Budget 2024 – The Facts

The latest UK budget introduces significant shifts for employers, taxpayers, and investors, with changes in National Insurance, inheritance tax reliefs, and new taxes for non-domiciled residents.

These adjustments, set to start from April 2025, will affect both small businesses and individual taxpayers, presenting new financial planning challenges and opportunities.

Employer National Insurance (NI) Increases

Starting from April 2025, the rate for Employer NI will increase from 13.8% to 15%, and the secondary threshold will drop from ￡9,100 to ￡5,000.

For each employee earning above this threshold, this results in an added ￡615 in annual NI costs.

To ease the burden, the Employment Allowance will be raised from ￡5,000 to ￡10,500, with the removal of the ￡100,000 qualifying threshold, making this particularly advantageous for smaller businesses by covering NI costs for up to four employees at minimum wage.?

The adjustments are expected to prompt some businesses to reconsider their hiring practices and wage growth strategies.

Notably, one-person companies will also need to pay Employer NI on director salaries to retain benefits under Class 1 NIC, such as the state pension.

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New Short-Term Residents Taxation

Also effective from April 2025, new UK residents returning after ten years abroad can enjoy a four-year exemption on Foreign Income and Gains (FIG), even if brought into the UK.

This period includes an extension of overseas workday relief for employees, along with settlor-interested trusts.

Residents must, however, inform HMRC of their FIG status within this period, after which worldwide income will become taxable.

Following ten years of residence, all global assets are subject to UK inheritance tax (IHT), favouring UK returnees but adding complexity for non-domiciled individuals who may seek more favourable tax systems in other European countries.

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Non-Dom Taxation Changes

In a significant shift, UK tax domicile rules will be phased out, transitioning to a residence-based system from April 2025.

For foreign income and gains earned before this date, non-doms can qualify for relief.

FIG brought to the UK between 2025 and 2027 will be taxed at 12%, increasing to 15% from 2027-2028, with remittances post-2028 exempt from additional taxes.

Offshore trust distributions qualify if transferred within three years.

To further encourage UK investment, personal assets owned before April 2017 can be rebased, excluding trust-held assets.

While these reliefs incentivize early UK investment, trust distributions remain taxable on future remittances, adding complexity to financial planning for non-doms.

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Inheritance Tax (IHT) Relief Adjustments

Changes in inheritance tax relief, starting in April 2026, cap Business Property Relief (BPR) and Agricultural Property Relief (APR) at 100% for assets up to ￡1 million, with 50% relief on the excess.?

For AIM shares, only 50% relief is applicable, and no threshold applies.

The ￡1 million allowance will apply across multiple trusts established post-October 2024, while existing assets retaining 50% relief remain unaffected.?

Estates now face potential IHT liabilities, and AIM shares may lose appeal as an investment.

The changes limit the use of multiple trusts to avoid tax, yet separate nil rate bands in such arrangements may still offer tax efficiencies.

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Pensions and Inheritance Tax (IHT)

Unused funds in most discretionary pension schemes will become subject to IHT starting April 2027.

For estates exceeding IHT allowances, the tax will be divided between the pension fund and the broader estate, with pension administrators responsible for paying IHT and beneficiaries also liable for income tax on withdrawals, leading to potential double taxation.

To mitigate these impacts, pension holders may consider earlier withdrawals or increased lifetime gifting to reduce their estate’s value.

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Income Tax and National Insurance Threshold Freeze

The freeze on income tax and NI thresholds, including the personal allowance, will continue until 2028/29, leading to increased fiscal drag as individuals move into higher tax brackets with rising incomes.

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Capital Gains Tax (CGT) Adjustments

Capital Gains Tax rates for non-residential property transactions will increase from 30 October 2024 to 18% for the basic rate and 24% for the higher rate.?

Carried interest CGT will increase to 32% from April 2025.

Meanwhile, Business Asset Disposal Relief (BADR) and Investors' Relief rates will increase from 10% to 14% in 2025, reaching 18% in 2026.

Anti-forestalling measures apply to curb transaction delays.

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Corporate Tax Stability

Corporation tax rates will remain unchanged at 25%, and capital allowance schemes remain stable, with first-year allowances for zero-emission cars and charging stations extended until March 2026.?

The Audio-Visual Expenditure Credit is raised to 39%, supporting investment in this sector.

SDLT on Additional Properties

From October 2024, the SDLT surcharge on additional properties will rise from 3% to 5%, with a graduated rate structure reaching 17% for high-value properties.

Contracts prior to this date may avoid the surcharge if they remain unchanged.

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VAT and Indirect Tax Reforms

Private school fees will be subject to 20% VAT from January 2025, and charitable rate relief on business rates will be phased out for private schools from April 2025.?

Minimal changes were announced in duties: though air passenger duty will increase by 50% for private jets from 2026/27.?

Alcohol duty was increased on bottled products, but draught products actually got a slight reduction.?

Refillable vape and e-cigarette liquid will have a duty introduced in 2026 – at a flat rate of ￡2.20 per 10ml.

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Summary

These budgetary changes will have wide-ranging impacts, affecting employer costs, individual tax burdens, and investment incentives.

With these reforms on the horizon – some happening immediately and other in a couple of years – staying informed and proactive in tax planning is essential.

Tax Expert will be covering new news as it comes out regarding budget changes – we will update on any further news on changes and reforms once the news becomes available.

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