Autumn Budget 2024

AUTUMN BUDGET 2024

Introduction

The 2024 Autumn Budget Statement, which is published in full on HM Treasury’s website here was made by the Chancellor of the Exchequer, Rachel Reeves, on Wednesday 30th October.

This document provides a summary of the key announcements made in this Autumn Budget Statement together with confirmation of what the tax rates and thresholds for the next 2025/26 tax year will be.

The economy

The Chancellor announced that the economy is expected to continue its recovery from a recession in 2023 and a weak performance since the Global Financial Crisis. Growth is set to be 1.1% in 2024, before increasing to 2.0% in 2025 and 1.8% in 2026, before settling close to its trend rate in the later years of the forecast of 1.5% in 2027 and 2028 and 1.6% in 2029.

The OBR expects annual CPI inflation to remain close to the 2% target throughout the forecast period. The OBR forecasts inflation to average 2.5% in 2024, before increasing to 2.6% in 2025. It is expected to fall towards target across the final three years of the OBR forecast.

The unemployment rate is forecast to average 4.3% in 2024, a small increase on 2023, before remaining close to 4.0%. The employment rate is expected to remain close to 60% over the forecast.

The Chancellor has said that the plans announced in the budget will raise taxes by £40billion.

Income Tax

Income Tax Rates and Thresholds

The main rates of income tax for the 2025/26 tax year will remain at 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers.

And, because both the personal allowance of £12,570 and the basic rate band of £37,700 will remain fixed at these levels until 5 April 2028, this means that the threshold above which higher rate tax will become payable (the personal allowance plus basic rate band) will also remain fixed at £50,270.

From 6 April 2025, the threshold above which additional rate tax becomes payable will also remain unchanged at £125,140 (reduced from £150,000 with effect from 6 April 2023), so for individuals with a full personal allowance, the 40% higher rate will apply to income between £50,271 and £125,140 and 45% tax will apply to income above £125,140.

Individuals with ‘adjusted net incomes’ above £100,000 will also continue to have their personal allowance reduced by £1 for every £2 of income above this £100,000 limit, the result of which is that the personal allowance will be fully withdrawn for those with ‘adjusted net incomes’ of £125,140 or 2024 more, where (broadly) ‘adjusted net income’ is the total income on which an individual is assessable to income tax, less the gross amount of their own pension and gift aid contributions.

No changes were announced regarding the Marriage Allowance so in 2025/26 a spouse or civil partner who is not liable to income tax or not liable above the basic rate for a tax year will continue to be entitled to transfer up to 10% of their personal allowance (£1,260 in 2025/26) to their spouse or civil partner provided that the recipient of the transfer is not liable to income tax above the basic rate. The transferor’s personal allowance will then be reduced by up to £1,260, and the spouse or civil partner receiving the transferred allowance will be entitled to a reduced income tax liability of up to £252.

The married couple’s allowance, which is only available where at least one party to the marriage was born before 6 April 1935, increases from £11,080 to £11,270 with the minimum allowance also increasing from £4,280 to £4,360.

The blind person’s allowance also increases from £3,070 to £3,130.

Starting rate for savings tax
The band of savings income that is subject to the 0% starting rate will remain unchanged at £5,000 in 2025/26.

Personal savings allowance
This will remain unchanged at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers and there will continue to be no personal savings allowance for additional rate taxpayers.

Dividend allowance
The tax-free dividend allowance, which was reduced from £5,000 to £2,000 with effect from the start of the 2018/19 tax year and reduced from £2,000 to £1,000 in 2023/24 and reduced again to £500 in 2024/25 will remain at £500 in 2025/26 and any dividends in excess of this will continue be taxed at the following rates depending on which tax band they fall in:

• Basic rate – 8.75%
• Higher rate – 33.75%
• Additional rate – 39.35%

National Insurance

Because the National Insurance thresholds in the 2025/26 tax year will remain the same as they are in the current 2024/25 tax year for employees (but not employers) this means that:

• The lower earnings limit for the purpose of employee primary class 1 NI contributions will be £123 a week (£6,396 pa)
• The primary earnings threshold for class 1 employee NI contributions will be £242 a week (£12,570 pa); but
• The secondary earnings threshold for class 1 employer NI contributions will be reduced from £175 a week (£9,100 pa) to £96 a week (£5,000 pa).

The Upper Earnings Limit (UEL) for primary and secondary Class 1 NI contributions will both remain aligned with the higher rate income tax limit, so for 2025/26 the threshold will be £967 a week (£50,270 pa).

The rates of NI payable by both employees and the self-employed in 2025/26 will also remain as follows:

• The main rate of Class 1 NI contributions for employees will be 8%
• The main rate of Class 4 NI contributions for the self-employed will be 6%; and
• Self-employed people with profits above £12,570 a year will continue not to be required to pay Class 2 NI contributions but will continue to receive access to contributory benefits, including the State Pension.

No changes were announced for the additional rate of Class 1 and Class 4 NI contributions so these will remain at 2% for both the employed and self-employed.

For those paying voluntarily NI contributions, from 6 April 2025 the Class 2 rate will increase from £3.45 to £3.50 per week and the Class 3 rate will increase from £17.45 to £17.75 per week.

The Class 1 NI rate for employers, however, for employees with earnings above the secondary earnings threshold of £5,000 pa will increase from 13.8% to 15%.

Capital Gains Tax

Annual exemption
The annual exempt amount, which was cut from £6,000 for individuals in 2023/24 to £3,000 in 2024/25, will remain at £3,000 in 2025/26.

Gains which qualify for business asset disposal relief up to a lifetime limit of £1m will continue to be taxable at 10% for disposals made in the current 2024/25 tax year but this will increase 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.

Tax rates
For disposals made on or after 30th October 2024, the Capital Gains Tax (CGT) rates will increase from 10% to 18% for chargeable gains that fall within the non, starting rate and basic rate bands and from 20% to 24% for gains that fall within the higher and additional rate bands.

The rates for chargeable gains made on residential properties which are not eligible for principal private residence relief (such as buy-to-lets) will remain unchanged at 18% for gains that fall within the basic rate band and 24% for gains that fall within the higher and additional rate rate bands.

Stamp Duty Land Tax
The stamp duty cuts announced in the mini budget on 23 September 2022 will remain in place until 31 March 2025.

In England and Northern Ireland, this therefore means that until 31 March 2025:

• The nil rate threshold above which stamp duty becomes payable on residential property purchases by individuals who are not First Time Buyers will remain at £250,000; and
• The nil rate threshold for First Time Buyers will remain at £425,000 and the maximum property purchase price that will qualify for First Time Buyers Relief will also remain unchanged at £625,000

With effect from 1 April 2025, however, in England and Northern Ireland:

• The nil rate threshold above which stamp duty becomes payable on residential property purchases by individuals who are not First Time Buyers will reduce to £125,000; and
• The nil rate threshold for First Time Buyers will reduce to £300,000 and the maximum property purchase price that will qualify for First Time Buyers Relief will also reduce to £500,000

With effect from 31st October 2024, the SDLT ‘additional rate’ for second properties will also increase from 3% to 5% above the standard residential rates.

Non-UK domicile tax rules

The government will introduce legislation in Finance Bill 2024-25, abolishing the remittance basis of taxation for non-UK domiciled individuals and replacing it with a residence-based regime, which will take effect from 6 April 2025.

Individuals who opt into the regime will not pay UK tax on foreign income and gains (FIG) for the first 4 years of tax residence. From 6 April 2025, the government will also introduce a new residence-based system for Inheritance Tax and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.

For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met and Overseas Workday Relief will also be retained and reformed, extending to a 4 year period and removing the need to keep the income offshore.

Furnished Holiday Lettings (FHL) tax regime

As originally announced in July 2024, the government will introduce legislation in Finance Bill 2024-25 to remove the specific tax treatment and separate reporting requirements for Furnished Holiday Lettings (FHL).

Income and gains from a FHL will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses.

This change will therefore remove the tax advantages that current furnished holiday let landlords have received over other property businesses in four key areas by:

• applying the finance cost restriction rules so that loan interest will be restricted to basic rate for income tax
• removing capital allowances rules for new expenditure and allowing replacement of domestic items relief
• withdrawing access to reliefs from taxes on chargeable gains for trading business assets; and
• no longer including this income as relevant UK earnings when calculating maximum pension relief

These changes will take effect on or after 6 April 2025 for Income Tax and Capital Gains Tax and from 1 April 2025 for Corporation Tax on chargeable gains.

Inheritance Tax

Nil Rate Band
In 2025/26, the normal (‘any assets’) nil rate band will remain at £325,000 and it will remain fixed at this level until 5 April 2030.

There are no changes to IHT rates, so in 2025/26 the rate for chargeable lifetime transfers will remain at 20% and the rate on death will also remain at 40%.

Residence Nil Rate Band
The ‘residence nil rate band’ (RNRB) has been available in addition to the normal (‘any assets’) nil rate band of £325,000 for deaths occurring after 5 April 2017 where either:

• A qualifying interest in a residential property which is (or has previously) been used as the main residence is passed on death to a direct descendant of the deceased; or
• A person sells or gifts their main residence, or downsizes to a less valuable main residence, on or after 8 July 2015 and leaves either a lower value main residence or assets of an equivalent value to the lost RNRB on death to a direct descendant.

In 2025/26, the RNRB will remain at £175,000 and it will remain fixed at this level until 5 April 2030.

The £2m taper threshold, which is the threshold above which the RNRB is reduced by £1 for every £2 that the value of a deceased’s net estate (after deducting liabilities but before deducting any reliefs and exemptions) exceeds £2m, will also remain fixed at £2m until 5 April 2030.

Agricultural and Business Property Relief
The government will reform both these inheritance tax reliefs from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms.

The rate of relief, however, will be 50% thereafter and in all circumstances for quoted shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM shares, the relief will also be reduced to 50% from 6 April 2026.

Corporation Tax

For the 2025 Financial Year which runs from 1 April 2025 to 31 March 2026 both the 25% main rate of corporation tax and the ‘small profits’ rate of 19% will remain unchanged for companies with profits below a lower limit of £50,000.

Profits exceeding the upper limit of £250,000 will therefore continue to be charged at the main rate of 25% but marginal relief provisions mean that that where a company’s profits fall between the £50,000 lower and £250,000 upper limits, it will be able to claim an amount of marginal relief that bridges the gap between the lower and upper limits providing a gradual increase in the Corporation Tax rate.

VAT

There will be no change to the current standard VAT rate of 20% and because the current registration and deregistration thresholds will remain unchanged, this means that in 2025/26:

• The taxable turnover threshold that determines whether a person must be registered for VAT will remain at £90,000; and
• The taxable turnover threshold that determines whether a person may apply for deregistration will remain at £88,000.

The government will, however, introduce legislation in Finance Bill 2024-25 to remove the VAT exemption on private school fees.

From 1 January 2025, all education services and vocational training provided by a private school or connected person in the UK for a charge will be subject to VAT at the standard rate of 20%. Pre-payments of fees or boarding services on or after 29 July 2024 that relate to terms starting after 1 January 2025 will also be subject to VAT at the standard rate. These changes will take effect from 30 October 2024.

Trust Taxation

Because the maximum capital gains tax annual exemption for both discretionary and interest in possession trusts will remain unchanged at half the rate for an individual this means that it will be £1,500 in 2025/26.

No changes were announced for trust income tax rates so in 2025/26 the income tax rate for
discretionary trusts will remain unchanged at 45% for interest and 39.35% for dividends.
For interest in possession trusts where the income is not mandated directly to a beneficiary, the trustees will also remain liable to income tax at the basic rate of 20% on interest and 8.75% on dividends.

Pensions

Annual Allowance
Standard Annual Allowance and Money Purchase Annual Allowance

Because no changes to the standard annual allowance or money purchase annual allowance were announced this means that in 2025/26 the standard annual allowance will remain at £60,000 and the money purchase annual allowance will remain at £10,000.

Tapered Annual Allowance
Because no changes to the Tapered Annual Allowance were announced this means that in 2025/26 only those high earners with ‘threshold income’ over £200,000 and ‘adjusted income’ over £260,000 will be subject to the Tapered Annual Allowance.

Pensions and IHT
The Chancellor announced that the government intends to include unused pension funds on death in the deceased persons estate for IHT, with effect from 6 April 2027.

This is subject to a consultation that will run from 30 October 2024 to 22 January 2025 with a view to publishing draft legislation in 2025 but the proposed changes will mean that where an IHT charge is payable, this will be paid by the scheme. And, because the usual pre and post age 75 income tax rules on the residual funds will still apply, this means that any post age 75 death benefits or funds in excess of the Lump Sum and Death Benefit Allowance following the death of the member before age 75, will be subject to both IHT and income tax.

State Pension
Under the ‘triple lock’ that once again applies in the 2025/26 tax year, for people with an adequate national insurance record both the Basic State Pension for people who attained State Pension Age before 6 April 2016 and the New State Pension for people who attained State Pension Age on or after 6 April 2016 will be increased by the average percentage increase in earnings for the year ending September 2024 of 4.1%.

In 2025/26, the full Basic State Pension will therefore increase from £169.50 to £176.45 a week and the full New State Pension will increase from £221.20 to £230.30 a week.

Individual Savings Accounts (ISAs)

The adult ISA annual subscription limit will remain unchanged at £20,000 until 5 April 2030 and the maximum that can be subscribed to a Lifetime ISA will also remain unchanged at £4,000 until 5 April 2030.

The government will not proceed with the British ISA.

Junior ISAs and Child Trust Funds

The annual subscription limit for Junior ISAs and Child Trust Funds will also remain unchanged at £9,000 until 5 April 2030.

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