In the run up to October’s budget, the Chancellor, Rachel Reeves, repeatedly said that ‘difficult’ decisions needed to be made. Small wonder that the budget, which was the first to be delivered by Labour in 14 years, was being dubbed the ‘Halloween horror budget’ by some media pundits.
Central to these difficult decisions was the £22 billion ‘black hole’ in the public’s finances, which the Government claimed it had inherited from the previous Government.
Indeed, the Chancellor said that she recognised that family finances were stretched and said she wanted to put more pounds in people’s pockets. As such, Reeves pledged to use the budget to prioritise investment, repair public services and increase household incomes.
So, against this backdrop, read on to learn about the key announcements made in the Autumn Budget.
Capital Gains Tax
As predicted, the Chancellor increased Capital Gains Tax, (CGT). The tax is charged on gains realised from the sale of assets, which includes property and certain types of investments. Reeves announced that as from 30th October 2024, CGT would rise from 10% to 18% for basic rate taxpayers for non-property related gains.
For higher- and additional- rate taxpayers, the rate will increase from 20% to 24% for non-property related gains. Reeves also confirmed that CGT will continue to be charged at 18% and 24% respectively when a property that’s not a main residence is sold.
All that said, the Chancellor did not change the existing annual CGT allowance. This means gains of up £3,000 can be made or realised before the tax is charged (2024/25 tax year).
Inheritance Tax
Dubbed the most unpopular tax of all, Inheritance Tax (IHT) is normally paid on any part of an estate that’s above the nil-rate band (NRB). This is the amount you can pass on to beneficiaries on death before the tax is charged.
In 2024/25, the NRB stands at £325,000 for individuals, and those who are married or a civil partnership can pass any unused allowance to their spouse or partner on death. Where a home is passed on to a direct descendent (including stepchildren, adopted and foster children), the total allowance can be increased to a maximum of £1 million using the residential nil-rate band (RNRB).
While these thresholds had already been frozen until April 2028 by the previous Government, the Chancellor announced an extension of the freeze until 2030. Because the threshold will now remain static for longer, while the value of assets could continue to increase, this could result in more households becoming liable to IHT. Furthermore, those households that are already exposed to the tax may see their liability increase substantially.
The Chancellor also announced that after April 2027, the unused element of a pension pot will fall into a deceased’s estate. Currently, pensions are typically treated as being outside of people’s estate for IHT purposes.
As pension pots can be extremely valuable, this has the potential to dramatically increase an estate’s liability to IHT, which in 2024/25, is charged at 40%. As such, the amount you can leave to loved ones using your pension could be substantially reduced.
Changes to agricultural relief and business relief rules will potentially increase IHT payable on estates where those assets increase.
Pensions
In the run up to the budget, there were rumours that the Chancellor would reduce tax relief on pension contributions. Similarly, there were concerns the amount of tax-free cash that could be taken from a pension pot could be significantly reduced.
In the end, neither came to pass, although the inclusion of future pension values in estates from 2027 could significantly impact how people use their pension.
Income Tax
Despite predictions that the Chancellor would extend the freeze on Income Tax thresholds, on the day she confirmed that she would not do so. As a result, the freeze will remain in place until April 2028.
The Chancellor did announce that the thresholds would rise in line with inflation when the freeze finishes in the 2028/29 tax year. Today’s announcement means millions more workers could continue to be pushed into higher tax bands as their salaries rise and the thresholds remain static.
National Insurance Contributions
While the Chancellor kept her manifesto pledge not to increase the headline rate of Income Tax, National Insurance and Value Added Tax (VAT), other key taxes saw a significant hike.
As expected, the Chancellor has increased Class 1 National Insurance Contributions (NICs) for employers. Broadly speaking, the NICs are paid by businesses for employees earning more than £9,100 and are usually charged at 13.8%.
The Chancellor announced that as from April 2025 the employer Class 1 NICs will increase to 15% of employee earnings of more than £5,000. This means that businesses will see its NICs liability increase substantially, which in turn could have implications for recruitment, job security and other employee benefits that may now be cut.
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