Autumn 2024 Budget

Following the General Election earlier this year, we were treated to the first Labour budget since 2010 and the first ever to be delivered by a female Chancellor, Rachel Reeves. It was expected to be a challenging budget for all, after the revelation of the “£22 billion black hole”. This alone indicated that there would be both tax rises and increases in borrowing coupled with some spending cuts. Admittedly, the increases were to help fund the NHS, hopefully benefiting the majority of our clients together with infrastructure projects.

Having spent the opening minutes of her first budget speech tearing the previous government’s policies to pieces, Ms Reeves announced the largest increase, that being the changes to National Insurance (NI) rates which will have far-reaching consequences on large numbers of employers with effect from 6 April 2025. Although anticipated this will impact on our clients who run GP practices more significantly than any other employer.

National Insurance

This is discussed in detail in Katie Singer’s article, but a brief synopsis is as follows. An increase in employer’s NI from 13.8% up to 15% was enough of a surprise, but the budget also reduced the point at which employers start to pay NI on employee salaries (the secondary threshold) down from £9,100pa to £5,000pa. This means that employers are more likely to have to start paying NI on those people employed on a part-time basis or who are considered low earners who previously wouldn’t have attracted NI contributions for the employer.

In addition to these changes, the budget also announced a second significant increase to the national living wage within a short time frame. This year’s increase of 6.7% follows closely on the heels of the 9.8% increase introduced last year, and this will again see more employees earning greater salaries and therefore attracting NI liabilities for the employer.

Whilst all of what has been said relates to the effect on employers of part-time or lower-paid staff, those employers may, of course, also feel obliged to increase other salaries too to maintain the gap between levels of seniority, so the effect will be felt even more.

Capital Gains Tax

Perhaps the other main talking point from the budget was in relation to Capital Gains Tax (CGT). In the lead-up to the budget, there was much talk of various CGT-type routes that the Chancellor could have taken in order to raise additional taxes, but she chose to mainly ignore them, which would certainly have pleased landlords, in particular, who were thinking that gains on the sale of residential properties were going to be taxed at increased rates. However, they will continue to be taxed at a maximum of 24%.

So, in general terms, CGT is increasing from 10% to 18% where the individual realizing the gain(s) remains a basic rate taxpayer, and from 20% to 24% where some, or all, of the gain(s) falls to be assessed at higher rates.

There is also to be an increase affecting Business Asset Disposal Relief (BADR), previously known as Entrepreneur’s Relief. Traditionally, assets disposed of under this heading have attracted a CGT liability at a reduced rate of 10% for some years, but this will increase to 14% with effect from 6 April 2025 and then again to 18% a year later.

This is particularly relevant for our GP Partner clients who own their surgery premises. If they are looking to retire and sell their share in the premises (which they would need to do within 3 years of retiring), they will be affected by this change in CGT rates. Anyone already in the process of selling a share in their practice premises really needs to think about getting the deal finalised before 5 April 2025 so that they can take advantage of the 10% CGT rate because any delays where they can't make a final agreement or the solicitors on either side are dragging their feet, then they will end up paying an extra 4% in CGT.

This also applies to clients who trade through their own Limited Company. Where these clients are liquidating a company, any capital distribution of remaining funds will also be covered by the BADR rules so, again, finalising any liquidation before 5 April 2025 will mean a saving of 4% CGT.

Stamp Duty

The budget also introduced an immediate change to the stamp duty rates when an individual purchases a second residential property. Since 1 April 2016, an additional 3% Stamp Duty Land Tax (SDLT) has been charged on top of the standard SDLT rates, but this budget has increased the additional rate to 5% with effect from 1 November 2024, so this will affect any clients who are thinking of purchasing buy-to-let properties and may deter them from doing so. There is a general fear that this may have an affect on the rental market as landlords may stick with the properties they have, rather than adding to their portfolios, but time will tell.

Corporation Tax

Turning to Corporation Tax (CT), there was considerable speculation in advance of budget day that rates would be hiked but, as it turned out, that did not prove to be the case. The standard rate of CT remains at 25%, whilst the small profit rate is still 19% and the Chancellor confirmed that those rates would be in place throughout the remainder of this Parliament.

Of course, clients who are associated with more than one Limited Company should remember that the rates mentioned are divided across the number of companies that you're directly involved with and have control of.

Inheritance Tax

And then we've got Inheritance Tax (IT). The only point of interest here concerns those with private pension funds. It was previously the case that, should you pass away before the age of 75, any funds left in a private pension could be left to beneficiaries free of tax. That is now going to be treated as taxable income for inheritance tax purposes, but that shouldn’t really impact the majority of our clients within the NHS.

The good news though is that the Lifetime Allowance (LTA) and the tax-free lump sum that people can take remain untouched, so we are still allowed to take out 25% of the old lifetime allowance limit (£1,073,100) as a tax-free payment.

Personal Allowances

As for personal allowances, the amount of income one may receive tax-free, the Chancellor confirmed that the current rates would remain in place until 6 April 2028, after which an inflationary increase will be brought in. One could cynically suggest that this will coincide with the next General Election, but that remains to be seen.

Tax rate bands and other allowances also will remain the same, continuing the fiscal drag, bringing more individuals within the tax regime.

VAT on Private Schools

The only other major item to mention and it is something that was leaked a long time ago, was the introduction of VAT charges on private school fees and that will commence in January 2025.

Finally, touching on the standard things that affect everyone after an annual budget, petrol duty will remain at the same level, bottled alcohol increases whilst draft beer sees a saving of 1p per pint. Tobacco has increased and there will be an additional tax on vapes.

Overall, not a massive budget for change, although some clients may be worried about the impact of the NI increases. For those clients, it may be an idea for them to take a look at their current monthly payroll and do a quick calculation to factor in the changes mentioned above to see what impact they have.