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Take time to understand budget implications, to make the most of opportunities

30/10/2024

Paula Arnold, Senior Associate in the Estate Planning and Tax team at Bournemouth-based law firm, Steele Raymond, sets out her reaction to the Chancellor, Rachel Reeves’ Budget:

“As the dust settles, time will now need to be spent considering its potential impact. Rachel Reeves’ speech is just the tip of the iceberg, the devil will be in the detail and time will now be spent digesting the budget papers. Taking the time to understand the budget can help clarify its actual implications, rather than replying on headlines or soundbites.

“The budget, positioned as a response to ongoing economic challenges, introduces significant adjustments to taxation, particularly in relation to Inheritance Tax, Capital Gains Tax, Income Tax and National Insurance, with a full review of corporate taxes to follow next year.”

Inheritance Tax (IHT)

One of the most debated aspects of the budget has been the proposed changes to IHT.   Historically, IHT has been a contentious issue, arguably penalising families who have worked hard to build wealth.

The budget has extended the freeze of the Nil Rate Band, Residence Nil Rate Band, and the Transferable rates until 2030.

The Chancellor confirmed that inherited pensions would be drawn into an individual’s estate from April 2027.  Although this may cause concern for some, this is one of the announcements where further details are yet to be confirmed.  Changes are also to be made to the availability of APR and BPR, and again further detail is awaited.

Furthermore, the Chancellor confirmed there would be an introduction of a 50% relief on all AIM shares.

Capital Gains Tax (CGT)

Alongside IHT, CGT is also facing significant changes – targeting individuals and businesses that profit from the sale of assets and shares.

The Chancellor confirmed the following changes to the rates of CGT:

– increasing the lower rate of CGT from 10% to 18%

– increasing the higher rate of CGT from 20% to 24%

Rachel Reeves also stated that Carried Interest rates will be increased, up to 32%, from April 2025, with new ‘simpler, fairer’ rules being created in April 2026.

No increase to National Insurance, VAT or Income Tax

As announced in the Labour manifesto, the Chancellor confirmed the promise that no changes would be made to National Insurance, Income Tax or VAT, would be kept – these taxes were explicitly not increased.

In a small ‘win’ for the working population, it was announced that there would not be an extension of the freeze to Income Tax thresholds beyond 2028/29, at which point the personal Income Tax threshold will be uprated in line with inflation.

Domicile Status

As was expected, today’s announcement confirmed the abolition of the domicile status within the tax regime, by April 2025. This will be replaced by a new residence-based scheme, closing the ‘loophole’ currently in place.

Freeze on Fuel Duty

The Chancellor confirmed she would keep the current freeze to fuel duty rates for the next year.

Employers’ NI Contribution

For employers there would be an increase to employers’ National Insurance contribution by 1.2%, up to 15%, taking effect from April 2025. It was also confirmed that there would be a reduction in the secondary threshold from £9,100 to £5,000.

Air Passenger Duty

An increase to air passenger duty was announced, but Rachel Reeves highlighted that this would be by no more than £2 for short-haul flights. The biggest change would come with regard to private jets, where duty will rise by a further 50%.

Tobacco Duty

The Chancellor confirmed there would be an increase by 10% on hand-rolling tobacco, a flat rate duty to vape liquid, and a one-off increase to the tobacco duty generally.

Alcohol Tax

The Chancellor confirmed that there would be an increase by RPI for those drinks not on draught. For those on draught, the duty would be cut by 1.7%.

Stamp Duty Land Tax

The government will increase the surcharge for second homes, by 2% (up to 5%) coming into effect from tomorrow (31 October 2024).

VAT on Private Schools

As was expected, the Chancellor confirmed that there would be the introduction of VAT on Private School fees, with the removal of their business rates relief from April 2025.

Paula concluded: “In the age of social media, it is easy to react quickly to news about budget changes. However, hasty decisions can lead to misunderstandings.  Taking time to understand the budget can help clarify its actual implications rather than relying on headlines or soundbites.

“By rushing to respond, individuals and businesses might miss out on opportunities for support or adjustment that could arise from the new budget.  Taking the time to digest and understand budget changes allows for informed decision-making.”

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