Let’s take stock of some of the changes that were announced, along with some thoughts on how they could impact financial plans. The Chancellor worked very hard to lay the ground pre-Budget to prepare us for tax hikes, blaming the previous government for making unfunded promises. The politics of it all is tedious but the long-and-short of it is, Rachel Reeves has raised taxes in various forms.
1. Capital Gains Tax. Headline rates have increased from 10% for basic rate payers to 18%, and from 20% for higher rate payers to 24%, as of 30/10/2024. General Investment Accounts and direct shareholdings will be affected at the point of sale.
2. Stamp duty on second homes. There will be a further 2% additional stamp duty charge on the purchase of second homes and rental homes, meaning the total additional charge increases from 3% to 5%.
3. Pensions. The big one is that pensions will be within the scope of Inheritance Tax from 2027 onwards. This will affect many in terms of their drawdown planning, and estate planning, so it’s absolutely crucial to continue with annual reviews. For high-net-worth individuals, strategies such as early gifting, re-investing in IHT-efficient assets, use of trusts and Family Investment Companies, will be talking points.
4. Inheritance Tax. Clearly an area the government want to claw tax from; they have restricted tax breaks on Business Property Relief and Agricultural Relief to £1m. With pensions now included within our estate, I expect many will consider using this £1m tax break as an exemption for estate planning.
5. National Insurance. Employers NICs have been increased by 1.2% to a total of 15%. This is plainly an indirect increase in tax on working people. Additionally, the threshold at which we begin to pay NICs will be lowered from £9,100 to £5,000. On the other hand, Employment Allowance has increased from £5,000 to just over £10,000.
6. Salary sacrifice arrangements will grow in popularity as companies will benefit more than previously.
7. National Minimum Wage will increase by 6.7% to £12.21 from April 2025.
8. Private school fees. The government will push ahead with plans to include VAT on private school fees, from January 2025.
Plenty of speculative changes did not materialise, including the removal or reduction in tax-free cash allowances from pensions, or reduced tax relief on contributions to pensions. The lifetime allowance has not been brought back either.
Financial markets have had a mixed response, the AIM market rallied over 4% while the FTSE 100 initially rose but dipped later in the day; having some certainty on taxes given nearly four months of speculation will provide some welcome stability, even if those tax rises are unwelcome themselves.
As always, if any of the changes concern you or you’d like to discuss the direct impact to you, please get in touch.
