Yesterday marked the first Labour Government Budget in 14 years, and over the past few weeks, there has been widespread speculation about potential changes. Here’s a breakdown of the key updates from the Budget:
Investments
Pensions
Rumours about changes to tax-free cash, pension tax relief, and the lifetime allowance appear to be unfounded. However, the government has announced it will bring unspent pension pots into the inheritance tax (IHT) scope starting April 2027. This adjustment aims to restore the principle that pensions should not be an inheritance tool, a shift from the pension freedoms introduced in 2015.
The Government has opened a consultation on the processes required to implement the changes and we will contact you when we are in receipt of more detailed information on this.
Capital Gains Tax (CGT)
While the CGT threshold remains unchanged, tax rates will increase. Starting October 30, 2024:
- The lower rate will rise from 10% to 18%.
- The higher rate will increase from 20% to 24%.
Tax on property (i.e. buy to let) remains unchanged.
Investors’ Relief Lifetime Limit and Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) will remain at 10% this year before rising to 14% on 6 April 2025 and 18% from 6 April 2026-27. The lifetime limit of BADR will be maintained at £1 million, while the lifetime limit of Investors’ Relief will be reduced from £10 million to £1 million.
Second Homes
The Additional Dwelling Stamp Duty Land Tax (SDLT) rate will increase from 3% to 5% starting October 31, 2024.
Inheritance Tax (IHT)
IHT nil-rate bands will remain at current levels until April 5, 2030:
- Nil-rate band: £325,000
- Residence nil-rate band: £175,000 (with taper starting at £2 million). This allows qualifying estates to pass on up to £500,000 tax-free, while married or civil partner estates can pass up to £1 million.
Business Property Relief
Relief for business property will drop to 50% for shares not listed on recognised stock exchanges like AIM, resulting in an effective rate of inheritance tax on this investment of 20%.
Starting Rate for Savings
The Starting Rate for Savings will remain at £5,000 for 2025-26, allowing individuals with employment or pension income under £17,570 to receive up to £5,000 of savings income tax-free.
ISAs
There are no changes to the current subscription limits and rumours of a cap on accumulated ISA savings has not materialised either. These are: -
£20,000 for ISA’s
£4,000 for Lifetime ISA’s (included in the £20,000 ISA subscription limit)
£9,000 for Junior ISA’s
Plans for the British ISA have been shelved following mixed feedback from the consultation process launched in March 2024.
VCT/EIS
These schemes are being extended until 2035.
Individuals
National Insurance and Income Tax
The current National Insurance and Income Tax rates for individuals have not changed. However, RPI will adjust thresholds from 2028.
Private Schools
VAT will apply to private school fees from 2025, and business rate relief for private schools will be removed.
Non-UK Domiciled Individuals
From April 6, 2025, the government will replace the remittance basis of taxation with a new residence-based system. Non-domiciled individuals opting in will not pay UK tax on foreign income and gains for the first four years of UK residence. Additionally, new rules will end the use of offshore trusts for IHT sheltering and cancel the planned 50% reduction on foreign income tax in the first year.
Companies
Employer’s National Insurance
From April 2025, the employer’s NI will rise from 13.8% to 15.0%, and the secondary threshold will reduce to £5,000.
Corporation Tax
Corporation tax remains capped at 25%.
Limited Liability Partnerships (LLPs) Liquidation
Changes to tax rules on LLP liquidations will impact capital gains when LLP assets are transferred to a contributing member or connected person, aiming to prevent tax avoidance. This change will take effect on October 30, 2024.
Close Company Loans to Shareholders
The government will also remove opportunities for shareholders to extract untaxed funds from closed companies through loans to participators to close a tax loophole. This change will begin on October 30, 2024.
View from Milne Standen
While some changes to pensions may be less favourable, pensions remain an effective tool for tax planning, allowing for tax-efficient contributions and growth. Adjustments to CGT were anticipated, and we’re well-prepared to manage these in the most beneficial way for you.
Overall, we feel this budget turned out more positively than expected. The changes announced yesterday are still going through a period of consultation and analysis by the industry, and a member of Milne Standen Financial Planning Team will discuss any relevant updates during your annual review, but please don’t hesitate to reach out if you’d like to chat sooner. We’re here to ensure your financial plans remain on track!
General disclaimer: We sourced the data from external sources. While we aim for maximum accuracy, we are not responsible for the data they provide. The introduction is written from the author’s perspective and reflects their views. This may not represent those of Milne Standen Financial Planning. Anyone considering a product or service based on this blog should seek advice or conduct their research before deciding. The author is not liable for decisions made based on this blog. Investments can go down and up. The return at the end of the investment period is not guaranteed; you may get back less than you originally invested.
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