The UK Budget Summary 2024, introduced by Labour under Chancellor Rachel Reeves, brings a range of significant changes that will impact individuals and businesses alike. From alterations to inheritance tax rules and pension policies to the introduction of new tax rates, the 2024 Budget marks a shift in how personal finances are managed. In this article, we’ll break down the key changes in the UK Budget 2024 and what they mean for the general public, helping you understand how these adjustments may affect your financial planning in the year ahead.
Pensions:
Rachel Reeve’s first UK Budget Summary 2024 delivered a disappointing result for pensions, which will now become subject to Inheritance Tax (IHT) from April 2027. Currently, your pension is outside of your estate for IHT purposes, and your beneficiary pays no income tax on all inherited funds if you die before age 75. The change means that the value of your pensions will be added to your other assets to calculate whether your estate will pay IHT. This increases the likelihood that an estate could pay IHT once pensions are added to other assets such as property and investments.
Inheritance Tax (IHT)
IHT applies to estates valued above £325,000 or £500,000 if you leave your home to a direct descendant (children and grandchildren including adopted, step, foster, and wards of court). These are individual allowances, so married couples or those in a civil partnership could leave their unused allowances to their surviving spouse/partner, increasing the potential tax-free amount available through the increased allowances. The nil-rate band (NRB) and residence NRB (RNRB) of £325,000 and £175,000 respectively have been frozen at this level until April 2028, making it more likely that increases in the value of your home and other assets may become subject to IHT as per the UK Budget Summary 2024.
Anything above your IHT tax allowance is charged at 40% (unless you leave a gift to charity, in which case the tax rate is reduced to 36%).
IHT Friendly Investments
Currently, if you hold qualifying investments in Agricultural Property Relief and Business Property Relief, your contribution amount and investment growth are outside of your estate for IHT after two years. The result is a significant reduction or complete mitigation of the IHT liability on death. The UK Budget Summary 2024 confirmed that these reliefs will be reformed from 6 April 2026, and the current 100% relief will be limited to £1 million, with 50% relief available thereafter.
In addition, the rate of relief available for shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as the Alternative Investment Market (AIM), will be reduced from 100% to 50%. The outcome for your estate is that IHT would still be payable on these investments at 20% rather than 40%. This may lead clients to rethink their estate planning strategies and reassess outcomes in light of the UK Budget Summary 2024.
Individual Savings Accounts (ISA)
ISA allowances have been frozen until 2030 and remain at £20,000 a year, or £9,000 for a Junior ISA (or Child Trust Fund) and £4,000 for a Lifetime ISA. This ensures your existing tax-free savings strategy can continue unchanged, as confirmed in the UK Budget Summary 2024.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is levied on gains over the £3,000 annual exempt amount, which remains the same. Any money you make from the sale or disposal of assets above the exemption would previously have been taxed at 10% for basic rate income taxpayers or 20% for higher rate taxpayers. From 30 October 2024, these rates rose to 18% and 24% respectively. What you pay will depend on the size of the gain and your income tax rate. CGT on residential properties, such as buy-to-lets or second homes, remains the same.
Private School Fees
Private school fees will now be subject to 20% VAT from 1 January 2025 unless you made payment before 29 July 2024. This will have an impact from the January 2025 term onwards. What impact this announcement will have on the actual fees themselves will depend on how the school decides to reflect the VAT increase in the amount it charges to parents.
National Insurance Paid by Employers
From 1 April 2025, employers’ National Insurance bill will increase from 13.8% to 15% of an employee’s income above the threshold. Threshold income will also reduce from £9,100 to £5,000 per year. The result is a bigger tax bill for business owners, which could cause them to rethink their recruitment strategy or employee benefits packages, amongst other things. The UK Budget Summary 2024 confirms that National Insurance thresholds across the UK and Income Tax thresholds in England, Wales, and Northern Ireland will remain frozen until April 2028.
Income
The national minimum wage for workers aged 21 and over will increase by 6.7% from £11.44 to £12.21 an hour from 1 April 2025. Good news for workers, but again not so great for the business owners struggling with the other Budget changes. State Pensions (SP) will increase by 4.1% on 6 April 2025, rising from £221.20 to £230.25 per week. The continuation of the triple lock is likely to see the SP income rise above the Personal Allowance by 2027/28, potentially making it subject to income tax for most recipients.
Navigating the financial changes in the UK Budget Summary 2024 can feel overwhelming, especially with the potential impact on pension planning, inheritance planning, and everyday expenses. We understand that these changes might raise questions about your financial future and how best to adapt.
If you’re feeling uncertain or want guidance on planning for these adjustments, please contact us. Our team is here to offer personalised advice to help you make informed decisions and find financial stability, no matter what the future holds.
