The chancellor unveiled her Autumn Budget on 30 October 2024. There were a number of noteworthy announcements. Some of the key items are covered below.
1. Increases to the Living Wage and National Minimum Wage
Living Wage: Will rise by 6.7% to £12.21 per hour for those aged 21 and over, resulting in an average increase of £1,500 per year for a full-time worker.
National Minimum Wage: For ages 18-20, a significant 16.3% increase brings the hourly rate to £10, adding about £2,730 annually for full-time employees.
Implications: While increased wages are expected to boost tax revenues, they also present higher wage costs for employers, especially within some sectors with many minimum-wage workers. This may lead to employers reconsidering their recruitment strategies.
2. National Insurance (NI) Changes
Employer NI Rate Increase: From April 2025, employers NIC will rise from 13.8% to 15%.
Threshold Reduction: The NIC threshold for employers will drop from £9,100 to £5,000 per employee.
Employment Allowance: Employment allowance to increase from £5,000 to £10,500 and removal of £100,000 threshold from April 2025.
Impact: Employers will see a substantial increase in NI contributions, impacting operational budgets, although the Employment Allowance changes are welcome.
3. Capital Gains Tax (CGT) Rate Increases
Rate Increases: The standard CGT rate for gains has risen to 18% (basic rate) and 24% (higher rate), in line with CGT rates for residential property. These changes are effective immediately.
Carried Interest: This will be taxed at 32%, taking effect from 6 April 2025.
Impact: Individuals disposing of assets will face higher capital gains tax burdens, with an 80% increase in the basic CGT rate and 20% for higher rate gains.
4. Business Asset Disposal Relief (BADR) Changes
Incremental Increases: BADR-eligible gains, currently taxed at 10%, will gradually rise, to 14% from 6 April 2025, then to 18% from 6 April 2026.
Lifetime Limit: The BADR lifetime limit remains at £1 million.
Effect: Individuals selling qualifying business assets will pay up to 80% more tax on the first £1 million in gains.
5. Inheritance Tax (IHT) Adjustments
Threshold Freeze: The IHT threshold remains frozen, with the standard 40% tax rate still in place.
Expansion of Scope: Inherited pensions will now be subject to IHT (from April 2027), along with a new £1 million combined limit on Business Property Relief and Agricultural Property Relief (from 6 April 2026).
Changes to BPR/APR: Above the £1 million limit, only 50% relief will apply, effectively taxing these assets at 20%.
6. Closure of the Non-Domicile Regime
Policy Shift: The Non-Dom tax regime will be replaced with a residency-based system, aiming to raise UK taxes on overseas income for long-term residents.
Rationale: The goal is to close what is seen as a loophole and ensure fair tax contributions from those who reside in the UK.
7. Freeze on Income Tax and NI Thresholds
Extended Freeze: The current freeze on income tax and employee NI thresholds will continue. However increases to these thresholds are expected to restart in future budgets to help mitigate against ‘bracket creep’ for employees and workers.
8. VAT on Private School Fees
New VAT Charge: From January 2025 VAT at 20% will apply to private school fees.
Reasoning: The additional funds are intended to support public education benefiting the 96% of UK children attending state-funded schools.
Authored by: London Tax Team
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