Defined Contribution Pension Schemes: Build a Secure Retirement
8th July 2024
The 2024 Autumn Budget Summary: A New Era of Fiscal Policy. Fixing the foundations to deliver change
The 2024 Autumn Budget, delivered by Chancellor Rachel Reeves on 30 October, marked a critical turning point for the UK. As the first Labour-led budget in over a decade, it brought a strategic shift aimed at addressing the pressing financial challenges facing the country. With a fiscal “black hole” in the public finances, Reeves outlined a comprehensive programme focused on increasing tax revenues, revitalising the UK’s infrastructure, and delivering on Labour’s manifesto promises, all while avoiding austerity. The changes will have significant impacts across various sectors, including taxation, social services, and public funding, affecting businesses and individuals alike.
Key Tax Changes
The Budget introduced a range of tax measures, including:
- National Insurance Contributions (NICs):
- Employer NICs will increase from 13.8% to 15% from April 2025.
- The secondary threshold for employer NICs will be reduced from £9,100 to £5,000.
- Capital Gains Tax (CGT):
- CGT rates will increase to 18% for non and basic rate taxpayers and 24% for higher and additional rate taxpayers, effective immediately.
- Inheritance Tax (IHT):
- Business and agricultural property relief for IHT will be capped at £1 million from April 2026.
- Unused pension funds and death benefits will be included in IHT calculations from April 2027.
- Stamp Duty Land Tax (SDLT):
- The additional SDLT charge for second homes and buy-to-let properties will rise from 3% to 5% from 31st October 2024.
- Other Tax Measures:
- VAT will be applied to private school and boarding fees from January 2025.
- The charitable relief for English business rates will be withdrawn from April 2025.
- ISA limits will remain frozen until April 2030.
- Fuel duty rates for 2025/26 will be frozen, and alcohol duties on certain draught beers will be cut.
In this article, we explore the key aspects of the 2024 Autumn Budget, breaking down the implications of major policy changes on businesses, households, and investments.
Table of Contents
- Overview of the 2024 Autumn Budget UK
- Increased Employer National Insurance Contributions
- Reduction in Employer NIC Threshold
- Capital Gains Tax Hikes
- Changes to Inheritance Tax Reliefs
- Inclusion of Pension Death Benefits in IHT
- Higher SDLT for Buy-to-Let and Second Homes
- VAT on Private Education and Revised Charitable Reliefs
- Frozen ISA and Junior ISA Limits
- Fuel and Alcohol Duty Adjustments
- Conclusion
1. Overview of the 2024 Autumn Budget
Presenting Labour’s first budget in 14 years, Chancellor Rachel Reeves outlined a £41 billion programme of tax increases and spending reforms to tackle the UK’s financial deficit. This budget focuses on raising revenue through targeted taxation, with a clear aim to fulfil Labour’s promises to invest in health, education, and infrastructure. Rather than opting for austerity measures, the budget’s strategy is to drive economic resilience through careful fiscal policy.
2. Increased Employer National Insurance Contributions
One of the most impactful changes in this budget is the increase in the main rate of employer National Insurance Contributions (NIC). From 6 April 2025, the Class 1 employer NIC rate will rise from 13.8% to 15%. This increase is expected to significantly impact businesses, particularly those with large workforces, as they will now face higher employment costs.
Implications for Businesses:
The rise in employer NIC rates could affect hiring decisions, payroll budgets, and overall wage structures. Smaller businesses, in particular, may need to carefully assess how this increased cost might affect their growth plans and operational expenses.
3. Reduction in Employer NIC Threshold
In addition to the increase in NIC rates, the secondary threshold for employer NIC contributions will be lowered from £9,100 to £5,000. This means that employers will be required to pay NICs on employee earnings sooner, adding to the tax burden on businesses.
Implications for SMEs:
Small and medium-sized enterprises (SMEs) are likely to feel this change more acutely, as they are generally more sensitive to increases in payroll costs. To mitigate this impact, employers may consider restructuring workforce arrangements or exploring operational efficiencies to offset these added expenses.
4. Capital Gains Tax Hikes
To further bolster government revenue, the main rates of Capital Gains Tax (CGT) have been increased, taking immediate effect. For non and basic rate taxpayers, CGT will now be charged at 18%, while higher and additional rate taxpayers will face a 24% rate.
Impact on Investors:
This hike in CGT rates reduces the attractiveness of investments and asset sales, particularly for higher-rate taxpayers. Investors may need to reassess their strategies, as the increased tax on realising gains could shift investment patterns towards longer-term holdings to defer CGT liabilities.
5. Changes to Inheritance Tax (IHT) Reliefs
As part of a broader effort to address wealth inequality, the budget introduces a cap on Inheritance Tax (IHT) reliefs for business and agricultural assets, set at £1 million, effective from April 2026. This cap on previously uncapped reliefs means that significant wealth transfers will now be subject to higher tax rates.
Implications for Estates and Legacy Planning:
The new IHT cap is likely to prompt high-net-worth individuals and families with considerable business or agricultural assets to rethink their estate planning strategies. Many may explore alternative wealth transfer methods, such as lifetime gifting or establishing trusts, to minimise the impact of the new cap on their estate.
6. Inclusion of Pension Death Benefits in IHT
Starting in April 2027, unused pension funds and death benefits will be included as part of an individual’s estate for Inheritance Tax (IHT) purposes. This move could make pensions less attractive as a wealth transfer tool, as beneficiaries will now face an IHT liability on inherited pension funds.
What This Means for Retirement Planning:
This inclusion of pension benefits in IHT calculations may prompt individuals to rethink their retirement and estate planning approaches. Those who previously relied on pensions as a tax-efficient wealth transfer method might look for alternative vehicles or consider spending down pension assets during their retirement years.
7. Higher Stamp Duty Land Tax (SDLT) for Buy-to-Let and Second Homes
The additional Stamp Duty Land Tax (SDLT) charge on buy-to-let properties and second homes will increase from 3% to 5% from 31 October 2024. This is intended to address housing affordability and discourage speculative investments in the property market.
Impact on Property Investors and Buyers:
The increase in SDLT for buy-to-let and second homes could deter investment in additional properties, which may reduce competition and potentially benefit first-time buyers. However, property investors may respond by passing on the added costs to tenants in the form of higher rents, impacting rental affordability.
8. VAT on Private Education and Revised Charitable Reliefs
From 1 January 2025, VAT at a rate of 20% will apply to private school and boarding fees, and the charitable relief for English business rates will be removed from 1 April 2025. These changes are designed to address income disparities, ensuring that public funds do not indirectly subsidise private education.
Effect on Private Education and Charities:
The addition of VAT on private school fees may reduce accessibility to private education for middle-income families, potentially limiting access for students from diverse backgrounds. Charities, meanwhile, will face higher operational costs without business rate relief, which could affect their ability to sustain current service levels.
9. Frozen ISA and Junior ISA Limits
In a measure affecting personal savings, the Chancellor announced that ISA, Junior ISA, and Lifetime ISA limits will remain frozen until April 2030. This freeze effectively reduces the value of these savings over time due to inflation.
Implications for Savers:
The freeze on ISA allowances could dampen the incentive to save, as the real value of these tax-free savings will diminish with inflation. Savers may need to contribute more frequently to their ISAs or consider alternative savings vehicles to maintain the purchasing power of their savings.
10. Fuel and Alcohol Duty Adjustments
While taxes rise in many other sectors, fuel duty rates for 2025/26 will remain frozen, and alcohol duty on certain draught beers will be cut. These adjustments aim to relieve the cost burden on households and businesses amid the ongoing cost-of-living crisis.
Impact on Households and Hospitality:
The freeze on fuel duty provides some relief to drivers and logistics-heavy businesses facing rising costs, while the reduction in alcohol duty for draught beers could benefit the hospitality industry. Lower pub prices may stimulate consumer spending in hospitality venues, providing a boost to this hard-hit sector.
11. Conclusion
The UK 2024 Autumn Budget introduces a comprehensive set of tax increases and policy adjustments aimed at bolstering public finances while making critical investments in healthcare, education, and infrastructure. For businesses, higher National Insurance contributions and a lower employer NIC threshold represent considerable new costs, while investors and property buyers must navigate higher taxes affecting investment returns and purchasing power. Additionally, changes to inheritance tax reliefs and the inclusion of pension death benefits will likely lead many to reconsider their estate planning strategies.
Labour’s commitment to avoiding austerity is evident, but the policy changes also reflect a pragmatic approach to addressing the fiscal deficit. As details of these policies unfold, both businesses and individuals will need to adapt to this new financial landscape. For guidance on how these changes could impact your financial strategy, reach out to a financial advisor for tailored advice.
What Does This Mean for You?
The Budget’s impact on individuals and businesses will vary. To understand how these changes may affect your specific financial situation, it’s essential to seek professional advice.
Godiva Wealth Management is here to help. Our team of experts can provide tailored guidance and support to navigate the complexities of the new tax landscape. Contact us today to discuss your financial goals.
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Background sources
The following links will provide access to the source documents used for this article:
HM Treasury
- HM Treasury Budget page – https://www.gov.uk/government/publications/autumn-budget-2024
- The Chancellor’s speech – https://www.gov.uk/government/speeches/autumn-budget-2024-speech
- Autumn Budget 2024 documents – https://www.gov.uk/government/publications/autumn-budget-2024
- including:
- Autumn Budget 2024 red book – https://assets.publishing.service.gov.uk/media/67225b9b3ce5634f5f6ef579/Autumn_Budget_2024__print_ready_.pdf
- Autumn Budget 2024: Policy costings – https://assets.publishing.service.gov.uk/media/6721d2c54da1c0d41942a8d2/Policy_Costing_Document_-_Autumn_Budget_2024.pdf
- Impact on households: distributional analysis to accompany Autumn Budget 2024 – https://assets.publishing.service.gov.uk/media/672156834da1c0d41942a8c9/Impact_on_households.pdf
- Autumn Budget 2024 – Tax related documents – https://www.gov.uk/government/collections/autumn-budget-2024-tax-related-documents
Office for Budget Responsibility – https://obr.uk /
Economic and Fiscal Outlook March 202 4– https://obr.uk/efo/economic-and-fiscal-outlook-october-2024/
Statement from Welsh Cabinet Secretary for Finance Secretary Mark Drakeford MS: 30 October 2024 – https://www.gov.wales/written-statement-welsh-government-response-uk-autumn-budget-2024#:~:text=Today’s%20Budget%20is%20a%20welcome,Spending%20Review%20in%20the%20spring.
Statement from Scottish Finance Secretary Shonna Robison: response to the UK Government, 30 October 2024 – https://www.gov.scot/news/budget-marks-step-in-right-direction/
