You can find a guide to the Autumn 2024 Budget here, but here is a simple summary of what it could mean for you.
The new Labour Chancellor, Rachel Reeves, presented this budget to address the financial gap left behind. She plans to raise taxes in areas that won’t affect everyday income taxes but will impact other sectors. Let’s look at the main points.
Inheritance Tax on Pensions
Starting in 2027, pension pots that are not spent by the time of death will be subject to inheritance tax. Right now, these funds do not count towards inheritance tax, but the Labour Party is changing that rule. If you plan to leave a pension as part of your estate, this change may lead to higher taxes.
Personal Allowances Unfrozen From 2028
Most personal tax allowances are frozen, which means they won’t increase. This includes the basic personal allowance (the amount you can earn before paying income tax), the savings allowance, and the dividend allowance. As wages go up but these allowances stay the same, more people may pay higher tax rates over time. This means the government will collect more tax without technically raising the rates. For the tax year 2025/26, the personal allowance will remain at £12,570, and the higher rate threshold will stay at £50,270. The freeze on these allowances will end in April 2028, when they will start to increase again based on inflation.
Capital Gains Tax Rises
If you sell assets like investments or property (not including your main home), the tax on your profits is increasing. The new Capital Gains Tax rates are 18% for basic rate taxpayers and 24% for higher rate taxpayers. If you plan to sell assets, you may feel the impact of this increase, especially since personal allowances are frozen until 2030. This means fewer people will have tax-free profits in the coming years.
National Insurance is Going Up for Employers
Starting in April 2025, companies will pay a higher National Insurance rate for their employees. The rate will increase from 13.8% to 15% on salaries over £5,000, reduced from the previous threshold of £9,100. This change may lead businesses to rethink how they pay their teams to save on taxes. However, the Employment Allowance will increase to £10,500, which will help small businesses by reducing their National Insurance costs if their payrolls are modest.
Changes to Inheritance Tax (IHT)
Labour is changing the rules for business and agricultural inheritance tax relief. Starting in April 2026, only the first £1 million of business and farm assets will receive full relief from inheritance tax. Amounts above this limit will only get half the tax break. This change may mean that some family-run businesses and farms will have to pay taxes they wouldn’t have had to pay before. Also, from April 2027, unspent pension funds will count as part of the estate for inheritance tax. This change will affect how people plan their estates if they want to leave wealth to their children or heirs.
Private School Fees Will Cost More
Families with children in private schools should get ready for higher fees. Starting January 2025, private school tuition will include a 20% VAT, which will raise these fees significantly. Additionally, private schools will lose their charitable status for business rates, which could further increase costs for families.
Minimum Wage Increases
In April 2025, workers of all ages on the minimum wage will get a pay increase. The National Living Wage for people over 21 will rise to £12.21 per hour. Younger workers will also see significant raises; for example, 18-20-year-olds will move from £8.60 to £10 per hour. This increase aims to help those on lower incomes, but businesses that employ many minimum-wage workers will face higher payroll costs as a result.
Stamp Duty Changes Hit Second Homes
If you plan to buy another property, be aware that Stamp Duty will be higher. The extra charge for second homes and buy-to-let properties has increased from 3% to 5%. Also, from April 2025, the 0% Stamp Duty band for first-time buyers will drop to £300,000. This change will impact those who are entering the market with larger mortgages. If you want to buy soon, make sure to include these new costs in your budget.
Non-Dom Tax Benefits Removed
The UK has been attractive to wealthy, non-domiciled individuals who enjoy lower taxes on income from abroad. But from April 2025, this special tax status will end. Those living here will pay tax on all income, regardless of its source, which brings the UK closer in line with other countries that tax foreign income for residents.
Thinking Ahead
For savers, individual savings accounts (ISAs) and pensions still offer valuable tax benefits, but the yearly allowances won’t increase before 2030. The Help to Save scheme has also been extended and is now available to more people on Universal Credit.
