What does the UK Autumn Budget 2024 mean for you?
It was one of the most anticipated Autumn Budgets in years, as Labour Chancellor Rachel Reeves aims to raise £40 billion to support an increase in public spending. But what do the new measures set out in her first budget mean for your finances? Here, MWA's Advice Manager, Chartered Financial Planner Daniel Stansall, breaks down five key points to consider.
Loss of inheritance tax relief for pensions
Pensions pots will now be included in the value of an individual's estate from 6th April 2027. This will mean that more people will start to pay inheritance tax and cause a rethink in how pensions are used as part of a retirement strategy.
Planning options
Many clients will have been previously advised that pensions are a great wealth transfer tool, however this will change. There is due to be a consultation on this, but we understand that the consultation is more around the mechanics of how this will work, rather than if Labour will back away from the policy. These changes should prompt earlier planning for how to use pension assets and, for those clients whose estate will be subject to IHT, it may be advisable to start taking tax-free cash and/or income to fully utilise the basic rate tax allowance, thus retaining a degree of control over how much tax will be payable. Death benefit nominations should also be revisited, passing assets to a spouse may give more time to extract funds from a pension.
Changes to Capital Gains Tax (CGT)
From 30 October 2024 CGT rates have increased from 10% to 18% for lower rate taxpayers and from 20% to 24% for higher rate taxpayers.
Planning options
The changes to CGT were not as bad as expected, as Rachel Reeves stopped short of aligning the tax rates with the corresponding rates of income tax. However, it does mean that a closer eye must be kept on gains within client portfolios. This may mean; a change of investment strategy, so that greater control over when gains are made can be exercised; the use of other tax-efficient investment wrappers such as investment bonds (onshore or international) that allow gains to be deferred; inter-spouse transfers to utilise two sets of allowances; or holding onto investments in the hope that the rates of tax reduce in the future.
Changes to IHT relief on AIM stocks, plus limits to business relief
The government will reduce the rate of business property relief available from 100% to 50% in all circumstances for shares designated as 'not listed' on the markets (i.e. shares on the AIM market). There is also a cap on assets that qualify for agricultural or business property relief - the relief will drop to 50% for assets over £1M from 6 April 2026.
Planning options
The AIM market has always been volatile. However, whereas previously that volatility was generally acceptable in small doses given the full IHT relief that AIM shares attracted, this may now not be the case. Most retail clients will only invest in AIM shares for the IHT benefits which means that, as far as their beneficiaries are concerned, the value of an AIM portfolio has dropped by 20% overnight (50% relief on 40% IHT tax, instead of 100% relief on 40% IHT tax). Investors with less time on their side should consider a change of tack and AIM holdings could be switched into business property relief qualifying assets, which still retain the full 100% IHT relief up to £1M.
Changes to NI rates and thresholds
There were not any changes to employee or self-employed national insurance contributions, but employers will now pay 15%, rising from 13.8%, from next year. In addition to this, the threshold at which employers start to pay NI for an employee is to fall to £5,000 from £9,100. These changes are set to raise £25Bn, around 75% of the total raised in the budget.
Planning options
Any business owner directors should speak to their accountants about the changes to the national insurance tax rates and thresholds, to ensure that they are extracting profits in the most tax-efficient fashion. Salary sacrifice for pension contributions (and other benefits) may also be considered - particularly if the employer passes on the full national insurance saving to the employee.
Changes to Stamp Duty Land Tax (SDLT)
There have been a number of changes to SDLT, the headline being an increase to the additional rates on second property purchases from 3% to 5%.
Planning options
There’s not a lot that can be done about the changes to SDLT, other than trying to rush through a property purchase that is in progress. The increase to SDLT on second properties may affect the profitability of new buy-to-let investments, and it should be considered as part of the overall analysis of operating as a landlord.
Daniel Stansall is a financial adviser based in London.
After completing a Masters in astrophysics Daniel embarked on a ten-year career trading interest rate derivatives. He decided to retrain as a financial adviser in 2014 and achieved chartered status in 2019. Daniel has excellent technical knowledge and enjoys helping clients to understand their goals and helping them achieve their financial objectives. Daniel is a keen cyclist and an Arsenal fan.
daniel@mwafinancial.co.uk
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Please note: This does not constitute individual financial advice, and advice should be sought for your specific circumstances. Rates of tax will be based on individual circumstance and tax rules are subject to change. MWA Financial Advice do not provide tax advice, and we would recommend that you seek appropriate advice in these areas.
