Navigating the 2024 Autumn Budget: Implications for Tax, Pensions and Inheritance

Labour’s first Budget in almost 15 years delivered a mix of higher taxes, increased public expenditure and increased investment. The latter is designed to deliver on Labour’s commitment to economic growth and fiscal stability. 

The significant tax changes in the Budget create an opportune time to review financial plans and make any necessary adjustments to ensure optimum outcomes. 

Income Tax

• For the 2025/26 tax year, there will be no increases in income tax, personal allowances, income tax bands, or income tax rates. 
• The income tax personal allowance will remain at £12,570. Remember, the personal allowance is reduced by £1 for every £2 where total income exceeds £100,000. 
• The higher rate threshold will remain at £50,270 (comprising the £37,700 basic rate band plus the £12,570 personal allowance), and the additional rate threshold will stay at £125,140. 
• For non-savings and non-dividend income, i.e. income from employment, property, or pensions, the income tax rates will remain at 20% within the basic rate band, 40% within the higher rate band and 45% within the additional rate band. 
• The 0% starting rate band for savings income will remain at £5,000. 
• The personal savings allowance remains unchanged at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers are not eligible for a personal savings allowance. 
• Savings income will continue to be taxed at 20% within the basic rate band, 40% within the higher rate band and 45% at the additional rate 
• The dividend allowance will remain at £500. Dividend income will continue to be taxed at 8.75% within the basic band, 33.75% within the higher rate band and 39.35% at the additional rate. 
• The basic, higher and additional rate tax thresholds apply to taxpayers in England, Wales, and Northern Ireland for non-savings and non-dividend income and apply UK-wide for savings and dividend income. 
• The Government will not extend the freeze to income tax thresholds. From April 6, 2028, these personal tax thresholds will be uprated in line with inflation. 

Timescale: From April 6, 2025

Planning Opportunities

• Aim to use dividend and personal savings allowances in full.
• Consider maximising ISA contributions, especially if dividends are likely to exceed the dividend tax allowance and/or the higher rate tax threshold.
• Consider Venture Capital Trusts (VCTs).
• Spouses/civil partners could consider arranging investment holdings in such a way as to fully use both personal allowances, personal savings allowances, dividend allowances and starting/basic rate tax bands.

National Insurance

• The secondary Class 1 rate of National Insurance (NI) will increase from 13.8% to 15%. This will also apply to Class 1A and Class 1B employer rates.
• The secondary threshold (the point at which employers start paying NI) is to be reduced to £5,000 from £9,100 and frozen until April 5, 2028.
• NI contributions, limits and thresholds will be uprated by 1.7% (in line with inflation)

Timescale: After April 6, 2025

Planning Opportunities

• Consider salary sacrifice into pensions.
• Restructuring of owner/manager profit extraction.

Capital Gains Tax

• Basic rate of CGT increased from 10% to 18%.
• Higher rate of CGT increased from 20% to 24%.
• CGT rates on residential property, including buy-to-lets and second homes, will remain at 18% and 24% for basic and higher rates respectively.

Timescale: Disposals on or after October 30, 2024.

Planning Opportunities

• Bearing in mind a CGT exemption of only £3,000, consideration should be given to maximising ISA subscriptions and pension contributions, where money can grow free from CGT. 
• For higher and additional rate taxpayers, investment bonds could be considered, too.
• Transferring shares or funds to a spouse or civil partner could be considered to utilise both CGT allowances and benefit from a possible lower tax rate.

Business Asset Disposal Relief (BADR)

• The lifetime limit for BADR remains at £1m.
• The rate of CGT payable on qualifying gains will increase from 10% to 14% and then to 18% by April 2026.

Timescale: 14% rate for disposals on or after April 6, 2025, and 18% rate for disposals on or after April 6, 2026.

Planning Opportunities

• Those already considering selling their qualifying business may, commercial conditions permitting, wish to act quickly before the increased rates on the £1m qualifying amount come into effect.

Carried Interest

• CGT on private equity carried interest will increase from 18% for basic rate taxpayers and 28% for higher rate taxpayers into a single rate of 32%.
• From April 2026, carried interest will be subject to a revised regime within the income tax framework.

Timescale: From April 6, 2025

Planning Opportunities

• Carried interest is only relevant to a small number of fund management executives.

Savings & Investments

• No change to ISA, Junior ISA, Lifetime ISA and Child Trust Fund Allowances. 
• Scrapping of ‘British ISA’ confirmed.

Timescale: Limits already in place but frozen until April 5, 2030

Planning Opportunities

• Consider maximising these allowances where possible, especially as they are lost if not used.

Pensions

• The value of most pensions will be included inside an individual’s estate for inheritance tax (IHT) purposes. Currently, most pensions are outside of the estate for IHT purposes. 
• The IHT charge will be paid by the pension provider.
• The residual funds will be liable to income tax if the original owner dies after age 75 or the value exceeds the LSDBA before 75. If death occurs before 75 and is below the LSDBA, no income tax will be chargeable on the residual fund.
• Spousal exemption still applies. Therefore, any pension that passes to a spouse or civil partner will remain IHT-free on the first death.
• No changes to the Annual Allowance, LSDBA or LSA.
• No changes to tax relief on pension contributions.

Timescale: From April 6, 2027

Planning Opportunities

• The complexity of the implementation and potential harshness of the ‘double taxation’ for deaths over 75 may lead to changes before the implementation date.
• Funding pensions purely for estate planning purposes may not be as appropriate.
• Those who have not taken their tax-free lump sum and are over 75 may want to consider taking it as this would avoid ‘double taxation’.
• Where pension funds are not required, taking the tax-free cash and making gifts could be a more attractive option. 
• Payment of death benefits into a bypass trust may still offer advantages. Although it won’t avoid IHT on the first death, it could keep the money outside the estate on the second death.

Inheritance Tax

• The nil rate band and residence nil rate band, currently £325,000 and £175,000, will be frozen until April 5, 2030. The NRB is the value of an estate that can be passed on to beneficiaries before IHT is payable. The RNRB is an additional allowance if a main residence is passed to direct descendants. 
• The residence nil-rate band taper threshold remains at £2m. 

Timescale: Thresholds frozen until April 5, 2030.

Planning Opportunities

• More individuals will come within the scope of IHT and, therefore, benefit from planning how to mitigate this. 

Agricultural Property Relief and Business Property Relief

• A new £1m allowance that combines the value of property in an estate qualifying for 100% BPR and 100% APR.
• If total value of the qualifying property to which 100% relief applies is more than £1m, the allowance will be applied proportionately across the qualifying property, with any excess qualifying for a 50% relief. This gives the amount over £1m an effective IHT rate of 20%.

Timescale: For deaths on or after April 6, 2026.

Planning Opportunities

• Business owners not planning to sell their business during their lifetime may wish to engage in succession planning. This could include introducing other family members into the business at an earlier age in the hope of surviving seven years. 
• Professional tax advice should be sought on the pros and cons of corporate reorganisation. 
• Business owners and farmers in a position to transfer business or agricultural property into trust before April 6, 2026, would appear to be able to do so without any immediate IHT charge. However, if death occurs within eight years, the £1m limit will apply.
• Business and farm owners should consider the solution of appropriate life insurance in trust to meet any new liability. 

AIM Shares

• The BPR rate available on shares listed on exchanges, such as AIM, will fall from 100% to 50%.

Timescale: Transfers made on or after April 6, 2026.

In summary, the 2024 Autumn Budget ushers in a period of strategic fiscal adjustments. As we navigate these changes, it’s essential to stay proactive and informed to leverage the opportunities and mitigate challenges. For tailored advice and further insights, don’t hesitate to reach out to our team at BAND. We are here to help you adapt and thrive in this new economic landscape.