the elderly and vulnerable, allowing those in need to be able to afford to heat their homes during the coldest months. However, prior to 2024 they were offered to all UK residents over the state pension age regardless of income. Since 16 September 2024, Labour has changed the entitlement to receive winter fuel payments to only those who are receiving Pension Credit or other means-tested benefits so that only those most in need will receive it.

The winter fuel payment is worth up to £300 per household and the cut is predicted to save the government £1.3 billion. In response to the backlash by many pensioners, a government spokesperson has said “Those on the full new state pension will receive an extra £400 – twice the average winter fuel payment”.

2. Removal of VAT exemption for private education fees

Despite pledging that there would be no VAT increases, this did not necessarily mean that there would be no changes to VAT. Ordinarily, education and other vocational training is exempt from standard rate VAT of 20%. However, as of 29 July 2024, private school fees will become subject to standard rate VAT and applies to tuition and boarding fees from 1 January 2025 onwards. Furthermore, there are plans to remove private schools’ exemption from business rates from April 2025 onwards, but full details have yet to be confirmed. 

This initiative is estimated to raise £1.5 billion a year and the funds have been allocated to support state education costs instead. Many private schools have responded and claim they will have little choice but to pass on all, if not most, of this cost to parents. The most prestigious education institutions are unlikely to be adversely affected by this, but small private schools serving far less affluent families say they are at risk of closing as a result. Not only this, but some question whether there will be enough spaces at state schools to accommodate the influx of students.

3. End of advantageous furnished-holiday-let regime

Jeremy Hunt announced his intentions to end the furnished-holiday-let (FHL) regime from April 2025 back in his Spring Budget announcement in March 2024, but since then, Rachel Reeves has confirmed that Labour will carry out this change. 

Those that own FHLs will only be able to make use of the benefits up until April 2025 after which the following changes will come into place:

• Disposals of FHL properties will no longer qualify for Business Assets Disposal Relief (BADR)
• Capital expenditure will no longer be a tax-deductible expense and instead will need to fall under the Replacement Relief as available to landlords of other rental property
• Mortgage relief will be limited to 20%
• Any loss arising will only be allowed to be offset against other rental profits

The Country Land and Business Association strongly oppose this initiative; claiming that it punishes local economies, especially landowners and small businesses in rural areas where diversification into the rental market helps create jobs and brings money into the local area for independent retail and hospitality businesses. 

Our predictions before the Budget Announcement

Although we do not know for certain what will be proposed by Rachel Reeves, the most popular predictions include:

1. Labour may make changes to Capital Gains Tax

Capital Gains Tax (CGT) is a tax on profits when assets are disposed of. It’s considered an easy tax to target because many argue that those who attract high CGT liabilities are those from a wealthier economic background.

The rate of CGT you need to pay is dependent on your own income tax bracket, as well as what type of asset you are disposing of. Basic rate income taxpayers are charged 10% CGT on all assets excluding property which is charged at 18%, whilst higher and additional rate income taxpayers are charged 20% CGT on all assets excluding property which is charged at 28%. One possibility that may be announced in the Budget is the increase in CGT rates so that they are in line with income tax rates (20% for basic rate, 40% for higher rate, and 45% for additional rate) as this was recommended by the Office of Tax Simplification (OTS) back in November 2020 but was not implemented by the Conservatives. 

One exception to the above rates comes in the form of tax relief known as Business Assets Disposal Relief (BADR). It allows for business owners to apply the lowest rate of 10% CGT on their disposal of qualifying business assets. The previous government already reduced the lifetime allowance of this tax relief from £10 million to only £1 million, so our guess is that there will be no further changes to this. However, the OTS made recommendations to scrap this tax relief altogether and replace it with a new iteration that would be more targeted towards those specifically wanting to retire so this could be something that the Chancellor chooses to implement.

Finally, individuals are currently entitled to an annual £3,000 CGT allowance on disposals made. This has already been significantly reduced where it was once a £12,300 annual allowance in 2022. Whilst there is nothing to prevent the Chancellor from reducing this further, we would assume that she is more likely to choose to increase CGT rates to bring in more tax to plug the £22 billion financial ‘black hole’.

2. The Chancellor could choose to make changes to Inheritance Tax

Inheritance tax (IHT) is charged at 40% on a deceased’s estate that is worth over £325,00 or £500,000 where a residential home is passed onto the deceased’s children or grandchildren. This can further extend up to £1 million in IHT allowance where a spouse or civil partner leaves their entire estate to their surviving spouse or partner.

Historically, IHT is seen as controversial and highly unpopular, yet less than 5% of all UK estates attract inheritance tax. Nevertheless, with property prices steadily increasing over the years, many believe that more and more people will go over the threshold and start having to pay IHT.

A small amount of tax relief is offered where one chooses to donate at least 10% of their entire estate to a charitable organisation or multiple charitable organisations, which reduces the rate of IHT to 36% on the remaining estate. Although it’s unlikely that the Chancellor will make changes to this concession, IHT is a big potential area that Labour could make changes to, such as changing the seven-year rule for gifts and tax reliefs for agricultural property and business property.

3. Changes to Dividend Tax could be made in the Budget

Even though dividends are considered as income, they are subject to their own rate of tax which is slightly lower than personal income tax. For basic rate taxpayers, dividends are charged at 8.75%, higher rate taxpayers are charged at 33.75%, and additional rate taxpayers are charged at 39.35%. Individuals are also entitled to an annual £500 allowance which has been significantly slashed over the past few years from £5,000 back in 2016.

There are some speculations that Reeves could choose to align the dividend tax rates so that they mirror the income tax rates, but views on this are that it would be incredibly bold, risky, and potentially detrimental to winning public support. For basic rate income taxpayers, this will mean facing a significant hike in tax (far greater than those in the higher and additional rate bracket and therefore seem more inequitable) and for investors, it may make them less inclined to invest in UK businesses which could hurt the local economy. Reeves would have to soften the blow with significant tax benefits if she were to go ahead with this in our opinion.

What did they announce in previous Budgets?

Here you can find our archive of past Budget announcements:

• 2024 Spring Budget
• 2023 Spring Budget
• 2022 Mini Budget
• 2021 Autumn Budget

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