UK Autumn Budget 2024: Implications for companies and individuals

The Chancellor of the Exchequer, Rachel Reeves presented her maiden Budget to Parliament on Wednesday 30 October, and it has since been described as the biggest tax-raising budget of modern times. In our first initial assessment of the copious measures that were announced yesterday, we have worked through the various proposals to provide some clarity on those changes that are most likely to affect our clients and when they come into effect.

The Chancellor’s Budget was intended to restore stability to the UK economy and to begin a decade of national renewal. It’s now clear that investment will be funded by revised debt rules to facilitate additional borrowing and a £40 billion of tax rises.

Headlines included:

• Immediate increases to capital gains tax rates with further uplifts in relation to some business disposals from both April 2025 and April 2026
• Immediate increases to Stamp Duty Land Tax, including for those buying residential property when they already own at least one dwelling
• Confirmation that 20% VAT will apply to private school fees for the school term beginning in January 2025
• Increased costs for many employers from April 2025 through both increases to the national minimum wage and significant reforms to employers’ national insurance contributions
• Plans to restrict inheritance tax incentives around agricultural and business property reliefs from April 2026
• Plans to include an individual’s undrawn pension fund in their inheritance tax estate from April 2027

Income tax

Your personal allowance

Your tax-free personal allowance will remain at £12,570 in 2025/26. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.

Income tax rates and allowances

For 2025/26, income tax rates and thresholds remain frozen at their 2024/25 levels.
After your tax-free ‘personal allowance’ has been deducted, your remaining income will be taxed in bands in 2025/26 as follows:

Capital gains tax

As expected, and with immediate effect from the budget date of 30 October 2024, the rates of capital gains tax (CGT) have been increased on some asset types as follows:

Entrepreneurs will be pleased to learn that Business Asset Disposal Relief (BADR) will continue to apply when they dispose of their business. However, the rate of CGT on BADR qualifying disposals is increasing from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. These rates apply to the first £1 million of qualifying disposals. 

Employment taxes

For employees

The national insurance contributions (NICs) rates and annual thresholds for employees for 2025/26 are as follows:

Earnings below the LEL are not subject to primary Class 1 NICs and do not accrue entitlement to state benefits. Earnings between the LEL and the PT do accrue entitlement to state benefits and are subject to primary Class 1 NICs, albeit at the 0% rate.

For employers

The Chancellor announced a package of changes to employers’ Class 1 NICs that will apply from 6 April 2025. These include:

• an increase in the employers’ NICs rate, from 13.8% to 15%;
• a decrease to the threshold at which an employer starts to pay NICs on each employee’s salary (the ‘secondary threshold’) from £9,100 to £5,000*; and
• a widening of availability and an increase in the amount of the ‘employment allowance’, which eligible employers can offset against their employers’ Class 1 NICs liability, from £5,000 to £10,500. In particular, the employment allowance has only been available to businesses who have incurred an employers’ Class 1 NICs liability of less than £100,000 in the previous tax year but that restriction will be removed for 2025/26.

*A higher secondary threshold of £50,270 applies for employees who are under 21 and apprentices under 25. Other variations can also apply.

This increase in employers’ NICs is undoubtedly a blow to some businesses and, indirectly, employees. Combined with the increases in the national minimum wage and potential costs associated with reforms in employment law, these measures will stretch employer wage budgets and potentially lead to slower growth in some employee wages or higher costs for consumers.

Benefits in kind

The official rate of interest (currently 2.25%) used to calculate the benefit value of employment-related loans and living accommodation will, from April 2025, be allowed to change on a quarterly basis. Previously the rate has been set for a full tax year.

From 6 April 2026, the use of payroll software to report and pay tax on benefits in kind will become mandatory, except in relation to employer-provided loans and living accommodation. These two benefits can be ‘payrolled’ on a voluntary basis.

Business tax

Making tax digital (MTD) for income tax

Under the government’s MTD for income tax initiative, businesses will be required to keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will be phased in from April 2026, starting with income tax-paying sole traders and property landlords with combined trade and rental income of more than £50,000.

This threshold will be reduced to £30,000 from April 2027 and to £20,000 by the end of this parliament.

Eligible businesses are currently able to opt-in to HMRC’s beta testing programme.

Electronic invoicing

In spring 2025, the government will launch a consultation about electronic invoicing (e-invoicing) to gather input from businesses on how HMRC can support investment in e-invoicing and encourage uptake within the business community. As part of the government’s digitisation strategy, e-invoicing is likely to be mandatory in future.

Business rates

For 2025/26, retail, hospitality and leisure (RHL) businesses will be given a 40% relief on their business rates. The small business tax multiplier, which applies to properties with a rateable value of less than £51,000, will also be frozen next year.

The government is looking at longer-term measures to support RHL businesses and intends to permanently lower tax rates from 2026/27 for RHL properties with a rateable value below £500,000.

Tax regime for furnished holiday lets

If you let out residential or commercial property, the profits are taxed as part of your ‘other income’. If you sell property that has been rented out, CGT is likely to apply. Generally, rental business activity attracts fewer tax reliefs than trading ventures. However, if a residential property meets the strict definition of a ‘furnished holiday let’ (FHL), enhanced tax relief rules are currently available.

It has been confirmed that, from 6 April 2025, the special tax rules for FHLs will be abolished. Going forward, profits from FHLs will be taxed in the same way as any other rental business. 

VAT

From 1 April 2025, the VAT registration and deregistration thresholds will remain at £90,000 and £88,000 respectively. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.

In a key change to VAT, private school fees, which have been exempt from VAT, will be made subject to VAT at 20%. This will start from the school term beginning in January 2025.

Carried interest

The tax rate for carried interest will increase from 28% to 32% from April 2025, pending full reform of the regime. It was described as an interim measure and it has been proposed that there will be a formal review of the carried interest regime completed by April 2026. Although the increase will be limited to 4% next year, it is important to note that further reforms may be introduced. The government has indicated its intention to revise the carried interest regime so that it falls within the income tax framework.

Corporate taxes

Rates from 1 April 2025

Corporation tax rates and thresholds for the financial year to 31 March 2026 remain unchanged as follows:

The thresholds must be equally shared between companies in a group and those controlled by the same person or persons. If an associated company is dormant, then it is not included in this calculation. However, an associated company with only limited activity would be included, which could lead to higher than necessary effective rates of corporation tax.

Companies with profits between the small profit and main rate thresholds will qualify for marginal relief, which effectively means they pay tax at 19% up to the lower threshold and at 26.5% on the balance of their profits. 

Roadmap

A corporate tax roadmap has been published by the government, with the view of creating a stable and predictable tax environment. This includes the following commitments:

• The corporation tax rates will not increase beyond the rates shown above. This includes retaining the small profits rate and marginal relief.
• Maintaining the annual investment allowance, giving 100% tax relief on the acquisition of up to £1 million worth of new or second-hand qualifying plant and machinery each year.
• Maintaining the ‘full-expensing’ regime, giving 50% or 100% tax relief on the acquisition of new and unused qualifying plant and machinery, without limit.
• Maintaining the rates of the current research and development (R&D) tax reliefs (see below).

Research and development (R&D) reliefs

The R&D tax relief regime has seen a lot of change in recent years, and the Labour government is committing to the current rates of relief. Since 1 April 2024, this equates to a 20% taxable contribution from HMRC on qualifying R&D expenditure in the “merged scheme” (used by most claimant companies) and, for ‘loss-making R&D intensive SME companies’, an 86% uplift in deductible qualifying expenditure with a 14.5% payable tax credit. 

An R&D intensive company is one that qualifies as an SME and at least 30% of its total expenditure is invested in R&D.

HMRC continue to take measures to tackle non-compliance in this area, which has led to a reduction in the number of claims made. They carried out compliance checks on 17% of claims received in 2023/24, compared with 10% for 2022/23.

Annual tax on enveloped dwellings (ATED)

Companies and some other entities may need to file ATED returns or pay ATED if they hold a UK residential property with a market value over £500,000. The rates of ATED will increase from 1 April 2025.

Pensions

Despite numerous rumours of possible changes to the taxation of pensions in the run up to the budget, the Chancellor decided not to make significant changes after all. The ability to receive a 25% tax-free lump sum of up to £268,275 (or higher in some cases) remains.

Individual contributions continue to attract income tax relief at the individual’s marginal tax rate and can be particularly effective where net income is between £100,000 and £125,140, where the personal allowance is tapered.

Employer pension contributions continue to qualify for a deduction against business profits and the rumour that employers’ national insurance would be imposed on pension contributions did not materialise. Note that the £60,000 annual allowance limit continues for 2025/26 and applies to the combined individual and employer contributions.

One change that was however announced was to make an individual’s undrawn pension fund subject to inheritance tax. From 6 April 2027, it is proposed that most undrawn pension funds and death benefits be included within the value of a person’s estate for inheritance tax purposes and for pension scheme administrators to become liable for reporting and paying any inheritance tax due on pensions to HMRC.

Inheritance tax

The main rate of IHT remains at 40%, reduced to 36% for estates where 10% or more is left to charity.

The IHT nil rate band will continue to be frozen at £325,000 until 2030. The additional nil rate band for passing on the family home to direct descendants (residence nil rate band) will also remain at £175,000 until 2030. This means that married couples and civil partners will generally not pay inheritance tax where their combined estate is valued below £1 million. Note however that the residence nil rate band continues to be tapered where the value of the estate exceeds £2 million.

Gifts made by an individual in the seven years prior to their death are classed as ‘potentially exempt transfers’ and can give rise to an IHT liability on death. Despite speculation in the run up to the budget, there will be no changes to this regime. Furthermore, taper relief continues to apply, reducing IHT payable where there are more than three years between the date of the gift and the date of death.

As mentioned above, it is proposed that, from April 2027, most undrawn pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.

Farmers and business owners

The government is proposing to reform IHT agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets with no financial limit.

From 6 April 2026, it is proposed that 100% relief will only apply to the first £1 million of combined agricultural and business property, with the relief reducing to 50% on the value that exceeds £1 million. This means the relief will be focused on small family farms and businesses.

In a further proposed change, the rate of BPR available for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, will be reduced from 100% to 50%.

As an anti-forestalling measure, the new rules will apply to lifetime transfers made on or after 30 October 2024 if the donor dies on or after 6 April 2026.

UK residency and domicile

Significant tax changes have been announced for UK resident non-domiciled individuals; namely those individuals spending most of their time in the UK but without permanently settling here. The concept of ‘domicile’ will be removed from the UK tax system and replaced by a regime based on years of tax residence.

Income and capital gains taxes

At present, individuals who are both resident and domiciled in the UK must pay UK taxes on their worldwide income and capital gains. However, for UK resident non-domiciled individuals, they are able to claim a ‘remittance basis’ of taxation for their overseas income and capital gains and only pay UK taxes to the extent they remit (bring) the associated funds to the UK. To access this favourable tax treatment, non-domiciled individuals may be required to pay an annual ‘remittance basis charge’ of up to £60,000.

The concept of domicile and the remittance basis of taxation will be abolished from 6 April 2025, meaning all UK residents will default to being taxed in the UK on their worldwide income and gains. However, a 100% relief from tax on foreign income and/or capital gains will be available to individuals in their first four years of UK tax residence. It should be noted that if a ‘newly arrived’ individual claims this relief, they will sacrifice their UK personal allowance and CGT annual exemption, along with their ability to claim relief for some foreign losses. 

From April 2025, for employed individuals eligible for the 100% relief from UK taxation on their foreign income and/or capital gains, an ‘overseas workday relief’ will remain available in relation to their duties performed overseas. Reforms to the regime will however take place, bringing increased flexibility for some but also a new maximum cap on the relief equal to the lower of £300,000 and 30% of total employment income.

Inheritance tax

Currently inheritance tax applies to the worldwide assets of a UK-domiciled individual but, broadly, just to the UK-situated assets of a non-domiciled individual.

From 6 April 2025, individuals resident in the UK for at least ten out of the last 20 tax years, will be subject to inheritance tax on both their UK and non-UK assets. They will then remain within the full scope of UK inheritance tax for between three and ten years after leaving the UK.

Stamp duty

England and Northern Ireland – thresholds

It has been confirmed that the 0% thresholds for Stamp Duty Land Tax (SDLT) will be reduced from 1 April 2025 as follows:

SDLT on additional dwellings such as second homes

For transactions with an effective date (generally the date of completion) on or after 31 October 2024, the higher rates of SDLT payable by purchasers of ‘additional dwellings’ (i.e. when they already own one dwelling), and by companies, increases from 3% to 5% above the standard residential rates. This measure is clearly targeted at buy-to-let landlords and those acquiring second homes.

The rate of SDLT payable by companies and non-natural persons (e.g. trusts) acquiring dwellings for more than £500,000 increases from 15% to 17% also from 31 October 2024. 

Dealing with HMRC

Interest on unpaid tax liabilities

From 6 April 2025, the late payment interest rate charged by HMRC on unpaid tax liabilities will increase by 1.5 percentage points. For most taxes, this will set late payment interest at the Bank of England base rate plus 4%.

Conclusion

We appreciate a number of our clients and contacts will be assessing the impact of the budget on their affairs. While some will benefit from the increases in public spending, for others, especially if you are an employer or business owner, it may be necessary to re-group and update business plans for 2025 and onwards.

This summary provides an overview of the key changes in the Budget. Given the extensive nature of the Budget, additional detailed analysis will be needed in the coming days. A more comprehensive assessment of the measures included will follow, with further examination of their implications for our clients.

In the meantime, we are here to answer any questions you may have and to support you where we can, so please get in touch should you wish to discuss.

Disclaimer: This article covers the key news headlines from the Autumn Budget 2024. The authors take great care in its production, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 31 October 2024. We cannot take responsibility for any action taken or not taken from this document alone.