Chancellor, Rachel Reeves, released her Autumn Budget on 30 October 2024. Amongst her key targets were to protect the NHS and ‘working people,’ as well investing in education and housing.
The definition of ‘working people’ is a contentious issue, where increasing taxes for this group would have represented breaking pledges in the Labour manifesto. Some are concerned that the changes made in this budget have consequently moved the burden on to employers.
In order to achieve the government’s aims and prevent a return to austerity, Ms Reeves aims to raise an additional £40 billion in taxes, whilst increasing government borrowing.
Headline features in terms of public spending include:
- £22.6 billion increase to the day-to-day health budget, alongside £3.1 billion increase in capital budget, including £1.5 billion to increase hospital capacity.
- £6.7 billion for the Department of Education, including £1.4 billion to rebuild more than 500 schools.
- £5 billion will be spent on housing in 2025/26 to contribute to Labour’s target of building 1.5 million homes over their current tenure, including increasing available affordable housing.
A significant reason for Labour’s victory in the general election was the party’s promise to invest in and improve these areas, particularly the NHS. Therefore, they will be heavily scrutinised on their performance in these projects.
Notably, the Chancellor announced that there will no longer be ‘biannual fiscal events,’ meaning the Spring Budget will contain no tax changes. The government believes that this will cultivate a more stable economic environment.
Here’s a summary of some of the changes contained in the Autumn Budget that might affect you…
National Insurance
The rate of National Insurance (NI) paid by employees will remain unchanged.
From April 2025, businesses will have to pay NI on workers’ earnings above £5,000 (currently £9,100), with the rate increasing from 13.8% to 15%.
However, the employment allowance will increase from £5,000 to £10,500, which allows certain businesses to reduce the NI liability and may soften the blow somewhat for the smallest businesses.
For an employee earning £30,000, the changes will increase the burden on businesses from employer’s NI from £32,884.20 to £33,750 (a 2.63% increase), less possibly a proportion of the increased allowance.
The decision to lower the threshold for employers’ NI has been received as the most divisive action of this Autumn Budget. To some this appears like a tax on jobs that will increase employer costs, reduce the savings they can make and restrict wider economic growth.
Capital Gains Tax
From now, basic rate Capital Gains Tax on the profit made when you sell an asset that has increased in value has increased from 10% to 18%, with the higher rate having risen from 20% to 24%.
Business Asset Disposal Relief, where you pay tax at 10% on all gains on qualifying assets, will remain at its current level this year, but will increase to 14% from 6 April 2025.
There has been no increase on the 18/24% Capital Gains rate relevant to the sale of second homes and any other residential property, excluding principal private residence.
Stamp Duty
From 7 November 2024, the additional Stamp Duty Land Tax charge on the purchase of second homes, buy-to-let residential properties, as well as companies purchasing residential property, will rise from 3% to 5%.
There is some concern that this will disincentivise landlords to buy more properties, consequently reducing the houses available to tenants and causing a rise in rental prices.
Inheritance Tax
The Chancellor claims to have closed Inheritance Tax (IHT) ‘loopholes.’
Currently, unspent money saved in a pension and then inherited is not included in the calculation for IHT. From April 2027, this will no longer be the case.
From April 2026, full exemption on certain types of property, such as farms and family business assets, will no longer apply. Assets in these categories of more than £1 million will attract an IHT charge of 20%.
Farms are by default asset rich but cash poor. For those who inherit some (particularly smaller) farms, this change to IHT might mean they will have to sell a portion of their land to meet their new tax liability.
The IHT threshold of £325,000 will be frozen until 2030. The rate is 40% and is only charged on the part of the estate that surpasses that threshold. This threshold can rise to £500,00 when passing residential property to a direct descendent.
Business rates
A feature of the budget that may have slipped under the radar for some is an increase in business rates for the retail, hospitality and leisure sector.
Since 2020, eligible business could get 75% off business rates bills up to a cap of £110,000. From April 2025, this will be reduced to 40%. Practically, this means businesses will now have to pay 60% rather than 25% of the full amount, representing a significantly increased burden.
This has been credited as an attempt to ease the financial pressures on local councils.
Pensions
Ms Reeves announced that the state pension would rise in line with average earnings, increasing by 4.1% in April 2025, reiterating her commitment to the ‘triple lock.’
This means…
- The new flat-rate state pension (for people who reached state pension age post April 2016) is expected to go up to £230.30 a week, if entitled to the full amount.
- The old basic state pension (for those who reached state pension age prior to April 2016) is expected to reach £176.45 a week, if entitled to the full amount.
However, as previously announced, the winter fuel payment (up to £300) will be lost by pensioners who are not on Universal Credit or other benefits.
Remember, due to changes in IHT rules unspent pension pots will be subject to tax from April 2027 (see above).
Travel
Whilst the 5p cut to fuel duty on petrol and diesel was due to end in 2025, this will remain for another year.
From January 2025, the £2 cap on single bus fares will rise to £3.
Regulated train fares will increase by 4.6%, while most railcards will be £5 more expensive from March 2025.
From April 2026, air passenger duty will increase by up to £2 for each economy short-haul flight.
The rates of tax on cars subject to benefit in kind charges will increase significantly in 2028/29 and 2029/30. In addition, from 5 April 2025, this will include all newly purchased/leased double cab pickups, subject to transitional rules.
Pay & Benefits
Legal minimum wage for over-21s to rise from £11.44 to £12.21 per hour from April 2025.
The government plans to make minimum wage the same for everyone regardless of age. Therefore, they have also raised pay for 18–20-year-olds to £10 per hour to narrow the gap.
The Chancellor confirmed that from April 2025, Universal Credit and a some other Department of Work and Pensions benefits will rise by 1.7% in line with inflation.
Carer’s earnings threshold will rise from £151 to £195 a week from April 2025, so they can earn more before losing allowance benefit, currently £81.90 a week. However, nothing has yet been done to deal with the cliff edge when you earn £1 over the threshold.
Smoking & Drinking
From now, tax on tobacco will increase 2% above inflation and 10% above inflation for rolling tobacco.
There will be a new tax of £2.20 per 10ml of vaping liquid from October 2026.
From February 2025, there would be a 1.7% reduction in draught beer duty (a change likely to be irrelevant to drinkers), but rates on non-draught products, such as wine and spirits will rise.
Income Tax
The rate of Income Tax paid by employees was not changed in the Budget.
Income Tax band thresholds will be frozen until 2028. More people being dragged into higher bands as wages rise after this time when thresholds will increase by inflation.
Corporation Tax
The main rate of Corporation Tax, paid by businesses on taxable profits over £250,000, to will stay at 25% until the next election. The current small company profit rate of 19% has not been mentioned, but will remain in 2025/26.
VAT
The rate of VAT will not change.
The commitment to introduce VAT on private school fees has been confirmed. Private schools should seek full advice on what input VAT can be claimed on first registration.
Need some guidance?
Whilst these are some of the key announcements, we encourage you to check out the full budget to explore the reforms above in more detail and stay abreast of other changes.
If you require any guidance as a result of any of the changes made in the Autumn Budget, please get in touch with us. A member of our team will be happy to assist you…
