Autumn Budget summary 2024

The Chancellor confirmed, that Income Tax and employee National Insurance (NI) thresholds will remain at the current levels until April 2028, and thereafter increase in line with inflation. This will push more taxpayers into higher tax bands over the next three years (a concept known as ‘fiscal drag’).

That process will be exacerbated this year by the increase in the National Minimum Wage (NMW), which will bring more low earners into the Income Tax net. Had the personal allowance increased by inflation, and the NMW stayed the same, low earners would only have had to pay Income Tax if they were working more than 20.7 hours per week, but today’s announcements mean that people working just 19.8 hours per week will be caught by Income Tax.

Labour announced it will increase the CGT rate applied to carried interest to 32% (currently 28%), with effect from 6 April 2025. From April 2026, carried interest will then be subject to Income Tax, although there will be “bespoke rules to reflect its unique circumstances”. 

This announcement hasn’t come as much of a surprise, given that Labour had announced it would look to close the tax loopholes around carried interest. Labour will need to balance carefully how this change impacts the private equity sector, to ensure the UK remains competitive.

Possibly the worst-kept secret, Labour has increased the main rates of CGT, with immediate effect (from 30 October 2024).  The lower rate will rise from 10% to 18% and the higher rate from 20% to 24%, bringing these in line with the current rates that apply on the sale of residential property.   In terms of CGT rates, this will move the UK from around average into the top third in Europe.

The Chancellor also announced that the lifetime limit for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will remain at £1 million.  These reliefs generally reduce the CGT payable on selling an unincorporated business or shares in an unquoted trading company.  The tax rate applied to BADR and IR assets will increase gradually, remaining at 10% up until 5 April 2025, rising to 14% from 6 April 2025, and then to 18% in April 2026.  

Neither of these is without consequence. The UK has effectively become a less attractive place to live and do business, with many already starting to relocate and possibly putting expansion plans on hold. The Government will need to watch this, and the resultant impact on economic growth.

The Government has also announced a reform to BR and APR.  Currently, assets that qualify for BR or APR can obtain full relief from Inheritance Tax (IHT) at 100%, with no upper limit.  However, from April 2026, this will be restricted so that only the first £1 million of combined agricultural and business property will qualify for relief at 100%, any value in excess of this will only obtain relief at 50% (effectively reducing the main IHT rate from 40% to 20%). This could have a significant impact on businesses, particularly family businesses, with some families having to sell business assets to fund a tax bill.

In addition, the rate of BR that applies to AIM shares will be reduced from 100% to 50% from April 2026, without the £1 million full exemption.

The taxation of pension death benefits has long felt overly generous with tax relief on contributions, tax-free investment growth and funds able to be passed on tax-free at death.

It is therefore of little surprise pensions will now form part of the estate for IHT purposes from April 2027. Initial announcements also confirm that IHT and Income Tax could be payable for death after the age of 75. This could create an effective 67% tax charge on pension death benefits. As ever, the devil is in the details and any changes to legacy plans must be thoroughly considered before taking action.

There were rumours that tax-free cash limits could be reduced or removed, and annual limits on contributions could also be reduced. There was no mention of any of these changes in the Budget, so tax-free cash limits should stay at £268,275 for those without protections. The standard Annual Allowance remains at £60,000 per annum for most, with a minimum of £10,000 for high-earners.

Labour will keep the triple lock on pensions and will increase the state pension by the highest of inflation, average earnings or 2.5%.

More will now feel the stealthy creep of IHT under the Government’s plans to extend the freeze on the NRBs and RNRBs for a further two years up until 2030. People are already experiencing an increase in the value of their homes, and other assets meaning more will be dragged into paying tax on their wealth. The freeze means that proper estate planning is now more important than ever before.

The Chancellor confirmed the abolition of the non-dom regime from 6 April 2025, replacing it with a new residency-based scheme said to be simpler and with reliefs for ‘temporary visitors’. 

From 6 April 2025, all UK residents will be taxed on the arising basis, i.e. the taxation of their non-UK income and gains will be the same as the usual UK treatment.  However a new Foreign Income and Gains (FIG) regime will be available to give individuals a tax exemption for their non-UK income and gains for their first four years of UK tax residence (so long as they have not been UK resident in any of the previous 10 years).

The proposed Temporary Repatriation Facility (TRF), available for those who have previously claimed the Remittance Basis, has survived, and even been extended to cover three years and expanded to include offshore structures.  The tax rate for funds brought into the UK under the TRF will be 12% in the first 2 years, increasing to 15% in 2027/28.  However, the proposed 50% reduction in foreign income subject to tax in the first year of the new regime has been scrapped.

The existing Overseas Workday Relief (OWR) concept will be incorporated into the new regime, and extended to four years, albeit with an overall limit on the benefit.  Further details are in the Global Mobility section below.

For CGT purposes, remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 (changed from the proposed date of April 2019) on disposal where certain conditions are met, so only increases in value from that date will be taxed.

For IHT purposes, from 6 April 2025 an individual’s IHT status will no longer be determined by their domicile status and will, as with income tax, be replaced with a residency-based test to determine whether an individual is a long-term resident for IHT purposes.  Non-UK assets held by individuals who have been resident in the UK for at least 10 of the previous 20 years will be within the scope of IHT.  The IHT treatment of non-UK assets held in a trust will depend on the settlor’s residence at the time of charge, rather than their status when the asset was put into trust.

For those who have been resident for more than 10 years but then become non-resident, there will be a tail of between 3 and 10 years during which they will continue to have an IHT exposure on their worldwide assets, with the length of this tail depending on how long they were resident in the UK.  Once an individual has had 10 consecutive years of non-residence, the test will essentially be reset. 

UK assets will continue to be subject to IHT as currently.

For individuals who already own a dwelling and are purchasing another dwelling in England or Northern Ireland (other than a main residence replacement), the higher rates for additional dwellings will increase from 3% to 5% above the standard residential rates will come into effect on or after 31 October.

For corporate bodies including non-natural persons, the flat rate for a purchase of a dwelling costing more than £500,000 in England or Northern Ireland will increase from 15% to 17% from 31 October unless relief applies, in which case the above rates for purchases of additional dwellings by individuals will apply.

Where contracts were exchanged prior to 31 October but only complete or are substantially performed on or after that date, the previous rates may apply subject to meeting certain conditions.

No changes to SDLT are being made on commercial properties.

The UK’s National Minimum Wage (NMW) and National Living Wage (NLW) will increase from 1 April 2025. For those aged 21 and over a 6.7% increase from £11.44 per hour to £12.21 per hour, meaning an individual working 40 hours a week will now be earning around £25,500 per annum.

For those aged 18 to 20 a 16% increase from £8.60 per hour to £10 per hour, meaning an individual working 40 hours a week will be earning around £21,000 per annum.

For qualifying apprentices an 18% increase from £6.40 per hour to £7.55 per hour, meaning an individual working 40 hours a week will be earning around £16,000 per annum.

These changes mean employers will have higher employment costs, particularly as this will also increase pensionable pay.

For example, if an employer has 100 people paid at £11.44 currently, they will see an annual increase of c. £190,000 to their employment costs before any potential increase to employer National Insurance Contributions (NIC) are factored in.

Employers will need to revisit salary sacrifice eligibility thresholds to make sure all employees participating in pension, car, holiday and/or cycle to work arrangements can participate without falling below the relevant NMW rate. This can be extremely complex when looking “beyond” what lies within the payroll and considering worker categorisation interactions too.

Employers will need to review reward strategy and structure – are pay differentials still capable of being maintained from grade to grade or for geographical reasons? What other non-cash rewards could be offered?

There were lots of rumours pre-Budget as to whether NIC would go up generally or be added to pension contributions. The final decision was a general increase in employer NIC from April 2025. This increase will be 1.2 percentage points, meaning it will rise from 13.8% to 15%, with the Secondary Threshold on employee earnings upon which employer NIC starts being paid reduced from £9,100 to £5,000.

Although this is a more straightforward change than adding employer NIC to employer pension contributions, it does still come with a cost pressure on businesses, particularly when coupled with increases to the NMW.

This will increase NIC costs for the employer by £926 where they are paying an employee £35,000 a year from April 2025.

Digging into the details, there are some easements for employers to be aware of:

• The Government will reduce the Secondary Threshold to £5,000 a year from the current amount of £9,100 between 6 April 2025 and 6 April 2028. From April 2028, it will be increased by Consumer Price Index (CPI) thereafter.  
• The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NIC bills. The Government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NICs bills from 6 April 2025. This will mean all employers will benefit, even those that are large.

The discounted rate for electric company cars, which currently will rise by one percentage point per year until 2027/28 across all tax bands, will be maintained. The rates will be:

• 2% for 2024/25
• 3% for 2025/26
• 4% for 2026/27
• 5% for 2027/28

From April 2028, the electric company car rate will increase from 5% to 7% and then to 9% in 2029/30. Although more than four years away, it’s important businesses and individuals are aware so that they can plan effectively to manage costs, particularly when utilising a salary sacrifice arrangement.

Whilst it might not be suitable for everyone, this protection does help ensure there is consistency which is important when selecting a vehicle for a period of time.

Separately, alongside electric car BIK rates increasing by one percentage point between 2025/26 and 2027/28, hybrid vehicles will continue to do this too. From April 2028, this will then be 18% for all hybrid company cars regardless of electric mileage range, and 19% from April 2029. 

Additionally, Employee Car Ownership Schemes are going to undergo a specific review. This will be important for the automotive sector to be mindful of, as well as any other companies that may operate these arrangements. 

The Budget announced today has reaffirmed the Government’s commitment to mandating the payrolling of all benefits (other than beneficial loans and accommodation) from the tax year 2026/27 onwards. Therefore, it will be important for employers to begin to assess their capacity to payroll benefits and build a project plan in which to begin enacting this. It is not straightforward and it is recommended businesses plan carefully.

Focussing on compliance remains high on the Government’s agenda. Rachel Reeves announced Labour would appoint a Covid Corruption minister.  In addition, there will be a focus on modernising HMRC and recruiting more personnel. Businesses therefore need to be proactive in managing their compliance. It may be helpful to undertake reviews of historic compliance, particularly where HMRC has not visited the business in the last few years.  

The late payment interest rate on unpaid tax will also be increased by 1.5 percentage points from April 2025 to help raise funds for the Exchequer.

There was nothing announced in the Chancellors Budget around specific share incentive plans. However there are a few other announcements which have a knock-on effect.

The increase in CGT rates will mean a slight worsening of the tax saving by using a tax-advantaged share option plan such as an Enterprise Management Incentive (EMI) or Company Share Option Plan (CSOP), or as a result of buying shares directly in your employing company or group. However, being taxed on a one-off gain at 18% or 24% is still a great alternative to being taxed at income tax rates – 20%/40%/45% plus National Insurance of 8% or 2%, and employers’ National Insurance increased from 13.8% to 15% from 6 April 2025. 

The concession to allow BADR to be used in conjunction with EMI options remains, which is a welcome relief, however the benefit erodes slightly when the rate increases to 14% in April 2025 and then 18% in April 2026.

The change in employers NIC will result in an increase for unsuspecting businesses that operate non-tax advantaged share plans. This should perhaps be a trigger to consider whether there is a more tax efficient route to providing that employee incentive while still meeting commercial aims.

It is, however, disappointing that they haven’t used this opportunity to update some of the existing tax-advantaged schemes – increasing thresholds and strengthening the all-employee share plans – especially given the call for evidence on all-employee share plans which closed over 12 months ago.

Finally, we should mention the increase in CGT rates on carried interest to 32% and future proposal to charge such reward to income tax. This could potentially make us uncompetitive compared to other countries when considering a traditional Private Equity type structure, meaning that alternative incentive structures might be more favourable.

Employee share plans are often a step towards employee ownership, providing greater engagement and financial resilience.

Forvis Mazars responded to a consultation into the operation of Employee Ownership Trusts (EOT's) which closed just over a year ago. The response, along with changes operational from 30 October 2024, were announced in today's Budget. 

An EOT is a specific type of employee benefit trust, set up to control a company. The beneficiaries of the EOT are employees of the company, making the company employee owned.  A shareholder selling their shares into an EOT, can qualify for 0% capital gains tax, provided the conditions are met – making it a very attractive proposition for any owners wishing to transfer their company into employee ownership.

The use of EOTs was quite wide ranging and there were a few loopholes that HMRC perceived were being exploited. The changes act to close those loopholes, including strengthening the provisions so that the “previous” owner cannot retain control over the EOT, requiring the EOT to be resident in the UK and not offshore, ensuring not more than market value is paid for the shares and extending the “claw-back” provisions for capital gains tax, should the company stop being controlled by the EOT in the future. 

There are certainly some commercial situations this will catch, as well as the perceived tax avoidance that it is meant to catch. It will result in some additional capital gains tax for business owners who sell into an EOT and then on to a third party in a relatively short timescale – but not beyond what they would have paid anyway had they sold direct to a third party.

So, the message is absolutely - EOT’s should still be considered as a possible option for disposals depending on the circumstances.

The Chancellor confirmed that VAT will be introduced on private school education for terms starting on or after 1 January 2025 with VAT due at 20% on charges for both education and boarding services.  Anti-forestalling measures apply to ensure that VAT is charged on any prepayments that relate to terms starting on or after 1 January 2025.

There will be VAT recovery available for local authorities and devolved Governments which fund places for students with special educational needs that can only be met through a private school. Minor changes were announced to the rules initially proposed, including amendments to definitions and limited carve-outs. However, the overarching decision to apply VAT to private school and boarding fees, and the timeline for implementation, remain unchanged.

The FIG scheme will include a provision equivalent to Overseas Workdays Relief (OWR). Where a taxpayer qualifies for the FIG scheme and makes a FIG election, the portion of their employment income related to their overseas workdays will be exempt from UK income tax for the first four tax years they are tax resident in the UK. This applies regardless of the amount of the employee’s earnings that they remit to the UK.

However, this OWR will be limited to the lower of £300,000 or 30% of the employee’s net employment income.

The new rules remove the need for complicated remittance and bank account structuring requirements. It could also reduce professional fees for employers who have globally mobile employees.

However, the limit on OWR may increase tax equalisation costs for higher paid employees

Freezing income tax thresholds until 5 April 2028 could lead to higher costs for employers who tax equalise their globally mobile employees’ earnings. 

The changes to employer NIC places greater emphasis on structuring the length of employees’ assignments to and from countries with lower social security rates to mitigate this impact.

Planning should be considered to mitigate the impact of CGT increases, including the timing of when assets are sold. Care is also required where these employees dispose of shares that have not been fully subject to UK income tax as this could give rise to CGT liability, and the foreign taxes available for credit against that liability may be less than the tax payable.

The announcement that VAT will be implemented on fees for independent day and boarding schools in the UK from January 2025 could lead to higher costs for employers, who tax equalise their globally mobile employees’ earnings.

Following a Court of Appeal judgement, the Government will treat Double Cab Pick-Up Vehicles (DCPUs) with a payload of one tonne or more as cars for certain tax purposes. From 1 April 2025 for Corporation Tax, and 6 April 2025 for Income Tax, DCPUs will be treated as cars for the purposes of capital allowances, BIK, and some deductions from business profits. The existing capital allowances treatment will apply to those who purchase DCPUs before April 2025.

The Government will extend for a further year the 100% First Year Allowances (FYA) for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle charge points, to 31 March 2026 for corporation tax purposes and 5 April 2026 for Income Tax purposes.

The Government will explore extending full expensing to assets bought for leasing or hiring when fiscal conditions allow. 

The Government will launch a consultation in Spring 2025 to review the effectiveness of Land Remediation Relief, to consider whether the relief is still meeting its objectives and is good value for money.

A consultation will be launched in the coming months that explores the tax treatment of predevelopment costs.

The UK Government plans to secure record levels of investment in R&D, with a budget being provided to the Department of Science, Innovation and Technology (DSIT) of £13.9 billion earmarked for 2025-26. This includes substantial allocations, such as at least £6.1 billion for core research programs, and £2.7 billion for association with EU research programmes and partnerships and the costs of the Horizon Europe guarantee scheme.

To foster productive partnerships, the Government will look to scrap short funding cycles in favour of ten-year budgets for key R&D activities. This approach aims to create stability and encourage private sector collaboration. Additionally, Innovation Accelerators in regions like Glasgow, Manchester, and the West Midlands are receiving extended funding, further driving local R&D clusters.

Several sector specific initiatives were announced which included:

• Life sciences: Over £2 billion in funding for the National Institute for Health and Care Research, supporting advancements in life sciences and medical technology, aligned with national health and economic goals. In addition, to build resilience for future health emergencies and capitalise on UK life sciences R&D strengths, the Government will provide a further £70 million in 2025-26 for the new life sciences Innovative Manufacturing Fund, as part of a longer-term funding commitment of up to £520 million.
• Fusion energy and nuclear: Research in sustainable nuclear energy, particularly fusion technology, receives dedicated support, emphasizing the UK's commitment to be a global leader in sustainable nuclear energy and green energy innovations.
• Automotive and Aerospace: The Government is investing over £2 billion to support automotive sector R&D, especially in zero-emission vehicles, alongside £975 million over five years for the aerospace sector.

An R&D Missions Program will shortly be launched aiming to address targeted challenges with a £25 million investment in 2025-26. This initiative will seek to attract private sector funding, focusing on solving strategic national and sectoral problems.

The Budget also targeted university research, particularly looking at supporting commercialised university research and small businesses. The Chancellor confirmed that at least £40 million over five years will be allocated to aid researchers in transforming university-based innovations into viable businesses.

In addition to direct funding, the Government has also included R&D and Patent Box within its corporate tax roadmap, committing to the following:

• Maintaining the rates for the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs.
• Enhancing the administration of R&D reliefs by establishing the R&D expert advisory panel, continuing to improve signposting and guidance on R&D reliefs, and launching an R&D disclosure facility by the end of 2024. In addition, the Government has committed to discussing widening the use of advance clearances in R&D reliefs with stakeholders, with the intention to consult on lead options in spring 2025. This latter facility will be very helpful if implemented.
• Confirming a consultation on widening the use of advance clearances in the R&D reliefs Patent Box and intangible assets regimes.
• Maintaining the Patent Box regime.
• Preserving the UK’s competitive regime for intangible fixed assets improving R&D tax reliefs and expanding advance clearance options to streamline administrative processes.

The Budget documentation included a retrospective amendment (applying from 1 April 2023) in relation to the definition of R&D intensive, where HMRC have confirmed that Research & Development (R&D) expenditure qualifying for R&D expenditure credit (RDEC) will contribute to the calculation of the R&D intensity condition.

HMRC continue to tackle non-compliance within the UK R&D tax regimes to ensure the regimes provide value for money, and those legitimate claimants continue to benefit. However, the Government have acknowledged the impact of the increased scrutiny on R&D claims and are therefore looking to discuss widening the use of advanced clearances in R&D reliefs with stakeholders, with the intention to consult on lead options in spring 2025. The Government have also committed to respond to stakeholder feedback and improving administration to ensure the R&D reliefs continue to support the UKs most innovative businesses.