Chancellor Rachel Reeves delivered her first budget in 14 years on 30 October 2024. Taxpayers, business owners, investors, and almost every individual in the UK had their eyes peeled for the changes in the budget announcement.
Tax and property experts predicted tax rate hikes, spending cuts, threshold freezes, and more ahead of the budget. These predictions were made because Reeves claimed she had many tough decisions to make in this budget. So, we are exploring the predictions before the budget announcement vs. what changes were actually announced.
Predictions Vs. Changes in the Autumn Budget
Reeves announced a £22 billion gap in public finances and the need to make changes to fill this deficit before the budget. However, one of her first announcements in the autumn budget was the government’s aim to raise £40 billion in funding through the changes.
Here is the detailed breakdown of what was predicted in comparison to the changes made for various topics:
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) was one of the most anticipated topics before the autumn budget. Due to the government’s promise not to raise Income Tax, VAT, and National Insurance Contribution (NIC), many predicted a CGT rate rise would be inevitable.
Expectation: Most predicted a CGT rate rise of up to 39%. Others were certain that CGT rates would align with the Income Tax rate and hit a maximum of 45%.
Reality: CGT rates were indeed hiked, but only for other assets. CGT rate for other assets increased from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. However, the CGT rate for residential property remains the same, which is positive news for property investors.
Even though this news came as a sigh of relief for property investors, many are opting to be out of the property market. Indicating this, house price growth has slowed from 3.2% in September to 2.4% in October.
Inheritance Tax (IHT)
Inheritance Tax (IHT) was another major tax that was predicted to either increase the tax rate or reduce the threshold exemption.
Expectation: Many predicted a double death tax, which would mean a CGT applied on top of the Inheritance Tax. Others were expecting a reduction in the exemption threshold in both the general and residence nil-rate bands. Another major speculation was a hike in the tax rate itself, which is already at a high of 40%.
Reality: Among the many predictions for the Inheritance Tax (IHT), the change to this tax came as a sigh of relief. Reeves decided to freeze the general nil-rate band of £325,000 until April 2030. Also, the nil-rate band will increase to £500,000 if the estate contains residential properties passed to direct descendants. This threshold can reach up to £1 million when the tax-free allowance is passed to a surviving spouse or civil partner.
Stamp Duty Land Tax (SDLT)
Another major topic of discussion among land and property investors was a Stamp Duty Land Tax (SDLT) rate hike. Here is what happened.
Expectation: Stamp Duty Land Tax (SDLT) rate hikes for the various thresholds based on property values were expected.
Reality: The Labour government decided not to raise SDLT tax rates. However, the Stamp Duty Land surcharge for additional properties was hiked by 2%. This rate came into effect the day after the budget, which was 31 October 2024. Here is the updated rate of Stamp Duty Land surcharge on additional properties:
Property Value | Before Budget | After Budget | ||
|---|---|---|---|---|
UK Resident Rates | Non-UK Resident Rates | UK Resident Rates | Non-UK Resident Rates | |
Up to £250,000 | 3% | 5% | 5% | 7% |
£250,001 - £925,000 | 8% | 10% | 10% | 12% |
£925,001 - £1.5 million | 13% | 15% | 15% | 17% |
Above £1.5 million | 15% | 17% | 17% | 19% |
Due to this rate hike and the country's previous property market condition, many property investors are opting to exit the market. Many Buy-to-Let investors are deciding to sell their Buy-to-Let properties, which could seriously affect the country's rental property market.
Pension Contributions
Due to Labour announcing the state pension triple lock as a key part of their manifesto, speculation about private pensions was pretty big.
Expectation: A reduction in the amount of tax-free cash people can withdraw from their pension pots was one of the major predictions among taxpayers.
Reality: To save relief, there has been no change in pension contributions in the autumn budget. The government has announced plans to remove the concession for pension pots to be passed on to anyone free of inheritance tax (IHT) as part of her Autumn Budget.
The tax-free amount that savers can withdraw is 25% of the amount in the pension pot. The maximum amount of tax-free lump sum is £268,275. The savings Income Tax rates are 20%, 40% and 45% for basic-rate, higher-rate, and additional-rate taxpayers, respectively.
Non-Dom Status
Non-dom status refers to people who have a permanent home outside the UK and pay tax in the UK for the income they earn inside the country.
Expectation: It was almost certain that the non-dom status would be abolished and replaced by a new scheme.
Reality: This prediction was spot on, as Reeves mentioned in her budget speech that the non-dom status will be abolished on 6 April 2025 and replaced by a new residence-based scheme.
Tax Threshold
Although the government confirmed not to raise Income Tax rates even before the election was held. People will be dragged into paying more tax as they earn more over the years if the tax-free threshold does not increase. This is called a fiscal drag. Fiscal drag is one of the most common methods for the government to not raise tax rates directly by still generating revenue for the government.
Expectation: Taxpayers predicted threshold freeze for various taxes like CGT, IHT or SDLT.
Reality: The previous government decided to freeze the Income Tax threshold, also known as the personal allowance, until the Tax Year 2028/2029. The government will not extend a freeze on the amount of money that people can earn tax-free beyond 2028/2029.
This could also help the government in generating the claimed revenue of £40 billion.
Conclusion
In the Autumn Budget 2024, Chancellor Rachel Reeves took a cautious approach. She aimed at balancing revenue-raising measures with reliefs aimed at supporting specific sectors. While many feared drastic hikes across various tax domains, the actual changes, particularly for property investors, were less severe than anticipated.
The government’s decision to leave CGT on residential properties unchanged and to avoid increases in Stamp Duty Land Tax rates, except for surcharges, offers some stability in a turbulent property market. However, freezing tax thresholds and the gradual fiscal drag will still affect taxpayers over time, subtly increasing their contributions without direct rate hikes.
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