Autumn Budget 2024: A Complete Guide

The Autumn Budget 2024 was widely anticipated, partly because it was the first budget presented by a female Chancellor, Rachel Reeves, and because of expectations of big financial changes amid ongoing economic challenges. Reeves repeatedly stressed the need to address a significant £22 billion budget gap, hinting that large tax increases would be necessary to balance the finances.

In line with these hints, the government announced a £40 billion tax hike, pushing tax revenue to its highest-ever share of the country’s income. Reeves explained that these changes were essential to reduce public debt, stabilise government finances, and support investment in essential public services. Key changes included higher National Insurance Contributions (NICs), adjustments to capital gains tax, and reduced tax relief for certain areas like property and business ownership.

The new tax measures have sparked mixed reactions. Supporters say the increases are necessary for long-term stability and will fund healthcare, education, and infrastructure improvements. Critics, however, argue that higher taxes may place a strain on households and businesses, potentially slowing economic growth and investment.

This budget marks a major shift in the UK’s financial policy, signalling a move towards higher contributions from both individuals and businesses. It highlights the government’s focus on closing budget gaps but also raises questions about its impact on economic growth and public satisfaction in the coming years.

Capital Gains Tax Rates (CGT)

One of the most eagerly awaited announcements in the recent budget was the change to capital gains tax (CGT), amid widespread speculation that CGT rates might rise as high as 39%. While the outcome was less severe than expected, the chancellor introduced several significant changes:

• CGT rates for assets other than residential property will increase to match residential property rates, set at 18% for gains within the basic rate band and 24% for those above.
• Rates for Business Asset Disposal Relief (BADR) and Investors' Relief (IR) will increase from 10% to 14% in 2025 and then to 18% in 2026.
• The IR lifetime limit will be reduced from £10 million to £1 million.
• The carried interest rate will rise from 28% to 32% in 2025 and to 34% in 2026.

These measures are expected to generate £2.5 billion in revenue. They also reduce the gap between gains and income tax rates, increasing the tax burden on savings, investments, and risk-related activities.

As highlighted above, the lifetime limit of £10,000,000 for assets qualifying for Investor’s Relief has been reduced to £1,000,000 from 30 October 2024. This applies to qualifying investor gains on newly issued ordinary shares of an unlisted trading company bought by individuals from 17 March 2016 and held for at least three years starting from 6 April 2016.

Stamp Duty Land Tax (SDLT)

An increase in the SDLT surcharges for additional properties in the UK is a significant tax hike. Aiming to raise £0.3 billion in revenue from SDLT, and to discourage the purchase of second homes and buy-to-let properties, the chancellor announced that the existing 3% SDLT surcharge applicable for additional property acquisition will rise to 5%. The SDLT rates increased, effectively from the day after the budget announcement, i.e. 31 October 2024, resulting in the following rates:

Transitional rules may apply if contracts are exchanged before 31 October 2024 but completed on or after that date.

Minimum Wage and National Insurance Contributions (NICs)

The rise in National Insurance Contributions (NIC) stands out as one of the most significant changes announced. Key updates that will come into effect from 6 April 2025 include:

• An increase in the National Living Wage to £12.21 per hour.
• Employer NICs raised from 13.8% to 15%.
• Reduction of the earnings threshold from £9,100 to £5,000 per year.
• An increase in the employment allowance from £5,000 to £10,500.
• Employers will no longer need to have incurred a secondary Class 1 NIC liability of less than £100,000 in the prior tax year to claim.

These changes will particularly impact larger employers with many low-paid staff, while smaller employers will see only minimal effects, especially because of the increase in Employment Allowance.

With the NIC hike, businesses are expected to respond by reducing their workforce or cutting work hours. Employers may also shift towards hiring self-employed contractors rather than traditional employees, focusing more on pension contributions than salaries.

The NIC increase has sparked widespread discussion among tax experts and the public. Frank Haskew, Head of Tax at ICAEW, commented, "The added cost to employers due to the NIC rise increases the incentive to engage workers off payroll, encouraging more non-employment arrangements. To reduce these distortive behaviours, labour taxation needs to be more consistent across different forms of work."

Annual Tax on Enveloped Dwellings (ATED)

Another tax charge that saw an increment on the budget last week was the Annual Tax on Enveloped Dwellings (ATED). ATED is an annual tax that applies to UK residential properties held by companies. These charges vary depending on the valuation of the property on 1 April 2022 or the purchase date, whichever is later.

In line with the Consumer Price Index (CPI) for September 2024, ATED charges will rise by 1.7% starting from 1 April 2025. Below are the updated ATED charges for the current tax year (2024/25) and the upcoming year (2025/26):

It was announced on the budget last week that the ATED charges will rise by 1.7%, corresponding with the September 2024 Consumer Price Index (CPI). Following is the differences in ATED charges applicable in the current year (2024/25) and the next year (2025/26), starting from 1 April 2025.

Finance Bill 2024-25 will amend the ATED rules to ensure that individuals purchasing property through alternative finance arrangements by providing certainty that ATED charges do not arise where alternative finance is used, the way that ATED charges do not arise under similar conventional finance arrangements.

Inheritance Tax (IHT)

Inheritance tax is another area that surprised most individuals in the UK on the budget day. Aimed at raising around £2 billion from Inheritance tax, the government has introduced the following:

• Pensions to be brought into taxable estates: £1.5bn (and rising)
• Agricultural & business reliefs halved above £1m: £0.5bn
• Extending threshold freeze by 2 years to 2029-30: £0.4bn
• Introduction of the residence-based system for Inheritance Tax

These changes are expected to bring over £2.4 billion in revenue for the government.

Introduction of Unused Funds into Taxable Estate

Currently, most UK-registered pension schemes are outside the scope of Inheritance tax. Therefore, unused pension funds and death benefits from such schemes are not part of an individual’s estate.

However, from 6 April 2027, if a pension scheme member dies with unused pension funds, the pension scheme administrators will become liable for reporting and paying any IHT due on unused funds and death benefits. The rule applies to both UK-registered pension schemes and those registered overseas. The government believes that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, which was the case before the 2015 pensions reforms.

Another argument in favour of bringing pension pots into IHT is the relief given to build the pension pot.

Abolishment of Non-Domiciled

The current rule around Inheritance tax is that the estate of individuals who are not domiciled in the UK does not form part of the estate for IHT purposes. The beneficiary will only pay IHT on assets in the UK. However, the introduction of the new residence-based system will mean that the estate of most individuals will include the worldwide assets owned at the time of death if the individual has been a UK resident for ten out of the last 20 years.

If an individual has been resident in the UK for between 10 and 15 years, their worldwide assets will be within the scope of IHT for up to 5 years following their UK exit.

This should mean that individuals with a domicile in the UK (such as British expats) will be outside the scope of IHT on non-UK assets if they have not been UK residents for ten out of the last twenty tax years. 

Agricultural and Business Property Relief

Agricultural Property Relief (APR) enables certain agricultural property in the UK to be passed without any IHT implications. Eligible agricultural property includes land or pasture used to grow crops, rear animals, farm buildings, etc.

Similarly, Business Property Relief (BPR) allows the value of a business and shares in an unlisted company to be reduced by 50% or 100% when working out the IHT due on them. BPR can be claimed when an individual leaves a business or an interest in a business: land, buildings, machinery used in the business, and shares in an unlisted company.

However, changes to APR and BPR will take effect from 6 April 2026. The 100% rate of relief will continue to apply for the first £1m of combined agricultural and business property, falling to 50% for any value above this threshold. Additionally, the rate of BPR will also fall to 50% in all circumstances for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.

Making Tax Digital (MTD)

Prior to last week’s budget, sole traders and landlords with incomes over £50,000 were required to keep digital business records from 6 April 2026, with the requirement extending to those earning between £30,000 and £50,000 from 6 April 2027.

However, the chancellor recently announced plans to broaden the Making Tax Digital (MTD) requirements to include those with incomes over £20,000 by the end of this Parliament. A future fiscal update will provide the specific timeline for this expansion.

As a result, a wider group of sole traders and landlords will need to comply with MTD. Those affected will be required to maintain digital records of their income and expenses and submit quarterly updates to HMRC.

VAT and Business Rates on Private Schools

The Labour government announced on 28 July 2024 that it would make private school fees taxable supplies. This was shocking for private schools and parents alike. As expected, the chancellor confirmed that the services offered by Private Schools will be taxable supplies from 1 January 2025. According to the treasury, the introduction of VAT on Private Schools is expected to raise £1.725 billion a year.

This legislation affects a huge number of parents in the UK, and the government aims to fund state schools from the VAT raised from Private Schools. Private Schools must register for VAT if either of the following conditions is met:

• The total taxable turnover for the past 12 months is over £90,000
• The expected total turnover in the next 30-day period is over £90,000

Private schools are also eligible for 50% relief from Business rates. However, this relief will no longer be available, and they must pay full business rates charges.

Abolishment of FHL and Capital Allowances

Earlier this year, HMRC announced the abolishment of the FHL regime effective 5 April 2025. This meant that taxpayers benefiting from flexibilities on mortgage interest deduction, capital allowances, etc., on FHL would no longer be able to do so as these properties would now be property rental businesses. The notable consequences are as follows:

• Implementing the section 24 restriction on finance costs, limiting loan interest relief to the basic rate for Income Tax.
• Capital allowances for new expenditures will be eliminated starting 1 April 2025, and only domestic item replacement relief will be available instead.
• Excluding this income from relevant UK earnings when calculating maximum pension relief.

In addition, the following announcements were made on capital allowances:

• The Chancellor confirmed the UK’s generous system of permanent full expensing, and the £1 million Annual Investment Allowance will be retained throughout this Parliament.
• Other capital allowances announcements included extending 100% first-year allowances for qualifying expenditure on zero-emission cars and electric vehicle charge points by another year to 31 March 2026.

Anti-Avoidance Measures

The budget announcement also included several anti-avoidance measures that would apply from 30 October 2024, notably:

• Regarding CGT on shares, the legislation contains an anti-avoidance clause saying that even if contracts were exchanged before 30 October 2024, increased CGT rates apply if the actual transfer (completion) took place after 30 October 2024. This is quite a deviation from the usual rule of CGT applying on exchange.

• Any private school tuition and boarding fees paid after 29 July 2024 for a period on or after 1 January 2025 will be subject to 20% VAT.

Conclusion

The Autumn Budget 2024 brings sweeping tax reforms to address the UK's financial shortfall and stabilise public finances. With increased National Insurance contributions, revised Capital Gains Tax rates, and tighter inheritance tax reliefs, the budget seeks to generate revenue for critical public services while distributing the tax burden more evenly. Key measures, such as the rise in the National Living Wage, aim to support income equality but also place added pressures on businesses, especially those with large workforces, prompting potential shifts in employment practices and cost management.

Reactions to the budget are mixed; supporters highlight the necessity of these changes for long-term financial stability, while critics worry about the strain on households and businesses. The new tax policies present a more complex landscape for employers, investors, and property owners, requiring careful adaptation. The coming years will test whether these measures achieve their intended balance between fiscal responsibility and economic resilience, with potential for future revisions as the UK assesses their full impact.