Autumn Budget 2024: Key Announcements You Need to Know

The long-anticipated moment has arrived, though it's one many have dreaded: Chancellor Rachel Reeves has presented Labour’s first Budget in 14 years, and it is scarier than Halloween for many. As was expected, the Chancellor announced that the taxes will be raised by ￡40 billion and ￡100 billion will be spent in capital investments over the next five years.

Some tax professionals and speculators had forecast that the government might attempt to fill this funding gap with measures like increasing the Capital Gains Tax rate to as high as 39% or taxing property transfers upon death, in addition to inheritance taxes. The government had already signalled its intentions in specific areas, such as abolishing the Furnished Holiday Let regime with its favourable tax benefits and removing the VAT exemption for private schools, making them standard-rated supplies. The Chancellor begins with the announcement that the economic growth rate will be 1.1% in 2024, 2.04% in 2025%, 1.8%, 1.5%, 1.5%, 1.6% in the subsequent years to up to year 2029. Additionally, the following announcements were made.

Capital Gains Tax

In the Tax Year 2022/23, HM Revenue and Customs reported revenue from CGT of ￡14.4 billion from the capital gains of ￡80.6 billion. Therefore, CGT is a huge market income source for the government, despite the CGT rates being lower than Income Tax rates and Inheritance Tax rates. This had led to speculations around the increment in Capital Gains Tax rates to as high as 39% to fund the government.

The requirement to report the disposal of properties in the UK and pay any taxes due within 60 days of sale completion remains unchanged.

VAT and Business Rates on Private Schools

Although the announcement of making private schools’ services taxable supplies was made months ago on 28 July 2024, private schools that were making certain taxable supplies long before the announcement on 28 July, they were not able to register for VAT before 30 October 2024. From today, VAT registration is open to schools that have been making taxable supplies.

Before the Budget

Currently, education services and closely related goods and services provided by eligible bodies are exempt from VAT. Amongst the eligible bodies are private schools, who are regulated by virtue of needing to register with the government and be inspected regularly. As a result, private schools have been able to offer education and boarding services without adding VAT to their fees. This exemption has allowed private schools to operate with a financial advantage compared to other sectors.

After the Budget

Starting from 1 January 2025, all education services and vocational training provided by private schools, or their affiliates will be subject to a 20% VAT. Boarding services related to these supplies will also incur a 20% VAT.?This means that schools must be registered for VAT when the taxable supplies made exceed the VAT registration threshold of ￡90,000 in the past 12 months.

From today, Schools can voluntarily register for VAT if they choose to do so.

Inheritance Tax (IHT)

When a person inherits assets from the deceased’s estate, they must pay Inheritance Tax at 40% on the chargeable value of the estate. It is possible to reduce the IHT liability by utilising the tax-free exemption threshold of ￡325,000. If the value of asset is less than that threshold, there is no IHT to pay.

The potential for reduction of IHT threshold was another subject of speculation. However, taxpayers can get a sigh of relief as it is confirmed that the ￡325,000 threshold will remain frozen until April 2030. Additionally, the Nil rate Band (NRB) threshold will increase to ￡500,000 if the estate contains residential properties passed to direct descendants.

Pension Income

Taxation on Pension Income is another area that has seen significant speculations. It was expected that either the tax-free lump sums from pension pots would be reduced or the tax rates for pension income would not follow the non-savings tax rate bands. There have been no changes on the pension income and the pension income will be taxed as follows:

Stamp Duty Land Tax (SDLT)

Following the budget announcement, the following rates will be applicable for SDLT on additional properties from tomorrow, 31 October 2024.

Abolition of Non-Dom Tax Status

Currently, the extent to which an individual is taxed in the UK depends on two factors: the residency status of the taxpayer, and their domicile status. While the residency status can vary from year to year, domicile status is often permanent. The domicile status is usually the taxpayer’s fixed or permanent home, or the permanent home of their father.

Non-domiciled individuals have so far been enjoying certain benefits from UK tax. For instance, UK-domiciled taxpayers are charged Inheritance Tax on their worldwide assets. However, Inheritance Tax does not extend to overseas assets for non-domiciled individuals.

Additionally, non-domiciled individuals can claim the remittance basis, which means that foreign income and gains of non-domiciled taxpayers are taxed in the UK only in the year in which the money is remitted to the UK. However, that benefit too will no longer be available as a result of the non-dom tax status being removed.

The Chancellor said that she will “introduce a new, residence-based scheme with "internationally competitive arrangements" for those coming to the UK on a temporary basis.”

Other Changes

In addition to the above-mentioned changes, the following changes were also announced in today’s budget.

Energy Windfall Tax

The current energy profits made by oil and gas firms in the UK are currently taxed at 35%. This rate is expected to rise to 38% from 1 November, and this rate will remain in place until 31 March 2030.

Minimum Wage

The National Living Wage paid to over-21s will go up by 6.7% (increment to ￡12.10) in April 2025, while the National Minimum Wage for 18 to 20-year-olds will see a 16.3% increase to ￡10 per hour.

Fuel Duty

Given that the fuel duty has changed since more than a decade ago, the speculation around the potential hike was more than expected. However, it is confirmed that fuel duty will not increase and the temporary 5p will be applicable in the next year.

National Insurance Contributions (NIC) by Employers

Employers are mandated to make National insurance contributions on behalf of their employees, based on the salaries of the employees. Currently, the NIC rates are fixed at 13.8% for salaries above ￡9,100.

After today’s budget announcement, the NIC rates have increased to 15% effective from April next year. On the good note, the rate at which the employers start paying NIC has been reduced from ￡9,100 to ￡5,000.

Investment in Housing Plan

The Chancellor announced that the government will invest more than ￡5bn to deliver their housing plan. The budget will increase the Affordable Homes Programme to ￡3.1bn, provide ￡3bm worth of support and guarantees to increase the supply of homes and support small housebuilders. The Chancellor has promised to provide investment to renovate 2,000 new homes across the country.

Conclusion

In summary, the Autumn Budget 2024 reflects the new government’s strategic commitment to tackling economic challenges while aiming for growth. Key measures include significant tax increases, tightened loopholes, and targeted investments in housing and other infrastructure. With CGT rates rising for non-residential assets, a new VAT structure for private schools, and changes in SDLT rates, this budget introduces substantial changes that will impact various sectors, from property and education to energy.

The government’s decision to maintain the Inheritance Tax threshold and avoid immediate fuel duty increases offers some stability amidst broader fiscal tightening. Although the abolishment of the Furnished Holiday Let regime and the non-dom tax status brings an end to certain tax benefits, the budget balances these adjustments with increased funding for affordable housing and investment in small-scale housebuilders. As these changes unfold, businesses and taxpayers will need to adapt to new structures that aim to both fill the funding gap and stimulate longer-term growth.