On Wednesday 30th October 2024, Rachel Reeves delivered her first budget as chancellor and the first budget from a Labour Government in 14 years.
Labour’s manifesto pledges not to increase income tax, employee’s national insurance and VAT, Chancellor Rachel Reeves instead had to raid other taxes, like capital gains tax (CGT), inheritance tax (IHT), employer’s national insurance and to extend the tax threshold freeze to find the £40bn needed to balance the books.
While the tax rises came thick and fast, the Chancellor announced there would no longer be biannual fiscal events. The Budget will now only be in the autumn, while the Spring Statement will have no tax changes.
Reeves said the tax-and-spend Budget was necessary to reverse the dire state of the public finances the Government inherited and to “fix the foundations to deliver change”.
Find out how the measures will affect you and your business.
Some of the biggest announcements covered are:
Individuals
- National living wage will rise by 6.7%; from April 2025 the national living wage will rise by 6.7% from £11.44 to £12.21 an hour for workers aged 21 and over.
- State Pension Increase; the state pension is increasing from April 2025 to £230.25 a week.
- Capital Gains Tax (CGT) Increase; Effective from 30 October 2024, CGT rates will be increased as follows; The lower rate will rise from 10% to 18%. The higher rate will increase from 20% to 24%.
- Inheritance Tax (IHT) Frozen; IHT threshold will be extended two more years to 2030. This means the nil-rate band will remain at £325,000 and residence nil-rate band will stay at £175,000.
- Working Age Benefits; Working-age benefits including universal credit, will be increased to match the September 2024 consumer price index inflation rate of 1.7%.
- Landlord/Existing homeowners will pay a higher Stamp Duty; The Higher Rates for Stamp Duty Land Tax payable by purchasers of additional dwellings and by companies, will increase from 3% to 5% from 31st October 2024.
- Fuel Duty Frozen;The 5p cut, introduced in March 2022 will be extended for a further 12 months and a planned increase in line with inflation for 2025-26 will be cancelled.
- Air Passenger Duty (APD) Changes; For 2026/27,the Government will adjust all APD rates to ensure they keep pace with inflation: £1 more for those taking domestic flights in economy class, £2 more for those flying to short-haul destinations in economy class. Long-haul economy class passengers will see a £12 increase in APD. APD for those travelling in premium economy and business class will rise relatively more.
- Increase in Carer's Allowance weekly earnings limit; to the equivalent of 16 hours of work per week at the national living wage.This represents a £45 per week increase in the amount carers can earn while still qualifying for the allowance.
- Bus Fare cap extended; The Budget also extended the single bus fare cap for another year, capping fares at £3 per journey from January 2025 (up from £2 currently).
- Reduction in Universal Credit Debt deductions; For individuals on Universal Credit, the Budget brought welcome news with a reduced cap on monthly debt deductions, lowering it from 25% to 15% of payments starting in April 2025.
- Energy Profits Levy; The Government raised the Energy Profits Levy on oil and gas companies from 35% to 38% in response to volatile global energy markets. Revenue from this levy is expected to fund energy support initiatives, helping to keep household energy costs manageable.
- VAT on Private School Fees; The Government announced that from 1 January 2025, all education services and vocational training provided by private schools in the UK for a fee will be subject to Value Added Tax (VAT) at the standard rate of 20%.
- Unused Pension Funds; From April 2027,unused pension funds will be subject to IHT. This aims to prevent individuals from using pensions to accumulate wealth and pass it on to their beneficiaries without incurring IHT
Business
- Employer National Insurance Contributions; increasing employer NICs from 13.8% to 15% from April 2025. The Secondary Threshold will drop from £9,100 to £5,000.
- Retail, hospitality, and leisure relief; Business rates relief currently offers a 75% discount, capped at £110,000 until 1 April 2025. This has been extended but also cut to 40% for the 2025/26 tax year.
- The small business multiplier freeze; The small business multiplier in England will be frozen at 49.9p for 2025/26, protecting over a million small properties from inflationary increases when combined with small business rates relief.
- Investing in growth-driving sectors; £975m over five years for the aerospace sector. Over£2bn over five years for the automotive sector, focusing on zero-emission vehicle manufacturing. Up to £520m for a new Life Sciences Innovative Manufacturing Fund. Tax reliefs providing £15bn of support over the next five years for the creative industries.
- Prompt payment practices; From 1 October 2025, the Government will exclude companies bidding for contracts worth over £5m a year from the procurement process if they don’t pay their suppliers within an average of 45 days.
- Research and Development Investment; £20.4bn allocated for R&D investment in 2025/26, including at least £6.1bn for core research. £25min 2025/26 for a new multi-year R&D Missions Programme. Real-terms increase in funding for the National Institute for Health and Care Research. At least £40m over five years to support the commercialisation of university research through spin-out proof-of-concept funding
- Reforms and long-term rate adjustment; The Budget also confirmed that the small business rates multiplier will remain frozen at 49.9p for another year, extending relief to small enterprises across the UK.
- Financial support for business investment and rates relief; critical component of the Budget was the maintenance of corporation tax rates, with the main rate capped at 25% for the duration of the Parliament. Smaller companies with profits under £50,000 will still benefit from the reduced rate of 19%.This consistency is to foster long-term planning for businesses.
If you have any questions on how any area covered affects you or your business please don't hesitate to get in touch!
