Autumn Statement – 30 October 2024

31 Oct Autumn Statement – 30 October 2024

In one of the longest ‘Budget’ speeches in memory, Chancellor Rachel Reeves gave the first Labour Budget speech for nearly 15 years on 30 October 2024.  

This was clearly going to be a challenging Budget, with the Chancellor seeking to address the nation’s funding gap, while at the same time trying to shore up public services and encourage economic growth. It is yet to be seen exactly how the changes announced today will affect businesses in practice, and how their response plays through to employment and wages. 

Our summary of the main elements of interest is set out below.

Details of tax rates and allowances for 2025/26 (with a comparison to 2024/25) can be accessed at here:

NON-DOMICILE CHANGES

The non-domicile tax regime is to be abolished from 6 April 2025. Domicile will no longer be a feature of the UK tax system and will be replaced by a system based on residency.

The government will:

• Introduce a new 4-year foreign income and gains regime for new arrivals who have not been UK tax resident in the previous 10 years
• Allow individuals previously taxed on the remittance basis to remit pre-6 April 2025 foreign income and gains using a new Temporary Repatriation Facility
• Reform Overseas Workday Relief
• Replace the domicile-based system for inheritance tax with a residence-based system

 

VAT ON PRIVATE SCHOOL FEES

From January 2025, 20% VAT will apply to private school fees across the UK and the business rates charitable rates relief for private schools in England will be removed.

INCOME TAX AND PERSONAL NATIONAL INSURANCE (NI)

Income tax bands and personal NI thresholds remain frozen until April 2028. This time period hasn’t been extended and from 2028/29 these bands/thresholds will increase with inflation.

Capital gains tax (CGT) changes

Investors’ Relief

Investors’ Relief (IR) provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met, subject to a lifetime limit of £10 million of qualifying gains for an individual.

This measure reduces the lifetime limit from £10 million to £1 million for IR qualifying disposals made on or after 30 October 2024.

CGT rates

The main rates of Capital Gains Tax (that apply to assets other than residential property and carried interest), will increase from 10%/20% to 18%/24% respectively for disposals made on or after 30 October 2024.

The main rate of Capital Gains Tax that applies to trustees and personal representatives will increase from 20% to 24% for disposals made on or after 30 October 2024.

The rate of Capital Gains Tax that applies to Business Asset Disposal Relief and Investors’ Relief is increasing to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2026.

Carried interest

Carried interest, which is a form of performance-related reward received by fund managers, primarily within the private equity industry, will be subject to a CGT rate of 32% from April 2025 (current rates are 18% and 28%). From April 2026, carried interest will be subject to a revised regime within the income tax framework.

Inheritance Tax (IHT) changes

Freezing of IHT thresholds

The Inheritance Tax thresholds were already fixed at their current levels until April 2028. This time period has been extended to April 2030. This measure will fix the:

• Nil-rate band at £325,000
• Residence nil-rate band at £175,000
• Residence nil-rate band taper, starting at £2 million

 

Inherited pensions

From 6 April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlements, those unused funds and death benefits will be treated as being part of that person’s estate and may be liable to Inheritance Tax. The current distinction in treatment between discretionary and non-discretionary schemes will be removed. 

The change will apply to both Defined Contribution (DC) and Defined Benefit (DB) schemes. It will apply equally to UK registered schemes and Qualifying Non-UK Pension Scheme (QNUPS). This will ensure that most pension benefits are treated consistently for Inheritance Tax purposes, regardless of whether the scheme is discretionary or non-discretionary, DC or DB.

A small number of specified pension benefits will remain outside scope for Inheritance Tax, including where funds can only be used to provide a dependants’ scheme pension. These are currently out of scope in non-discretionary schemes and so will remain out of scope under this change.

Pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on pensions to HMRC. This will require pension scheme administrators and personal representatives to share information with one another.  

A technical consultation has been issued on the processes required to implement these changes for UK-registered pension schemes. After the consultation, the government will publish a response document and carry out a technical consultation on draft legislation for these changes in 2025.

The government will continue to incentivise pension savings for their intended purpose of funding retirement, supported by ongoing tax reliefs on both contributions into pensions and on the growth of funds held within a pension scheme. 

Comment

Although the proposals surrounding pension death benefits sound simple to implement, it will be difficult to do so in practice. There is a consultation currently running on the implementation of these proposals, and that runs until 22nd January 2025. The changes are proposed to come in from 2027. We shall see how this develops. 

ISAs

There are no changes to the current subscription limits. These are £20,000 for ISAs, £4,000 for Lifetime ISAs (included in the £20,000 ISA subscription limit) and £9,000 for Junior ISAs and the Child Trust Fund. These will be fixed until 5 April 2030.

Pre-budget rumours of a cap an accumulated ISA savings has not materialised either.

British ISA

It was announced that the Government will not be moving forward with the British ISA due to mixed responses to the consultation launched in March 2024.

Agricultural Relief and Business Relief

From 6 April 2025, the existing scope of agricultural relief will be extended to include land managed under an environmental agreement with, or on behalf of, the UK government, devolved governments, public bodies, local authorities, or relevant approved responsible bodies.

From 6 April 2026, agricultural relief (AR) and business relief (BR) will be reformed, as summarised below:

• The 100% rate of relief will continue for the first £1 million of combined agricultural and business property to help protect family farms and businesses, and it will be 50% thereafter.
• The rate of business relief will reduce from 100% to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.

 

The reforms are expected to only affect around 2,000 estates each year from 2026/27, with around 500 of these claiming agricultural relief and around 1,000 of these holding shares designated as “not listed” on the markets of recognised stock exchanges.

The government will publish a technical consultation in early 2025. This will focus on the detailed application of the allowance to lifetime transfers into trusts and charges on trust property. This will inform the legislation to be included in a future Finance Bill.

More detail is available here 

National Insurance

Employer NI is to increase to 15% (from 13.8%) from April 2025 and the secondary threshold will reduce to £5,000 (from the current £9,100), i.e. employer NI will become payable on an employee’s earnings above £5,000 pa.

The Employment Allowance, a National Insurance exemption for smaller businesses, will increase to £10,500 (from £5,000).

Pensions

QROPS

The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to Qualifying Recognised Overseas Pension Scheme (QROPS), unless an exclusion from the charge applies.

The government has announced that they are removing the exclusion from the OTC for transfers made on or after 30 October 2024 to QROPS established in the EEA and Gibraltar.

Also, from 6 April 2025, the conditions of Occupational Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA will be brought in line with OPS and ROPS established in the rest of the world, so that: 

• OPS established in the EEA will be required to be regulated by a regulator of pension schemes in that country
• ROPS established in the EEA must be established in a country or territory with which the UK has a double taxation agreement providing for the exchange of information, or a Tax Information Exchange Agreement

 

From 6 April 2026, scheme administrators of registered pension schemes must be UK resident.  

Aligning the treatment of transfers to QROPS established in the EEA and Gibraltar with that of transfers to QROPS established in the rest of the world will help to ensure that some UK residents do not benefit from a double tax-free allowance whilst remaining in the UK and reduces the risk of around £1 billion of UK tax-relieved pension savings being transferred overseas across the scorecard.

Changing the conditions EEA schemes need to meet in order to become an OPS or ROPS will mean that they will have to meet the same conditions as those which are established anywhere else in the world.

Requiring scheme administrators of registered pension schemes to be UK resident will mean that all administrators of registered schemes will need to meet the same conditions.    

Further details are available here

Employee Ownership Trusts and Employee Benefit Trusts

Targeted reforms are to be made to the Employee Ownership Trust tax reliefs to ensure that the reliefs remain focused on the intended purpose of encouraging and supporting employee ownership, whilst preventing opportunities for the reliefs to be abused to obtain tax advantages outside of these intended purposes.

Details are available here

Stamp Duty Land Tax (SDLT)

The higher rates of Stamp Duty Land Tax (SDLT) for purchases of additional dwellings (second properties) and for purchases by companies is increasing from 3% to 5% above the standard residential rates of SDLT.

This measure also increases the single rate of SDLT payable by companies and other non-natural persons purchasing dwellings over £500,000, from 15% to 17%.

Both changes apply to transactions with an effective date on or after 31 October 2024.

National Minimum Wage

The National Living Wage will increase from £11.44 to £12.21 an hour from April 2025.  The National Minimum Wage for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour.

State benefit and state pension increases

From April 2025, a 4.1% increase to the basic and new State Pension meaning the full new State Pension will rise from £221.20 to £230.25 a week, while the full basic State Pension will increase from £169.50 to £176.45 per week.

The Pension Credit Standard Minimum Guarantee will increase by 4.1% from April 2025, meaning an annual increase of £465 in 2025/26 in the single pensioner guarantee and £710 in the couple guarantee.

Working-age state benefits and the Additional State Pension will rise by 1.7% in April 2025, in line with inflation.

Furnished holiday lettings (FHL)

As previously announced, the furnished holiday lettings (FHL) tax regime will be abolished from April 2025, removing the tax advantages that landlords who offer short-term holiday lets have over those who provide standard residential properties.

The current rules provide beneficial tax treatment for furnished holiday lettings compared to other property businesses in broadly four key areas:

• Exemption from finance cost restriction rules (which restrict loan interest to the basic rate of Income Tax for other landlords)
• More beneficial capital allowances rules
• Access to reliefs from taxes on chargeable gains for trading business assets
• Inclusion as relevant UK earnings when calculating maximum pension relief

 

The abolition of the FHL regime will mean that income and gains will then:

• Form part of the person’s UK or overseas property business
• Be treated in line with all other property income and gains

 

Predicted Changes that didn’t occur

In spite of intense media speculation, there was no change to the limit on pension contributions (the annual allowance), the amount of tax free cash that can be drawn from a pension, or a reintroduction of a lifetime allowance charge (LTA) on pensions. 

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The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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Your opportunity

If you’ve not yet put in place a sound financial plan, or for more information on how these proposals personally affect you, please feel free to contact us on 01626 305318 or via email here.

The views expressed are not to be taken as financial advice. Professional advice should be sought before proceeding.