5 key Budget announcements and how they might affect your wealth

On 30 October 2024, Rachel Reeves delivered Labour’s first Budget in 14 years.

Describing it as “a Budget to fix the foundations and deliver change”, the chancellor announced some significant tax rises to plug the “black hole” she argued the previous administration had left.

You may have recently read our summary of the main announcements from this year’s Autumn Budget. Now the dust has settled, here are five key announcements from the chancellor’s speech, and how they could affect you and your wealth.

1. A change to the way pensions are treated for Inheritance Tax

Since 2015, private pensions have not been considered as part of your estate for Inheritance Tax (IHT) purposes. That has made them a tax-efficient way to pass on wealth on death.

Under the current rules, if you die before the age of 75, your beneficiaries inherit the pension with no Income Tax payable. If you die after the age of 75, your beneficiary pays Income Tax on the amount at their marginal rate.

In the Budget, the chancellor announced that pensions would be liable for IHT from 6 April 2027.

This could have a significant impact on many families. Fidelity provides a useful example of how the new regime might work:

• Where IHT is due, £100 of pension savings would be subject to 40% IHT, leaving £60.
• If you die after the age of 75, this money would then be subject to the beneficiary’s marginal rate of Income Tax.
• In the worst case this would be 45%, resulting in the beneficiary receiving just £33 – an effective tax rate of 67%.

As you can see, this could significantly affect your ability to leave behind wealth for your loved ones, especially if you were planning to hand down your pension to your beneficiaries.

In this case, we would strongly suggest speaking to your adviser. They’ll be able to design a bespoke strategy for you that ensures you can continue to use your wealth to reach your goals, while also organising your finances so that your family can receive their inheritance with as minimal tax liability as possible.

It’s worth remembering that these new rules do not come into force until 6 April 2027, so there is plenty of time for them to be tweaked and altered before coming into effect. Again, it may be worth speaking to your adviser before you act.

2. A rise in the rates of Capital Gains Tax

In the Budget, Rachel Reeves announced an increase in the rates of Capital Gains Tax (CGT), effective from 30 October 2024:

• The basic rate increased from 10% to 18%.
• The higher rate increased from 20% to 24%.

The standard rates of CGT are now aligned with the rates charged on the gains made from the disposal of a second residential property.

This change means that you will potentially pay more tax on gains you make on non-ISA investments or other assets you sell/dispose of.

One way to mitigate the amount of CGT you pay is by using your “Annual Exempt Amount” of £3,000. This exemption means that you can make up to £3,000 of gains in the 2024/25 tax year before any CGT is payable. It is an individual exemption so your spouse or partner can also use this, meaning you could make up to £6,000 of joint gains before CGT is due.

Using tax-efficient wrappers such as ISAs and pensions can also help you reduce the amount of CGT you pay. One of the key benefits of an ISA is that any interest or returns are not subject to either CGT or Income Tax.

Additionally, if you are considering making a philanthropic gift, it may be worth considering “in specie gifting” – gifting an asset rather than cash, as the gain on the asset gifted will not usually be subject to CGT.

Business Asset Disposal Relief

The chancellor also announced an increase in the CGT rates applicable to disposals made using Business Asset Disposal Relief (BADR) – formerly known as “Entrepreneurs’ Relief”.

If you are looking to sell your businesses or qualifying investments, the rate you pay will rise from 10% to 14% on 6 April 2025, before rising further to 18% on 6 April 2026.

If you were planning to sell shares in your business, completing the transaction before 5 April 2025 could result in a lower tax liability.

For example, if you benefit from BADR, you will face a tax rise of £40,000 for a sale made after 6 April 2025, and £80,000 for a sale made after 6 April 2026 (assuming a gain of £1 million on sale).

3. A freeze on Income Tax thresholds…for now

As expected, the chancellor announced that she was maintaining the previous freeze on the Personal Allowance, and the thresholds at which higher- and additional-rate Income Tax were charged until April 2028.

So, if your earnings rise in the next three years, you’re likely to pay more Income Tax due to “fiscal drag”.

However, in a surprise move, Rachel Reeves announced that these thresholds would rise in line with inflation from 2028/29 onwards.

One way to mitigate your Income Tax liability is to consider making additional pension contributions. Reducing your overall income can help you to pay less tax and may also positively impact your ability to claim benefits such as Child Benefit or free childcare.

4. A freeze on the ISA subscription limits

Tucked away in the small print of the Autumn Budget was a freeze on ISA subscription limits until 5 April 2030. The annual subscription limits will remain at:

• £20,000 for ISAs
• £4,000 for Lifetime ISAs
• £9,000 for Junior ISAs and Child Trust Funds.

The ISA subscription limit has now been at the current level since 2017/18 rather than increasing in line with inflation.

Despite this freeze, ISAs remain attractive savings vehicles thanks to their preferential tax status. Indeed, the most recent government figures show that savers collectively added more than £72 billion to ISAs in 2022/23.

5. Important changes for business owners

If you own or run a business, there were several key announcements in the Autumn Budget.

Firstly, the chancellor confirmed that the headline rate of Corporation Tax will be capped at 25% with the “small profits rate” and marginal relief remaining at their current rates and thresholds.

However, the rate of employer National Insurance contributions (NICs) rose from 13.8% to 15%. Additionally, the threshold at which NICs become payable fell from £9,100 to £5,000.

The Chartered Institute of Taxation say that, for an employee earning £40,000 in 2025/26 the employer will pay £986 more in NICs (about 23%).

Finally, from April 2025, the minimum wage is set to increase 6.7% to £12.21 an hour for those aged over 21. For 18- to 20-year-olds, employees will receive a 16.3% increase, to £10 an hour.

Under-18s and apprentices will have an increase to £7.55 per hour from £6.40.

If you own a business, these two changes could see your expenses rise significantly. As an example, Reuters reports that the rises in minimum wage and NICs rates will cost retailer Marks & Spencer around £120 million in its next financial year.

This rise in NICs could make the use of “salary sacrifice” schemes more attractive. As a business owner, offering arrangements such as the “cycle to work” scheme, childcare vouchers, or pension payments could result in Income Tax and NI savings for both employees and employers.

Get in touch

If you’d like to understand how the 2024 Budget could affect your wealth, please get in touch.

Email contact@caliberfm.co.uk or call 01525 375286 to speak to one of our team today.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.