2024 Budget Review

Autumn 2024 Budget – Reeves goes big on National Insurance and Capital Gains Tax

The pitch had been well and truly rolled for tax increases this week and that is exactly what we got, around £40 billion of them. Rachel Reeves seemed to have painted herself into a corner by promising not to increase VAT, Corporation tax or tax on working people. However, she got round this by targeting Employers national insurance (NI) instead, arguing somewhat disingenuously that this wasn’t a tax rise on working people.
The increase in the rate at which employers pay NI will increase by 1.2% to 15% in April 2025. On top of this, the point at which employers start paying NI on salaries will be cut from £9,100 to £5,000. This is the expected to raise a whopping £25bn a year, by far the largest single element of the raft of tax rises announced.

To soften the blow to small businesses, the Employment allowance, which offers relief on Employers NI will be increased from £5,000 to £10,500. However, it is important to note that single director companies don’t currently qualify for the Employment allowance. Therefore, a typical one-man band company may end up paying around £650 more national insurance next year. If you are likely to be affected by this change, I will be in touch to discuss your options in due course.

The other big rise was in capital gain rates, with the main rate increasing by 8% to 18% and the higher rate by 4% to 24%. There was also a gradual scaling back of the generous Business Asset Disposal Relief (BADR). This will increase from the current flat rate on qualifying disposals up to £1 million from 10% to 14% in 2025 and then 18%. Surprisingly there was no changes to the tax regime around pensions, possibly Reeves was put off by  the complexity involved in making any changes in this area. The one change announced on pensions was the removal of the exemption for pension funds from the value of estates for IHT purposes.

Here’s a summary of the key points relevant to small businesses –

National Insurance Contributions (NICs)

• Increased Employer Rate: The rate of employer’s NICs will increase by 1.2 percentage points to 15% from April 2025.
• Lowered Secondary Threshold: The secondary threshold (the level at which employers start paying NICs on employee earnings) will reduce from £9,100 to £5,000 per year from April 2025.
• Increased Employment Allowance: The Employment Allowance, which offers relief on NICs for small businesses, will increase to £10,500.

Capital Gains Tax (CGT)

• Increased Rates: CGT rates are increasing. The main rate rises from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. This applies to disposals made on or after 30 October 2024.
• Business Asset Disposal Relief: The CGT rate for Business Asset Disposal Relief will increase to 14% from 6 April 2025 and then to 18% from 6 April 2026.
• No Changes for Residential Property: CGT rates for disposals of residential property remain unchanged.

Stamp Duty Land Tax (SDLT)

• Higher Rates for Additional Dwellings and Companies: The higher rates of SDLT payable on additional dwellings and by companies increase from 3% to 5% above the standard residential rates.
• Increased Rate for Companies and Non-Natural Persons: The single rate of SDLT payable by companies and non-natural persons acquiring dwellings for more than £500,000 rises from 15% to 17%.
• Effective Date: These changes apply to transactions with an effective date on or after 31 October 2024.

Other Important Changes

• Business Rates Reform: From 2026-27, permanently lower tax rates will be introduced for retail, hospitality, and leisure properties. This will be funded by a higher multiplier for the most valuable properties.
• Non-Dom Regime: Reforms to the non-dom regime will raise an estimated £12.7 billion. The planned 50% reduction for foreign income in the first year of the new regime has been scrapped.
• VAT: from 1 January 2024 all private schools will be subject to the standard rate of 20%
• Inheritance Tax: all thresholds frozen, but major changes to Business and Agricultural Property relief.