31 October 2024

Autumn Budget 2024

In the Autumn Budget 2024, Chancellor Rachel Reeves introduced measures that will impact taxation, estate planning, capital gains, and more. Here are the main updates relevant to estate planners and individuals focused on preserving wealth and minimising tax burdens.

Stamp Duty Land Tax (SDLT) Updates

First-Time Buyer Relief Expiration: The temporary increase in the SDLT threshold for first-time buyers, which allowed them to avoid SDLT on properties up to £425,000, is set to expire on March 31, 2025. Post-expiration, the threshold will revert to £300,000, meaning first-time buyers could face up to £6,250 more in SDLT if they purchase property in England or Northern Ireland after this date. For those on the path to home ownership, it may be advantageous to act sooner to leverage current reliefs.

Inheritance Tax (IHT) Threshold and Pension Changes

  • IHT Threshold Freeze Extended: The nil-rate band of £325,000 and residence nil-rate band of £175,000 will remain frozen until 2030, capturing more estates under IHT. As property and asset values grow, more individuals will face higher IHT, underscoring the importance of proactive estate planning.
  • Taxation of Inherited Pensions: Beginning April 2027, pensions will be subject to IHT upon inheritance. Previously, defined contribution pensions could be passed on tax-free if the owner passed away under 75, or taxed only at the beneficiary’s income tax rate. This change may prompt more clients to reconsider pension drawdowns or gifting as estate planning strategies.

Capital Gains Tax (CGT) Adjustments

  • CGT Rate Increase: The lower CGT rate has risen from 10% to 18%, while the higher rate increased from 20% to 24%, effective immediately. These rates will increase further in the next two years. Those holding appreciated assets may need to reassess selling strategies to avoid higher taxes.
  • Entrepreneurs’ Relief (Business Asset Disposal Relief): Changes to CGT also impact this relief, gradually increasing the effective rate, which will match standard CGT rates by 2026. Entrepreneurs considering asset sales may benefit from a phased approach, utilising annual CGT allowances to manage tax exposure.

Income Tax and National Insurance (NI) Adjustments

  • Frozen Tax Bands: Income tax bands are frozen until the 2028-29 tax year, capturing more earners within higher tax brackets as wages increase. This impacts take-home pay, especially in the context of high inflation.
  • Employer NIC Increase: Employer National Insurance contributions will rise from 13.8% to 15% from April 2025. Small and medium-sized enterprises will see the Employment Allowance increase to £10,500 to help counterbalance the change.

Educational Costs – Private School VAT

Introduction of 20% VAT on Private School Fees: From January 2025, private school fees will include a 20% VAT. For a family with two children in private education, annual expenses could increase by £10,000 or more. Parents may wish to explore new tax-efficient strategies to meet these higher costs, especially within family trusts or by leveraging available reliefs.

Universal Credit (UC) and Other Benefit Adjustments

Reduced Repayment Rate for UC Debts: Families on UC will see debt repayment rates drop from 25% to 15% of their standard allowance, increasing their disposable income by an average of £420 annually. This modest increase is accompanied by inflation-based rises in certain benefits, aligning with the government’s commitment to support low-income households.

Fuel Duty Remains Frozen

Temporary 5p Cut in Fuel Duty Extended: Originally intended as a short-term measure, the 5p cut in fuel duty will remain in place for 2024, helping to curb transportation costs. This decision saves the average driver around £130 annually, a helpful relief amid rising costs elsewhere.

These updates from the Autumn Budget highlight the necessity for tailored estate planning, especially with IHT and CGT increases on the horizon. Effective planning will help clients take full advantage of available reliefs, minimise tax liabilities, and support generational wealth transfer. Contact us to explore how these new measures impact your estate plan and tax strategy.

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