Business Matters – Issue 38
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What does the 2024 Autumn Budget mean for you?
From increased staffing costs and changes to tax reliefs, we look at the key takeaways for business professionals – and why the announcements highlight the growing need for informed financial planning.
Labour’s Autumn Budget has landed, and with it comes a wave of policies designed to shape the economic landscape for the coming year.
It’s been met with a mixed reception. While commentators have welcomed the NHS funding, small businesses are set to be affected by tax increases and increased staffing costs, as well as changes to personal finances like Capital Gains Tax (CGT).
So, what does this mean for your financial planning strategy – especially with some of the key announcements going to consultation first?
For business professionals, understanding these changes is crucial to staying ahead. Whether you’re a small business owner, a corporate executive or an investor, the latest announcements will have implications for your financial strategy. Here are the key takeaways.
Check out our dedicated Autumn Budget page, which includes helpful fact sheets and a recording of St. James’s Place’s Post-Budget Financial Planning Insights webinar from 1st November.
A historic budget
Rachel Reeves delivered her first Budget as Chancellor on 30th October 2024, making history as the first woman to do so. It was also the first Labour Budget in 14 years.
The new government has had to balance a challenging fiscal situation with their election promises to invest, support the economy and not raise taxes for working people. Indeed, the government didn’t raise income tax or National Insurance (NI), but they did confirm that the current freeze on thresholds will end in April 2028, so until then more people will continue to be pulled into paying increased tax.
There were big spending allocations (both day-to-day spending and capital investment) for the NHS, in particular. Reeve committed to raising £40 billion in additional revenue, with the largest tax increases falling on the shoulders of businesses.
Here are five key areas where the ramifications might be felt for business owners…
Employer National Insurance Contributions
While the Chancellor didn’t increase National Insurance Contributions (NICs) for working people, they aimed their biggest tax increase at employers, increasing employer NICs from 13.8% to 15% from April 2025.
This was paired with a surprise drop in the threshold at which employers start paying NICs. It had stood at £9,100; from next April, it will be reduced to £5,000. This will be an additional unwelcome cost for businesses, especially smaller companies, who may need to pass the cost down to customers.
On a more positive note, the employment allowance will increase from £5,000 to £10,500 next April, which means the amount by which eligible employers can reduce their National Insurance liability will rise. The £100,000 eligibility threshold will also be dropped, meaning more employers will benefit from it.
Capital Gains Tax (CGT) increase
CGT increases were at the moderate end of speculated change: the lower rate rose from 10% to 18%, while the higher rate rose from 20% to 24%, effective from the day of the Budget. CGT for residential properties was unchanged.
Getting on top of any CGT rate changes is an important part of managing your money and assets as tax-efficiently as possible – especially for business owners who might be looking to sell in the near future.
Inheritance Tax…
Inheritance Tax (IHT) changes were largely in line with expectations, with the exception of the pensions announcement.
The IHT threshold freeze of £325,000 (or £500,000 if it includes a residence left to a direct descendant) has been extended to 2030. This will draw more estates into paying IHT.
The first £1 million of combined business and agricultural assets will attract 100% relief, but thereafter, IHT will be applied with 50% relief from April 2026. Relief on Alternative Investment Market (AIM) shares will reduce to 50% relief, regardless of the portfolio size.
Despite the changes being expected, they could result in an overhaul in estate planning for married couples holding interests in businesses and agricultural property.
… and IHT and pensions
A significant change from the budget is that from April 2027, pensions will be brought into Inheritance Tax. This is a big change, breaking new ground, and will likely increase the current 6% of estates that pay IHT.
Pensions will therefore become less attractive as a pure estate planning tool. However, for business owners, they remain a very tax-effective method for moving corporate profits into their personal pension for later usage. Consideration should be given to how to best to extract funds from your business. What’s more, you might wish to review your Will and Relevant Life policies.
It will have complicated implications, and a consultation has already been launched. At Wellesley, we’re already thinking about how to manage this change in 2027, while focusing on the present – and the allowances we know for sure.
This change will not, however, impact those receiving an income from a defined benefit pension scheme or those who receive ongoing annuity payments following the death of the original annuitant. It will, however, generally impact all other pension death benefits; the scheme will pay the charge before allocating or paying the residual, and the usual exemptions if left to a spouse will apply.
A technical consultation paper has been published on the implementation with a deadline for responses of 22nd January 2025.
As the new rules do not apply until 6th April 2027, this gives us time to fully consider the changes. In addition, the complexity of the implementation and potential harshness of the ‘double taxation’ for the deaths of those over 75 may lead to changes before the implementation date.
Pensions tax reliefs
Pension reliefs were broadly left alone, with the exception of the aforementioned IHT news and a change to the Overseas Pensions Transfer rules. A change was announced to close the loophole allowing individuals to transfer significant sums, tax-free, to the European Economic Area (EEA) or Gibraltar and access additional tax-free cash while remaining a UK resident. The rules will now mean they have to follow their funds to any jurisdiction to avoid the 25% overseas transfer charge.
Minimum wage
As announced ahead of the Budget, the National Living Wage will rise from April 2025, from £11.44 to £12.21 an hour. Additionally, the minimum wage for those aged between 18 and 20 will increase to £10 an hour.
This will impact employers on two fronts. Firstly, the increased salary costs mean you may need to review hiring plans in light of this added expense. Secondly, with this rise, more employees will surpass the pensions auto-enrolment threshold of £10,000 a year, which is an additional cost to the business. This will also impact employee well-being as rather than being more money in their pockets, some of this pay rise will now go into their pension.
Other measures to be aware of
A positive takeaway from the budget was confirmation that the rate of Corporation Tax will be held at 25% for the rest of this parliament.
What’s more, a Corporation Tax Roadmap will set out the government’s plans in this area, designed to give businesses certainty and help them plan for future growth – including maintaining permanent full expensing and the £1 million annual investment allowance, maintaining Research & Development tax reliefs, and developing a new advance tax certainty process for major investments.
Some final takeaways include…
- The stamp duty land surcharge for second homes has increased from 3% to 5% with immediate effect.
- Business Asset Disposal Relief will increase to 14% in April 2025 and to 18% from 2026–27. The lifetime limit for Business Asset Disposal Relief will be maintained at £1 million.
- The non-dom regime will be abolished by 2025 and replaced with a new residency scheme.
- VAT on private school fees was delivered as expected, with effect from January 2025, and business rates relief removed from April 2025.
- Tax paid by private equity managers on the share of profits from successful deals will rise from 28% to up to 32% from April 2025.
- Fuel duty was frozen for another year. No government has put up fuel duty since it was frozen in 2011.
Planning ahead
This has been a big Budget, but although it will have significant ramifications for businesses, the government seems aware of this fact. Reeves announced that next year the government will publish a Small Business Strategy Command Paper to provide clarity on how Labour plan to support small businesses going forward.
Given the changes announced, many people will rightly be trying to understand what it means for them and how it might change their own personal financial plan. Now’s the time to review your strategies and, as always, professional advice can make all the difference in navigating these changes confidently.
Here at Wellesley, we’re working with our clients to find the best solution for their individual circumstances – planning for the allowances we know for sure, while keeping an eye on the outcomes of any future consultations.
We’re here to give you the clarity and confidence to navigate these changes effectively.
Further reading: Autumn Budget 2024 speech, accessed 11 November 2024
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.