October 2024 Budget: Key Changes and Impacts Explained

The Budget at the end of October 2024 was always going to be a talking point. We have probably never seen so many clients and potential new clients panicked quite so much pre the announcements. All in all, it was, as usual, a mixed bag, but only from the perspective that some measures were not as bad as expected. That doesn’t mean that the announcements were good either though and frankly, there was not much good news.

Income Tax and Capital Gains Tax (CGT)

Whilst income tax levels are remaining the same (in effect reducing money in pocket as inflation sees prices rises), there were some Capital Gains Tax (CGT) changes, as we expected.

There will be an increase to the CGT main rates from 10% to 18% and from 20% to 24% for the lower and higher rate respectively, to be aligned with the existing rates on residential property. This measure is effective from budget day, 30 October 2024. The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate will increase from 10% to 14% from 6 April 2025 and to 18% from 6 April 2026. These changes weren’t as bad as they could have been but are significant enough to impact decisions and growth in today’s climate.

Taxation of Umbrella Company Workers

There is also a change for individuals who work under an umbrella company. To tackle the significant levels of tax avoidance and fraud in the umbrella company market, the government will make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied via umbrella companies. Where there is no agency, the responsibility will fall to the end client business. This will take effect from April 2026. The measure will protect workers from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies.

For businesses, although there are no Corporation Tax changes, there are several changes to Employer National Insurance Contributions (NICs), including:

• A drop in the threshold at which employers start to pay National Insurance from £9,100 to £5,000
• Increasing the Employer NICs (ER NICs) rate from 13.8% to 15%.
• Increasing the Employment Allowance (EA) from £5,000 to £10,500.
• Removing the Employment Allowance cap, meaning employers with ER NIC liabilities over £100,000 in the previous tax year (but which are otherwise eligible) are able to claim the full £10,500 Employment Allowance.

Although this last point is a good thing, all the others just increase the costs for employers to run their businesses and generally, where an employer’s staff costs increase, there will be a knock on impact for staff as bonuses and pay rises may not be as generous as they would have been.

Non-Domiciled Individuals and Residency-Based Taxation

Non-doms have also been hit. Broadly, from 6 April 2025, changes will be made to replace the remittance basis of taxation, which is based on domicile status, with a new tax regime based on residence.

The new regime will provide 100% relief on foreign income and gains for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in any of the ten consecutive years prior to their arrival. After four years, they will be taxed on their worldwide income and gains, including from certain trusts. This will have a major impact on non-domiciled individuals and we have already had clients decide that they will leave the UK as a result.

From an Inheritance Tax (IHT) perspective, once a UK resident for ten years, an individual’s whole estate will become subject to UK IHT on death. This will include certain settler-interested trusts. The likely impact will be that many individuals will leave the UK before the ten year period is over in order to avoid the IHT charges.

There are a raft of complicated rules surrounding this so if this may impact you, please do get in touch.

Inheritance Tax (IHT) and Pensions

There were also significant changes for IHT and pensions. It was announced that unused pension funds and death benefits payable from a pension, will be brought into a person’s estate for IHT purposes from 6 April 2027. And significantly, from 6 April 2026, agricultural and business property will continue to benefit from the 100% Inheritance Tax relief BUT only up to a limit of £1 million.

This could have a huge impact on the British economy and farming, particularly if there is no cash to pay the IHT and the business or farm has to be sold or liquidated in order to raise the funds. The limit is a combined limit for both agricultural and business property. Property in excess of the limit will benefit from a 50% relief, as will, in all circumstances, quoted shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.

By way of an example, a company that qualifies as a trade worth £40m would not pay IHT under the current rules (assuming that it held no investment assets therein); as a result of the rules, it would pay IHT of £7.8m.

In order to fund this, the executors may have to extract cash from the company, incurring income tax as a result, which would mean extracting around £14,180,000. Taking out such a large amount would probably cripple the business, resulting in a loss of tax streams for HMRC in the form of income tax, NI and corporation tax, plus a number of people becoming unemployed.

Stamp Duty Land Tax (SDLT) 

The last tax to talk about with a significant change is Stamp Duty Land Tax (SDLT). Individuals who purchase additional residential properties, such as second homes or buy-to-let properties, in England and Northern Ireland, generally pay Stamp Duty Land Tax (SDLT) at 3% above the standard SDLT rates. This rate is increased to 5% for transactions with an effective date (usually the date of completion) on or after 31 October 2024.

Implications and Next Steps From Leading Tax Specialists

Given the serious impact of many of these rules, particularly for businesses, pensions and the potential exodus of wealthy individuals, it is hoped that they prove to be temporary measures, to be reversed by a more business minded Government.

If any of the changes are going to effect you or your business, contact Gander Tax Service leading Tax Specialists in Hampshire on 01730 231054 or email hello@gandertaxservices.co.uk to discuss the options available.