Autumn Budget 2024: Key Changes to Business Owners

Rachel Reeves announced the long-awaited budget for this year, and below, we have highlighted the key changes to business owners. The biggest changes are capital gains tax, inheritance tax and employers NIC.

We have summarised these below:

Capital Gains Tax

This tax is charged on profits from selling assets such as a second home or investments, including shares.

The lower rate of Capital Gains Tax will rise from 10% to 18%, and the higher rate will rise from 20% to 24%. The rates on residential property will remain at 18% and 24%.

Business Asset Disposal Relief will remain at 10% but rise to 14% from April and 18% the following year. The £1m limit is also set to stay in place.

Inheritance Tax

The inheritance tax threshold is set to freeze for a further two years until 2030.

That means the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants and £1m when a tax-free allowance is passed to a surviving spouse or civil partner.

Additionally, there will be a reform in Agricultural Property Relief and Business Property Relief.

From April 2026, the first £1m of combined business and agricultural assets will continue to attract no inheritance tax at all, but for assets over £1m, inheritance tax will apply with 50% relief at an effective rate of 20%. Also, applying a 50% relief on IHT for shares on the alternative investment market.

Inheritance Tax on Pensions

The Chancellor announced that most unspent pension funds will form part of your estate from April 2027. Whilst this is under a 12-week consultation, this can have a significant impact with a potential of 70% tax for individuals.

This means the value of your pensions when you die will be added up with your other assets to calculate whether your estate will pay IHT. If the value of your estate is above £325,000 (or £500,000 if you’re leaving your home to a direct descendant), any pension funds above that threshold will be liable for IHT at 40%.

Under the current rules, the age you die at determines whether income tax is payable on your pension, as the Government has retained these age rules when it comes to inheriting a pension, which means that there are two alternatives:

If you die under age 75, no income tax on any inherited pension after IHT has been deducted.

If you die aged 75 or over, income tax on any inherited pension at their personal tax rate (20%, 40% or 45%, for example) after IHT has been deducted.

If you're inheriting a pension subject to IHT, it will be taxed at source – meaning any beneficiaries should receive the inherited pension with IHT already taken off. The changes to IHT apply to both defined contribution and defined benefit pensions.

Taking income and inheritance tax into account could result in a significant tax cost on your estate.

This could mean that if you are inheriting high-value businesses and agricultural land, you are potentially going to need to fund the 20% tax charge but without the cash.

In summary, we strongly recommend that you receive some inheritance tax advice and/or plan to try to mitigate these costs.

National Insurance

National insurance, income tax, and VAT rates will remain the same for individuals. There is no extension of the freeze to the 2028/29 thresholds for the Income tax and NI threshold, which will be upped in line with inflation.

However, employers' NIC is rising from 13.8% to 15% and is reducing the £9,100 threshold to £5,000. To counter this, the current employers’ national insurance relief of £5,000 will increase to £10,500.

Some other key announcements were as follows:

National Minimum Wage

As announced the day before the Budget, Reeves said the National Living Wage for people aged 21 or older will rise by 6.7% from £11.44 an hour to £12.21 from next April.

Earlier this year, the Low Pay Commission recommended increasing the National Living Wage by 5.8% to £12.10, but the chancellor has gone slightly further.

In addition, the national minimum wage will rise for people between 18 and 20 years old from £8.60 to £10. Apprentices will get the biggest pay bump, increasing hourly pay from £6.40 to £7.55.

Other

• The current 75% discount to business rates for the hospitality and retail sector - due to expire in April 2025 - will be replaced by a discount of 40% - up to a maximum discount of £110k. This still means that many businesses will see their business rates nearly double (rather than quadruple).
• Stamp duty land tax is to be increased on the surcharge for second homes by 2% from 3% to 5%, coming into effect on 31 October 2024.
• As expected, the VAT on Private school fees will be introduced in January 2025. As of yet, no legislation exists to confirm which other businesses could be caught under this.
• The non-dominant tax regime has been abolished since April 2025, and a new residents-based scheme for those coming to the UK has been implemented temporarily.
• R&D rates are to stay the same as those implemented in March 2024.
• Annual investment allowance to remain at £1m per year (relief on capital expenditure for businesses)

For more advice and information, or if you're concerned about how the budget will impact your business, please call 0191 418 6920 or email admin@debere-ne.co.uk.