Key points from the 2024 Budget
Posted on 2nd November 2024 at 11:27
Rachel Reeves presented her first Budget as Chancellor of the Exchequer on 30 October 2024. The Budget's goal is to address the £22 billion shortfall in public finances, while also aiming to restore stability and strengthen public services. As the first Labour Budget since 2010—and the first ever delivered by a female Chancellor - Rachel Reeves' announcement had been surrounded by intense speculation. Many anticipated changes were spot on, while others were notably absent. Here’s a quick rundown:
National Insurance and Income Tax
Employer contributions will rise by 1.2% to 15%, with changes to thresholds that could bring in £25 billion annually.
The Budget introduces several adjustments to National Insurance Contributions (NICs), set to take effect from 6 April 2025. While employee NIC rates will stay the same, employer NICs will rise by 1.2%, moving from 13.8% to 15.0%. Additionally, the government will lower the secondary threshold at which employers start paying the standard NIC rate, reducing it from £9,100 to £5,000.
To support small businesses, the Employment Allowance will double from £5,000 to £10,500, with the removal of the £100,000 NIC liability threshold.
Previously frozen income tax and employee NIC thresholds have increased the number of taxpayers in higher brackets. This freeze will end, and from 2028/29, personal tax thresholds will align with inflation.
In light of these changes, employers and business owners may need to review their approaches to employee and owner remuneration and seek professional guidance.
Capital Gains Taxes
The main rate of Capital Gains Tax (CGT) will rise from 20% to 24% for disposals occurring on or after 30 October 2024, with gains within a taxpayer’s basic rate band increasing from 10% to 18%.
Business asset disposal relief increase from 10% to 14%
The lifetime allowance for Business Asset Disposal Relief (formerly Entrepreneur’s Relief) will remain at £1 million, but the rate will increase from 10% to 14% starting 6 April 2025, and then to 18% from 6 April 2026. This relief is available to taxpayers who have owned trading businesses for at least two years or hold a minimum 5% stake in a trading company where they are an employee or officer for at least two years.
No changes were introduced regarding the definition of a ‘non-trading’ company, which still applies when a company conducts ‘substantial’ non-trading activities, typically understood to exceed 20%.
Minimum Wage and State Pension
The National Living Wage will rise by 6.7% to £12.21 per hour in April, and the National Minimum Wage for 18- to 20-year-olds will increase to £10 per hour. Over time, the system will transition to a “single adult rate.
From April 2025, the basic and new state pension will be increased by 4.1% next year, meaning pensioners may benefit from an increase of up to £470 a year.
VAT on private school fees
From 1 January 2025, all education services and vocational training provided by private schools (or by “connected persons” to the school) for a fee will be subject to VAT at the standard rate of 20%. Boarding services closely related to such provisions will also be subject to VAT at 20%.
The government is taking further steps to ensure that VAT is applied to fees covered under certain advanced payment schemes that were intended to secure the current rate. They stated that any fees paid from 29 July 2024, relating to terms beginning in January 2025 or later, will be subject to VAT (with 29 July marking when the government considers the policy was “formally announced” following their election victory). Additionally, lump-sum payments without a specific period may also be reviewed.
Late payments to HMRC
Starting from 6 April 2025, the government will increase the late payment interest rate on unpaid tax liabilities by 1.5%. This change is part of a broader initiative, supported by significant investment in HMRC’s IT infrastructure and an expansion of staffing, with plans to recruit 5,000 additional compliance officers and 1,800 debt management staff. The goal? To ensure taxpayers meet their obligations as early and accurately as possible.
Company Cars
Electric Vehicle Benefit in Kind
The company car tax rate for fully electric vehicles, currently increasing by 1 percentage point each year until 2027/28, will continue on this path. From 2028/29, however, it will rise by 2 percentage points annually, reaching 7% in 2028/29 and 9% in 2029/30.
This differs from the rates for petrol and diesel vehicles, which will keep increasing each year until they cap at 37%.
For low-emission vehicles (1–50g CO2 per km), including hybrids, the rate will rise to 18% in 2028/29 and 19% in 2029/30. For all other vehicle categories, rates will increase by 1 percentage point annually in 2028/29 and 2029/30.
The maximum rate, currently capped at 37%, will increase by 1 percentage point each year, reaching 38% in 2028/29 and 39% in 2029/30. For vehicles emitting 51g/km or more, this will mean rates of 19–38% in 2028/29 and 20–39% in 2029/30.
Capital Allowances - zero-emissions cars
100% First Year Allowances for zero-emissions cars and electric charging points will be maintained until 31 March 2026 for Capital Allowances purposes.
Corporation Tax
There will be no change to Corporation Tax, as the government has committed to keeping the headline rate capped at 25%. The Corporation Tax Small Profits Rate and marginal relief will also remain at their current rates and thresholds.
Stamp Duty
Starting from 31 October 2024, the additional surcharge on residential property purchases made by companies and individuals who own more than one residential property will increase from 3% to 5%.
This surcharge applies to any purchase where, by the end of the day of completion, you (or your spouse/civil partner) own another residential property.
However, there is an exemption from this increased rate if the property is being purchased to replace your main residence.
A flat rate of Stamp Duty Land Tax (SDLT) also applies to companies and other non-individuals (such as trusts and pensions) purchasing high-value properties that are not used in trade or rental activities. These properties are typically subject to the Annual Tax on Enveloped Dwellings (ATED) regime. From 31 October 2024, the flat rate SDLT for such purchases will rise from 15% to 17%.
Non-doms and new arrivals
From 6 April 2025, UK residents, irrespective of their domicile status, will be within the scope of UK tax on their global income and gains.
The Chancellor has confirmed that the current remittance basis of taxation will be abolished for non-domiciled individuals starting from 6 April 2025.
It will be replaced by a new four-year foreign income and gains (FIG) regime for individuals who become UK tax residents after being non-resident for a period of ten tax years. This regime is largely in line with the proposal originally announced in March.
Under the new regime, qualifying individuals will not pay tax on foreign income and gains (FIG) in the first four tax years after becoming UK tax resident. They will also be able to remit these funds into the UK without incurring additional charges. Furthermore, they will not be taxed on distributions from non-resident trusts. As with the current system, they will still be liable for tax on UK income and gains.
The Statutory Residence Test will determine tax residence, disregarding treaty residence, non-residence, and split years. A claim must be made for each year that the four-year FIG regime applies, and individuals can choose which types of foreign income or gains it applies to. For example, the regime can apply to one source of foreign income, but not others, or to foreign income but not foreign gains.
Individuals who opt into the new regime will lose their entitlement to personal allowances and the capital gains tax annual exempt amount, similar to the treatment of current remittance basis users.
For those who have been UK tax residents for less than four years as of 5 April 2025 (and were non-resident for the preceding ten years), the new regime will apply during the remainder of their four-year period of UK residence.
The New Four-Year Regime for Income and Capital Gains
Public Spending on Health, Education, and Infrastructure
Substantial investments will be allocated, including a £22.6 billion boost to the NHS budget and increased spending on schools and housing.
Inheritance Tax
Rachel Reeves recently announced that Inheritance Tax thresholds will be frozen at their current levels for an additional two years, extending through until April 2030. This means the nil rate band will remain at £325,000, and the residence nil rate band will stay at £175,000. These thresholds have been held steady at this level since 2009.
Reforms to Agricultural & Business Relief
Starting in April 2026, the government will introduce changes to Agricultural Property Relief and Business Property Relief. While the relief will continue at 100%, it will be capped at the first £1 million of combined business and agricultural assets, on top of the existing nil rate bands. The Chancellor believes this change will safeguard most businesses and farms. Any value beyond £1 million will be eligible for a reduced relief rate of 50%.
Additionally, Business Property Relief on AIM share portfolios will be reduced to 50%. At present, AIM portfolios are fully exempt from Inheritance Tax after two years of holding shares. Under the new rules, AIM portfolios will be taxed at an effective rate of 20%, which is still significantly lower than the main Inheritance Tax rate of 40%.
Changes to Pension Funds
Currently, pension funds are excluded from Inheritance Tax, but from April 2027, their value will be included in the estate for tax purposes. This means the value of pension pots will count toward the total estate value and will be taxed accordingly. The government is set to consult on the specifics of how this change will be implemented, but it is anticipated that pension fund administrators will be responsible for arranging tax payments.
Public Debt and Fiscal Rules
New fiscal rules aim to decrease public debt over time, with a projected surplus by 2027-28.
These changes reflect Labour’s commitment to investing in the UK economy while managing debt responsibly. For businesses and individuals, understanding these shifts can help with future financial planning.
For more information on how we can help you navigate these challenges, contact Chart Accountancy today. We’re here to support you every step of the way.
Tagged as: Budget 2024
Share this post: