Autumn Budget 2024: First Reaction
A summary of the key points relating to pensions and investments announced by the Chancellor in the Autumn Statement on 30 October 2024:
Pensions
Inheritance tax on pensions
The government has announced plans to include most unused pension funds and death benefits within the value of a person’s estate for Inheritance Tax purposes from 6 April 2027. On paper this sounds like a simple change, but will likely be a complicated process to put into practice. Those who have planned based on the current rules may find that this shift in goalposts means they will want to revisit their financial plan.
A technical consultation will run for 12 weeks from 30 October 2024 to determine the processes required to implement the changes for UK registered pension schemes. The consultation seeks stakeholder views on the process by which Pension Scheme Administrators will report and pay any IHT due to HMRC; introduces and summarises the changes to IHT on pensions, including the rationale for the change, and the impacts of these changes; and set out how the new changes will operate in practice from 6 April 2027.
Reducing tax-free overseas transfers
From 30 October 2024, the government has made a change to the tax treatment of some transfers to a qualifying recognised overseas pension scheme (QROPS), removing the exclusion to the 25% charge if the transfer was to a QROPS in the EEA or Gibraltar, unless the pension saver was resident in the same country. The change closes a loophole to help ensure that some UK residents don’t benefit from a double tax-free allowance while remaining in the UK.
From 6 April 2026, scheme administrators of registered pension schemes must be UK residents, which means that all administrators of registered schemes need to meet the same conditions.
State Pension
It was a move expected ahead of the Budget, but confirmed in the announcement: the state pension will rise by 4.1% from next April in line with the triple lock. It means the single state pension will increase from £221.20 per week, or £11,502 per year, to £230.30 per week, or £11,975 per year. The increase was pegged to the average increase in earnings, as it was higher than inflation or the fixed 2.5% also included in the triple lock.
Investments and tax
Capital gains tax
The rate of capital gains tax (CGT) applying to basic rate taxpayers will rise from 10% to 18% and the rate for higher and additional rate taxpayers will increase from 20% to 24%, where they dispose of assets other than residential property on or after 30th October 2024. The CGT rate applying to most trusts will also increase from 20% to 24%.
The rates that apply to disposals of residential property will remain at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers respectively.
The lifetime limit for business asset disposal relief (formerly entrepreneurs’ relief) will remain at £1,000,000. The 10% rate of CGT will apply to disposals made up to 5 April 2025, then the rate will increase to 14% for disposals between 6 April 2025 and 5 April 2026 and to 18% for disposals after 5 April 2026.
Inheritance Tax
The nil rate band will remain frozen at £325,000 and the residence nil rate band at £175,000 for the remainder of this Parliament, to 5 April 2030. The taper threshold for the residence nil rate band will continue to be £2,000,000.
Agricultural and business property relief – these reliefs will be reformed from April 2026. The first £1,000,000 of combined agricultural and business property will be 100% relieved. Where the value of assets is over this threshold there will be relief at 50%, meaning the effective IHT charge will be 20%. There will be a reduced 50% relief applying to unlisted shares such as AIM shares.
National Insurance
One of the most heavily trailed and biggest revenue raisers announced today, employers’ NI is also set to increase. From April 2025, not only will employers see their National Insurance (NI) contribution rate lift from 13.8% to 15%, but the lowering of the secondary threshold – the salary when employers start paying towards an employee’s NI – from £9,100 to £5,000 will supercharge this rise to an even higher level. It will remain at this rate until 5 April 2028, increasing in line with CPI thereafter. And although an increase in the National Living Wage will be welcomed by millions of lower-paid employees, the combination of both hikes to the wage bill will place many employers under increasing strain.
Employers of all sizes will need to find ways to accommodate these costs, perhaps by reducing future wage increases, reining in expansion plans, or considering ways to better harness technology.
Corporation Tax
The government has committed to cap the main rate of corporation tax at 25% in its Corporation Tax roadmap, keeping the small profits rate and marginal relief at current rates and thresholds
Non-UK domiciled individuals
From 6 April 2025, the remittance basis of tax will end and will be replaced with a residence-based system. There will be 100% relief for foreign income and gains in the first four years following the individual’s arrival in the UK (unless they have been UK tax resident at some point in the 10-year period before their arrival).
As far as IHT is concerned, UK sited assets will continue to be subject to UK IHT. Where an individual has been resident in the UK for over 10 years out of the last 20 tax years, they will also be subject to UK IHT on their non-UK assets.
ISA and Child Trust Fund allowances
The annual subscription limits will remain as follows until 5th April 2030:
ISA allowance - £20,000
Lifetime ISA allowance - £4,000
JISA allowance - £9,000 Child
Trust Fund allowance - £9,000
The government will not proceed with the introduction of a British ISA. Digital reporting for ISA managers will be mandatory from April 2027.
Stamp duty rates
Anyone buying an additional property to their main residence already faces an additional stamp duty surcharge that is three percentage points higher. Labour has now extended this to five percentage points. The change is effective immediately, coming in from 31 October.
Disclaimer: This information is based on our understanding of the announcements made on 30 October 2024, which may change.
The value of your investment can go down as well as up, and you can get back less than you originally invested. Levels, bases of, and reliefs from, taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Financial Conduct Authority does not regulate tax planning.