How the Autumn Budget 2024 Will Impact Your Financial Planning

The Autumn Budget 2024, presented by Chancellor Rachel Reeves, has introduced measures that push the UK’s tax burden to the highest levels in recent memory. This budget promises increased public sector investment and structural reforms aimed at economic stability and improvements in public services. However, from a financial planning perspective, the new policies carry significant implications, requiring a close look at how they may impact both individuals and businesses.

To encapsulate 8 Financials perspective, let’s consider this apt quote from Winston Churchill:

“I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
― Winston S. Churchill

Putting politics aside, we’re approaching these changes pragmatically. Here, we break down the major Budget 2024 updates and how they might affect your financial planning.

Key Budget Changes Impacting Financial Planning in 2024

1. Capital Gains Tax (CGT)

• Changes: The CGT basic rate is set to increase from 10% to 18%, and the higher rate from 20% to 24%, effective from 30 October 2024. Notably, residential property CGT rates remain the same.
• Impact: Investors with General Investment Accounts will see higher CGT rates on profits. Residential property owners continue to face steep CGT rates on sale, which may prompt re-evaluation of holding and selling strategies.
• Business Asset Disposal Relief (BADR): BADR will see its rate rise to 14% in April 2025, aligning with the main CGT rate of 18% by April 2026, while the £1 million lifetime cap on qualifying gains remains unchanged.
• Impact: BADR relief will effectively be taxed at the basic rate by April 2026, reducing the benefit of this relief for entrepreneurs.

2. Inheritance Tax (IHT)

• Changes: From April 2026, the 100% relief for agricultural and unlisted businesses will be capped at £1 million. Any amounts above this threshold will only qualify for 50% relief.
• Impact: IHT will now be payable on agricultural and unlisted businesses above the £1 million threshold after using the combined allowances of £2,650,000 for a couple. For asset-rich but cash-poor estates, this could create challenges in paying IHT, potentially forcing asset sales at suboptimal times.
• Inherited Pensions (excluding spouses): From April 2027, inherited pension death benefits will be included in the estate for IHT purposes, a marked shift from the prior IHT-free treatment for pensions if the holder passed away before age 75.
• Impact Example: Consider an individual with £1 million in pension assets planning to pass it to their children. Under the new IHT rules from 2027, these assets would now be subject to IHT at 40%, resulting in a £400,000 tax liability. This change makes it crucial to reassess pension assets’ purpose, leaning toward income provision rather than inheritance.

3. National Insurance Contributions (NICs)

• Changes: Employers’ NICs will rise from 13.8% to 15% starting April 2025, with the threshold for employer contributions dropping to £5,000. To offset this, the Employment Allowance will increase to £10,500 to support smaller businesses.
• Impact Example: A small business with several employees will face higher payroll expenses, although the increased Employment Allowance will provide some relief. This may prompt businesses to carefully review staffing costs and plan for the adjusted NICs accordingly.

4. State Pensions

• Changes: The State Pension will increase by 4.1% from April 2025, in alignment with the Triple Lock.
• Impact: This increase provides a modest boost for pensioners but may have minimal effect on the overall financial planning landscape.

What’s Next?

These proposed changes are now open to consultation and may see adjustments in the coming months. For now, it’s essential to prepare proactively by assessing your current financial situation and exploring ways to maintain tax efficiency while preserving quality of life.

We are committed to reviewing each client’s unique financial circumstances in light of these changes, ensuring you’re well-positioned to navigate the shifting financial landscape. The need for thoughtful, proactive planning has never been greater.

Final Thoughts

As the government introduces these new measures, effective financial planning becomes critical. These changes reinforce the value of a strategic approach to managing wealth, investments, and estates.

If you have questions about how the Autumn Budget 2024 might affect your financial plan, feel free to reach out. Let’s ensure that whatever changes may come, you’re prepared to stay on course for financial success.