Budget Summary 30 October 2024

Summary

The long awaited, much anticipated and dreaded first Budgetof the new Labour government was delivered to Parliament today – 30 October2024 – by the Chancellor, Rachel Reeves.

We now know where the funds will come from to financeinvestment and growth, and the vaunted tax increases are no longer speculative,we have the detail. 

The impact of the proposed £40bn of tax increases aresummarised below.

What we knew before the Budget announcements

The following announcements were made before the Budget:

National Living Wage (NLW): 
The NLW, which applies to workers aged 21 and over, is set to increase to£12.21 per hour from April 2025, marking a rise from its current rate of£11.44. 

National Minimum Wage (NMW): 
Rates for 18 to 20 year olds will increase from £8.60 to £10 per hour. Theincrease in the 18-20 year old rate narrows the gap between that and the NLW,in anticipation of the adult rate being extended to 18 – 20 year olds in futureyears.

Non-Dom Tax Rules: 
New restrictions on non-domiciled tax statuses are set to tighten. Thesechanges, taking effect in April 2025, will limit non-domiciled tax benefits toan initial four years of UK residency for those previously non-resident,potentially broadening the tax base.

From 6 April 2025, the government will introduce a newresidence-based system for Inheritance Tax and scrap the planned 50% reductionin foreign income subject to tax in the first year of the new regime.

For Capital Gains Tax purposes, current and past remittancebasis users will be able to rebase personally held foreign assets to 5 April2017 on a disposal where certain conditions are met. Overseas Workday Reliefwill be retained and reformed, extending to a 4 year period and removing theneed to keep the income offshore.

The amount claimed annually will be limited to the lower of£300,000 or 30% of the employee’s net employment income. 

The government is extending the Temporary RepatriationFacility to 3 years, expanding the scope to offshore structures, andsimplifying the mixed fund rules to encourage individuals to spend and investtheir FIG in the UK. 

VAT on Private School Fees: 
Starting January 2025, private school fees will be subject to 20% VAT.Alongside the removal of charitable rates relief on private schools, thesemoves will increase operational costs for these institutions.

Abolition of Furnished Holiday Lettings Tax Regime: 
From April 2025, the tax benefits associated with Furnished Holiday Lettings(FHL) will end, potentially affecting property owners reliant on this taxrelief.

Income and gains from a FHL will form part of the person’sUK or overseas property business. These changes will take effect on or after 6April 2025 for Income Tax and Capital Gains Tax and from 1 April 2025 forCorporation Tax and for Corporation Tax on chargeable gains. 

Other Budget Personal finance changes

Income Tax
There are no changes in the rates of Income Tax and the thresholds at which thehigher (40%) and additional (45%) rates apply. As we have commented before, thefreezing of the thresholds means that increases in earnings to compensate forinflation will “drag” individuals into tax or the higher rates of tax.

As an acknowledgement of this fiscal-drag effect, TheChancellor has committed to restoring the inflation-proofing of the Income Taxthresholds from April 2028.

High Income Child Benefit Charge
The government will not proceed with the reform to base the High Income ChildBenefit Charge (HICBC) on household incomes. To make it easier for alltaxpayers to get their HICBC right, the government will allow employedindividuals to report Child Benefit payments through their tax code from 2025and pre-prepopulate self-assessment tax returns with Child Benefit data forthose not using this service.

Starting rate for savings
The government will introduce legislation in Finance Bill 2024-25 to retain the0% band for the starting rate for savings income at its current value of £5,000for tax year 2025 to 2026. This measure will apply to the whole of theUK. 

National Insurance rates and thresholds
The September Consumer Prices Index (CPI) figure of 1.7% will be used as thebasis for uprating the Class 2 and Class 3 National Insurance contributions forthe tax year 2025-26. The Class 1 Lower Earnings Limit and Class 2 SmallProfits Threshold will also be uprated by September CPI for the 2025-26 taxyear.

Inheritance Tax
The Inheritance Tax nil-rate bands are already set at current levels until 5April 2028, and the government will introduce legislation in Finance Bill2024-25 to fix these levels for a further 2 years until 5 April 2030. 
The:

• nil-rate band will continue at £325,000
• residence nil-rate band will continue at £175,000
• residence nil-rate band taper will continue to start at £2 million

Qualifying estates can continue to pass on up to £500,000and the qualifying estate of a surviving spouse or civil partner can continueto pass on up to £1 million without an inheritance tax liability.

Unused pension funds and death benefits payable from apension will be brought into a person’s estate for Inheritance Tax purposesfrom 6 April 2027.

Agricultural Property Relief and Business Property Relief
The government will reform these reliefs from 6 April 2026. The existing 100%rates of relief will continue for the first £1 million of combined agriculturaland business property.

The rate of relief will be 50% thereafter, and in allcircumstances for shares designated as ‘not listed’ on the markets ofrecognised stock exchanges, such as AIM.

Capital Gains Tax (CGT)
It was speculated that CGT gains would be taxed at Income Tax Rates,thankfully, that did not come to pass.

But there are increases, and they will apply to gains ondisposals of chargeable assets made on or after 30 October 2024 (Budget Day).The main rates of CGT will change from the previous 10% and 20%, to 18% and24%, respectively.

The 18% rate will apply to gains that fall to be taxed inthe Income Tax basic rate band the 24% rate to gains that fall to be taxed inthe higher rate bands.

The rate of CGT for Business Asset Disposal Relief (BADR)and Investors’ Relief is increasing to 14% for disposals made on or after 6April 2025, and from 14% to 18% for disposals made on or after 6 April 2026.  The £1m limitfor BADR remains unchanged.

The Investors’ Relief lifetime limit will be reduced from£10 million to £1 million for qualifying disposals made on or after 30 October2024. 

No changes will be made to the 18% and 24% rates of CapitalGains Tax that apply to residential property gains.   

Making Tax Digital for Income Tax and Self-Assessment
Making Tax Digital (MTD) for Income Tax will be extended to sole traders andlandlords with income over £20,000 by the end of this Parliament. The precisetiming of this will be set out at a future fiscal event. This expands therollout of MTD for Income Tax, which will begin from:

• April 2026 for sole traders and landlords with income over £50,000
• April 2027 for those with income over £30,000

Help to Save Scheme
The scheme will be extended for two years from April 2025. Accordingly, thelast date a scheme can be opened is 5 April 2027. 

From 6 April 2025, the eligibility of the scheme will beextended to all individuals in receipt of Universal Credit earning £1 ormore. 

ISA, Junior ISA, Lifetime ISA and Child Trust Funds
The annual subscription limits are unchanged at:

• ISAs will remain unchanged at £20,000 until April 2030
• Junior ISAs will remain unchanged at £9,000 until April 2030
• Lifetime ISAs will remain unchanged at £4,000 until April 2030
• Child Trust Funds will remain unchanged at £9,000 until April 2030

These measures will apply to the whole of the UK.

Carried Interest
Carried interest is typically paid to fund managers when an investment fund’sreturns exceed a specified threshold, often after the fund liquidates assetsand distributes returns to investors. Payment occurs after investors recovertheir initial investment and a preferred return, aligning the manager’scompensation with the fund’s performance.

From April 2026, the tax regime for carried interest will bewithin the Income Tax framework, with a 72.5% multiplier applied to qualifyingcarried interest that is brought into charge.  As an interim step, the government will introducelegislation in Finance Bill 2024-25 to increase the 2 Capital Gains Tax ratesfor carried interest to 32% from 6 April 2025. 

Stamp Duty Land Tax
The government will introduce legislation in the Finance Bill 2024-25 toincrease the higher rates of Stamp Duty Land Tax (SDLT), payable by purchasersof additional dwellings and by companies, from 3% to 5% above the standardresidential rates. The government will also increase the single rate of SDLTpayable by companies and non-natural persons acquiring dwellings for more than£500,000, from 15% to 17%. 

The changes will apply to transactions with an effectivedate on or after 31 October 2024.

Fuel Duty rates
The 5 pence cut in the rates of Fuel Duty, first introduced at Spring Statement2022, will be extended to 22 March 2026. This will maintain the cut for afurther 12 months in the rates for heavy oil (diesel and kerosene), unleadedpetrol, and light oil by 5 pence per litre, and the proportionate percentagecut (equivalent to 5 pence per litre from the main Fuel Duty rate of 57.95pence per litre) in other lower rates and the rates for rebated fuels, wherepractical. 

Air Passenger Duty (APD) rates for 2025-26 and 2026-27
The reduced rates for economy passengers will increase in line with RPI,rounded to the nearest pound. This means that domestic and internationalshort-haul economy rates will remain unchanged from 2024-25. The standard andhigher rates will be further increased to help account for recent highinflation.

For 2026-27, all rates will be increased by 13%, rounded tothe nearest pound, to account in part for previous high inflation and to helpmaintain the value of APD rates in real terms. The higher rates that apply tolarger private jets will increase by a further 50%. The new rates will applyfrom 1 April 2026. 

Tobacco Duty rates
The duty rates for all tobacco products will increase by the tobacco dutyescalator of 2% above inflation (based on the Retail Price Index (RPI)).

The rate for hand-rolling tobacco will increase by anadditional 10% above the escalator, to 12% above RPI.

The changes took effect at 6pm on 30 October 2024.

Alongside the introduction of a vaping products duty (seebelow) there will be an equivalent increase in tobacco duties. The governmentwill make a one-off tobacco duty increase of £2.20 per 100 cigarettes or 50grams of tobacco, effective from 1 October 2026.

Vaping products duty (VPD)
The government will introduce legislation in a future Finance Bill for a singleduty rate of £2.20 per 10ml of vaping liquid. The measure will take effect from1 October 2026, with businesses able to apply for approval from 1 April2026. 

Alcohol Duty Uprating
In a welcome move, the alcohol duty rate on draught products is to be reduced.It is expected that this will reduce the price of an average strength pint by1p per pint.

The government will also increase the discount provided tosmall producers for non-draught products and maintain the cash discountprovided to small producers for draught products, increasing the relative valueof Small Producer Relief. 

Alcohol duty rates on non-draught products will increase inline with RPI inflation from 1 February 2025.

Budget impact on UK businesses

Corporation Tax charge and rate
There are no proposed changes to Corporation Tax rates, a welcome announcementfor SMEs.

The government will introduce legislation in Finance Bill2024-25 to set the charge for Corporation Tax and thereby maintain the mainrate at 25% and the small profits rate at 19%.

Employers’ National Insurance Contributions
One of the predicted tax increases was to Employers’ National Insurance. Theseare termed secondary contributions in the legislation. The prediction hasproved to be correct.

From 6 April 2025 until 5 April 2028, the threshold at whichEmployers’ contributions will apply is being reduced from £9,100 to £5,000. Infuture years, this threshold will increase in line with the Consumer PriceIndex.

The main rate of employer’s secondary rate (Class 1) NICwill increase by 1.2% from 13.8% to 15%. Class 1A contributions (that apply tobenefits in kind) and Class 1B contributions will increase by the same amount.

Thankfully, the government has listened to the variousbusiness lobby groups on behalf of smaller businesses and will also introducelegislation to increase the Employment Allowance from £5,000 to £10,500 andremove the restriction that currently applies to the Employment Allowance,where only employers who have incurred a secondary Class 1 National Insurancecontributions liability of less than £100,000 in the tax year prior are able toclaim.

This will take effect from April 2025 and will mean eligibleemployers will be able to reduce their National Insurance contributionsliabilities by up to £10,500 per year. 

Tax treatment of double cab pick-up vehicles
The government will not introduce legislation to maintain the treatment ofdouble cab pick-up vehicles with a payload of one tonne or more as goodsvehicles.

HMRC is in the process of updating its guidance to clarifythe position in respect of such vehicles which will be treated as cars forcapital allowances, for benefits in kind and for some deductions from businessprofits. Transitional arrangements will also apply.

Energy Profits Levy (EPL) reform 2024
As announced at the July Statement 2024, the government will introducelegislation in Finance Bill 2024-25 to provide for changes to the EnergyProfits Levy (EPL). The legislation will increase the rate of the levy by 3% to38% and the sunset clause will be extended to 31 March 2030. The legislationwill remove the 29% investment allowance, and the rate of the decarbonisationallowance will be set at 66% to broadly maintain the cumulative value of relieffor decarbonisation expenditure. These changes will take effect from 1 November2024.

Taxation of employee ownership
The taxation of Employee Ownership Trusts and Employee Benefit Trusts is to bereformed. These reforms will ensure that the regimes remain focused onencouraging employee ownership and rewarding employees, and to preventopportunities for abuse. The changes will take effect from 30 October2024. 

Close company shareholders — anti avoidance measure
The government will introduce new legislation to prevent avoidance of thesection 455 Corporation Tax Act 2010 (Loans to Participators) charge, byensuring that the Targeted Anti-Avoidance Rule (TAAR) remains robust andeffective.

The change repeals the relief for return payments where theTAAR has applied and moves the related legislation together for clarity. 

The changes will take effect from 30 October 2024 andspecifically will apply to return payments made on or after that date. 

Capital allowances for zero emission cars and electricvehicle charging points
The 100% first-year allowances for zero-emission cars and electric vehiclecharge-points is extended until 31 March 2026 for Corporation Tax, and to 5April 2026 for Income Tax.

Additional tax relief for visual effects (VFX)
Film and high-end TV companies will be able to claim an enhanced 39% rate ofAudio-Visual Expenditure Credit (AVEC) on their UK visual effects (VFX) costs.UK VFX costs will be exempt from the AVEC’s 80% cap on qualifyingexpenditure. 

The changes will take effect from 1 April 2025, forexpenditure incurred on or after 1 January 2025.

Taxation of company cars
The appropriate percentages for zero emission and electric vehicles willincrease by 2% per year in 2028-29 and 2029-30, rising to an appropriatepercentage of 9% in tax year 2029-30.   

Appropriate percentages for all cars with emissions of 1 to50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in taxyear 2028-29 and 19% in tax year 2029-30.   

Appropriate percentages for all other vehicle bands willincrease by 1% per year in tax years 2028-29 and 2029-30. This will be to amaximum appropriate percentage of 38% for tax year 2028-29 and 39% for tax year2029-30. 

Annual uprating of the van benefit charge and the car andvan fuel benefit charges 2025-26
These rates will be increasing using the September 2024 Consumer Prices Index(CPI). 

The following new rates will come into effect from 6 April2025:

• the van benefit charge will be £4,020 in tax year 2025-26
• the van fuel benefit charge will be £769 in tax year 2025-26
• the car fuel benefit charge multiplier will be £28,200 in tax year 2025-26

The government will introduce legislation by statutoryinstrument in December 2024 to ensure the changes are reflected in tax codesfor tax year 2025-26.

Reporting Benefits in kind by payroll software
A technical note has been published which provides further clarification onplans for mandatory payroll reporting. The technical note confirms that, fromApril 2026, it will be mandatory to payroll all benefits in kind, except foremployment related loans and accommodation. Payrolling for these two benefitswill be introduced on a voluntary basis from April 2026 and the government willset out the next steps on when they will be mandated in due course.

OUR SUMMARY
Although some of the expected dire increases in tax proposed in the media sincethe general election, have not come to pass, there is still a lot to beconsidered.
If you have concerns about any of the points summarised above, please call. Inparticular, do not act based on this update without first consulting with yourprofessional advisors.