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Autumn Budget 2024: Restoring economic stability?

Rachel Reeves today set out the first Labour budget for 14 years with a promise to bring stability to the economy, protect working people, fix the NHS and rebuild Britain.

These aims will be delivered through a combination of £40bn tax increases to end borrowing for day-to-day spending, whilst revising her fiscal rules to borrow more to invest for growth and repair public services.

So where are the positives?

  • No increase in income tax or employee’s national insurance contributions.
  • An end to the freeze on Personal Allowance and other income tax thresholds, rising in line with inflation from 2028/29.
  • Fuel duty will be frozen for the next 12 months.
  • No changes to tax-relief on pension contributions.
  • No reduction in the level of tax-free pension lump sums available over your lifetime.
  • No changes to ISA rules.
  • State Pension to be increased by 4.1% in April 2025 and the ‘Triplelock’ maintained.

These announcements are of course welcome, so where is this extra £40bn coming from?

  • Employers’ national insurance contributions increasing from 13.8% to 15% whilst also reducing the threshold when contributions become liable from £9,100 pa to £5,000 pa.
  • The lower and higher rates for Capital Gains Tax (CGT) increasing immediately from 10% & 20% to 18% & 24% respectively. This will equalise the rates of tax for all gains in line with those in place for second homes and buy to let properties.
  • Reductions in Business Asset Disposal Relief and Investors Relief, gradually increasing the tax liability when selling businesses from the current 10%, to 14% from April 2025 and 18% by April 2026.

The Chancellor insists changes in national insurance do not break the pre-election promise not to raise taxes on ‘working people’ but at what price?

Increased costs to business may limit wage rises, deter job creation and growth, and ultimately be passed on to consumers through increased costs, potentially pushing up future inflation.

Wealthy estates will also be expected to contribute more to the increased tax burden with changes bringing more estates in to paying Inheritance Tax:

  • The standard Nil Rate Band and Residence Nil Rate Bands will be frozen at current levels for a further 2 years until to 2030, increasing the stealth tax on valuable estates.
  • Agricultural and Business Property Relief will be cut with only the first £1m of combined qualifying assets receiving 100% tax relief, reducing to 50% thereafter.
  • Relief for ‘not listed’ shares, such as AIM, reduced to 50% in all circumstances.
  • Inherited Pension funds to be subject to Inheritance Tax, removing the use of Pensions as tax-efficient wealth transfer vehicles.

The inclusion of pension funds within taxable estates, reduced reliefs and stealth increases through frozen allowances, will result in more estates paying higher amounts of Inheritance Tax going forward.

Further tax will be raised through VAT on private schools as expected, with other increases including changes to the non-domicile rules and higher taxes on using private jets!

So, what should you do next?

It’s clear that somewhere along the line we will all pay more tax, whether directly or indirectly.

This may be worth it for better public services and economic growth in the longer term, if the governments gamble on increased borrowing for investment pays off.

Pensions remain an attractive home for your retirement provision, with no changes to tax-relief on contributions or the taxation of lifetime benefits.

Higher Capital Gains Tax rates increase the importance of using valuable unchanged ISA allowances, whilst considering the benefits of less well-known tax structures, such as Investment Bonds, and even Venture Capital Trusts (VCTs) or Enterprise Initiative Schemes (EIS) for the more adventurous investors.

Revisiting your estate planning is key, including the consideration of making lifetime gifts where affordable or restructuring your investments where reliant on Agricultural/Business Property Relief (BPR).

As each of our individual positions are unique please take the time to review your position with your financial adviser at your next available opportunity to understand how these changes will impact you and your future objectives.

 


Contact us on 0330 320 9280, email: info@cravenstreeetwealth.com or complete our online enquiry form to discuss how you may be affected by the 2024 Autumn Budget.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Craven Street Financial Planning Limited is authorised and regulated by the Financial Conduct Authority.

Terry Burgum
Chartered Financial Planner & Senior Manager
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Daniel Robertson
Head of Business Development
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