THE UK CHANCELLOR, Rachel Reeves, today delivered Labour’s first Budget since 2010 after coming to power over the summer. A mixed bag with no real innovation to restart the UK economy. With much of the announcements being leaked beforehand, there were no surprises other than the significant change to NIC for employers.
Here at Shipleys Tax we provide a summary of the UK Autumn Budget 2024 with some brief insights on personal and business tax measures:
At a glance summary
1. National Insurance for Employers
The employer National Insurance rate will increase from 13.8% to 15% in April 2025, paired with a decrease in the NI threshold from £9,100 to £5,000. This change significantly raises costs for businesses, especially those with larger workforces or lower-wage employees, as NI contributions start sooner in the earnings scale. To offset some impact, the employment allowance is raised to £10,500, allowing about 865,000 small businesses to reduce or eliminate their NI contributions.
2. Personal Tax Adjustments
- Income Tax Threshold Freeze:
The government extended the freeze on income tax thresholds until 2028, drawing more earners into higher tax bands due to “fiscal drag.” This measure indirectly increases tax revenue without changing rates.
- Inheritance Tax:
Several IHT changes have been introduced:
- New AIM Share IHT Rate: AIM-listed shares, previously fully exempt, now only receive 50% relief, leading to a 20% effective IHT rate.
- Adjusted Relief on Business and Agricultural Assets: For estates above £1 million in business/agricultural assets, a 50% IHT relief will apply, aimed at ensuring smaller family-owned estates remain protected.
- Threshold Freeze Extended: The IHT threshold freeze, initially set to end in 2028, now extends to 2030, likely drawing more estates into the tax bracket as asset values rise.
- Pension Pots Subject to IHT: From 2027, inherited pension pots will be taxed, impacting estate planning where pensions were intended for tax-free inheritance.
3. Corporation Tax Steady
Corporation tax remains at 25%, offering stability for SMEs. While no further rate increases were announced, potential policy shifts around capital allowances could incentivize reinvestment in business growth.
4. Capital Gains Tax Increase
Capital Gains Tax is set to increase from 10% to 18% for lower rate taxpayers and from 20% to 24% for higher rate taxpayers, with no changes to the Annual Exempt Amount (AEA) of £3,000. The government’s decision to avoid a drastic hike aligns with investor concerns, especially for business asset disposals, which retain a £1 million lifetime relief. The Capital Gains Tax increase announced in the Budget reduces the gap between Capital Gains Tax and Income Tax rates, although it perhaps remains significant enough to encourage entrepreneurs to invest in their businesses.
Business Asset Disposal Relief changes – The rate of Capital Gains Tax available under Business Asset Disposal Relief remains at 10% this financial year, rising to 14% in April 2025 and 18% in 2026. The lifetime limit of £1m remains unchanged.
Currently, Business Asset Disposal Relief reduces CGT to 10% on all qualifying gains, a major tax incentive that benefits company directors providing the conditions are met. While BADR continues to provide access to reduced rates of Capital Gains Tax, the CGT rate is set to increase from 6 April 2025.
5. VAT and Digital Compliance
SMEs in the e-commerce sector face tighter VAT compliance as the government rolls out new VAT collection mechanisms, aimed at narrowing the tax gap on digital sales. This step aligns with the broader effort to improve tax efficiency in digital transactions.
6. R&D Tax Credits Expansion
R&D tax credits are extended, particularly benefiting SMEs in tech and green sectors. Eligible SMEs can claim up to 20% of R&D expenses, supporting innovation-focused businesses.
7. Apprenticeship and Training Grants
New grants now cover 50% of training costs for SMEs investing in apprenticeships, addressing skill shortages across key sectors
More to follow.
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Please note that Shipleys Tax do not give free advice by email or telephone. The content of this article is for general guidance only and should not be considered as tax or professional advice. Always consult with a qualified professional before taking action.
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