Introduction
Today’s Autumn Budget was the first delivered by the Labour Government in nearly 15 years.
There has been a huge amount of speculation for weeks around the range of possible measures that might be introduced to address a funding shortfall estimated to be as much as £40 billion once the Government’s own plans to reinvigorate the economy are taken into account.
The Chancellor of the Exchequer focussed on the core principles of fiscal stability and investment, noting however that a significant amount of additional tax revenue was absolutely necessary.
As a result of today’s Budget the largest burden will fall on employers as the rate of employer’s national insurance contributions increased from 13.8% to 15% but, just as importantly, the threshold was lowered. This means a minimum additional cost of £615 for every worker earning £9,100 or more. For an employee earning £30,000, the additional NIC cost is £866.
This will be a heavy burden especially as the National Minimum Wage is also set to increase to £12.21 (from £11.44) in April 2025. The Government clearly wants the economy to grow but the additional labour costs will undoubtedly make businesses think very carefully about investment decisions.
Respecting Labour’s pre-election pledge not to increase the tax burden on “working people” most of the other significant tax rises were targeted at capital gains tax and inheritance tax. The capital gains tax rises were however much more modest than some had expected and, by themselves, might not have had a big impact on behaviour.
However, the inheritance tax changes are significant for those impacted. The restriction on business property relief and agricultural property relief for example will mean that estates with assets qualifying for these reliefs will now face a 20% IHT bill (on value over £1 million).
How this IHT can be funded without selling some or all of the business/farm will be a challenge for many estates. These changes will likely drive a number of business transactions as business owners adapt to the new landscape.
Some other changes of note are:
- The Government released a Roadmap for corporation tax which sets out a number of areas (the tax rate, capital allowances, R&D relief) that should not change and some matters that might change, such as updating the application of transfer pricing. The stability that this Roadmap provides will be welcomed by businesses
- As expected, the “non-dom” regime has been abolished but with some changes to the proposals put forward by the previous Conservative Government. In particular, foreign income and gains in trusts (wherever established) will be taxed on a UK resident settlor. There are a number of other changes, some favourable, some not, the impact of which will very much depend on the individual’s circumstances
- On property taxes the changes were again modest but the Chancellor has increased stamp duty land tax on additional properties but kept the CGT rates on residential property the same.
We have set out more detail below on tax changes that will affect individuals and businesses.
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Personal taxes
In advance of today’s Budget there was significant speculation that key announcements would be made affecting capital taxes which are of particular interest to individuals – inheritance tax [IHT] and capital gains tax [CGT].
The new provisions announced included increases to the rates of CGT and material restrictions to the availability of agricultural property relief [APR] and business property relief [BPR]. While the increase to the rate of CGT is effective immediately, the restrictions on APR/BPR do not take effect until 6 April 2026.
This will allow individuals to consider undertaking appropriate planning in advance of the new APR/BPR regime. However, it should be noted there are anti-forestalling measures in place.
The changes in relation to the taxation of non-domiciled individuals which take effect from 6 April 2025 were previously announced in March 2024. However, further detail in relation to the new regime has now been made available.
Inheritance Tax (IHT)
APR/BPR
Under the current IHT regime, relief of up to 100% is available on qualifying business and agricultural assets. With effect from 6 April 2026, the 100% rate relief will continue to apply to the first £1 million of combined value for agricultural and business assets. The rate of relief will be 50% for value above the threshold meaning that an effective IHT tax rate of 20% will apply from 6 April 2026 to the value of these assets above £1 million.
The rate of BPR available to shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, will be reduced from 100% to 50% in all circumstances. This change also takes effect on 6 April 2026.
The new IHT rules will apply for lifetime transfers (such as a transfer to trust) after 30 October 2024 if the donor dies on or after 6 April 2026 and within 7 years of the lifetime transfer.
The trustees of certain trusts are liable to an IHT charge of up to 6% of the value of the trust property every ten years. There will be a £1 million allowance for trustees on each ten-year anniversary and exit charge. For new trusts created after 30 October 2024 this allowance may be shared between all trusts created by the same settlor.
The restriction on the reliefs is likely to mean that individuals who are business owners will be considering succession planning at a much earlier time than currently.
Pensions
From 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for IHT purposes. It is proposed that the pension scheme administrator will become liable for reporting and paying the IHT. The Government has announced a consultation on the implementation of these changes and draft legislation will be published at a later date.
Thresholds
The current nil rate band is £325,000 and residence nil rate band is £175,000. The Conservative government had frozen these thresholds until 5 April 2028. Labour have now announced they will be frozen at the current levels until 5 April 2030.
Territorial Scope
IHT is currently a domicile based system. A new residence based regime for IHT will be introduced from 6 April 2025. The test for whether non-UK situs assets are within the scope for UK IHT is likely to be whether an individual has been resident in the UK for at least 10 out of the last 20 years immediately preceding the tax year in which the chargeable IHT event occurs. For those that were previously non-domiciled in the UK this will be a significant change.
UK situs assets will remain within the charge to UK IHT on the same basis as present, regardless of residence status.
Capital Gains Tax (CGT)
Rates of Tax
The main rates of CGT that apply to assets other than residential property and carried interest will increase from 10% and 20% to 18% and 24% respectively for disposals made on or after 30 October 2024.
The main rate of CGT that applies to trustees and personal representatives will increase from 20% to 24% for disposals made on or after 30 October 2024.
The rates of CGT that apply to residential property disposals (18% and 24%) will remain unchanged.
Business Asset Disposal Relief (BADR)
Under the current regime, a £1 million BADR allowance is available so that the first £1 million of gains are taxed at 10%. For disposals on or after 6 April 2025 the rate will increase to 14% and from 6 April 2026 the rate will be further increased to 18%.
Investors Relief (IR)
IR provides for a lower rate of CGT to be paid on the disposal of ordinary shares in an unlisted trading company where certain criteria are met subject to a lifetime limit of £10 million.
The lifetime limit is reduced from £10 million to £1 million for disposals made on or after 30 October 2024.
The CGT rate will also increase in line with the BADR provisions i.e. 10% to 14% on 6 April 2025 and 18% on 6 April 2026.
Carried Interest
There will be an increase in the rate of capital gains tax on carried interest from 28% to a flat rate of 32%. This change will take effect from April 2025. The Budget policy document also indicates that from April 2026, carried interest will be taxed fully within the Income Tax framework. However, there will be “bespoke rules” to reflect “its unique characteristics.” No further detail has been provided at this time.
Taxation of Non-Domiciled Individuals
A key Labour tax policy in recent years has been to abolish the “non-dom” tax regime. The Conservatives announced in the Spring Budget that, with effect from 6 April 2025, the existing non-dom regime will be replaced with a new relief on foreign income and gains [FIG]. The concept of domicile as a connecting factor for the UK tax system is to be replaced by a system based on tax residence.
The Chancellor has now provided further detail on the new regime and has published draft legislation. We have summarised the main changes below:
- To qualify for relief under the new regime the individual must not have been UK tax resident in any of the previous ten years prior to becoming UK resident
- The new regime allows FIG arising in the first four years of residence to be remitted to the UK with no additional UK taxes
- Individuals who on 6 April 2025 have been tax resident in the UK for less than four years (after ten years of non-UK tax residence) will be able to use the new regime for the remainder of those four years
- From 6 April 2025, individuals who have been previously taxed on the remittance basis will be able to elect to pay tax at a reduced rate on remittances of pre-6 April 2025 FIG under a new Temporary Repatriation Facility [TRF] that will be available for tax years 2025-26, 2026-27 and 2027-28 only. The reduced rate is 12% for the first two tax years and rises to 15% in 2027-28. The TRF will also be available for qualifying UK resident settlors or individuals who receive a benefit from an offshore trust structure during these three tax years
- From 6 April 2025, an individual who is not, or who later ceases to be, eligible for the new four-year FIG regime will be taxed on foreign gains in the same way as a UK resident individual
- Under transitional arrangements, individuals who have claimed the remittance basis will, on disposal of an asset held at 5 April 2017, be able to elect for UK CGT purposes to rebase that asset to its value as at that date.
From 6 April 2025, the protection from UK taxation on income and gains arising within trust structures (whenever established) will be removed for all current non-domiciled and deemed domiciled individuals who do not qualify for the new four year FIG regime. FIG arising in non-resident trust structures from 6 April 2025 will be taxed on the settlor (if they have been UK resident for more than four years) on an arising basis and where the settlor has an interest in the trust. FIG which arose in a trust structure before 6 April 2025 will be taxed on settlors or beneficiaries if they are matched to worldwide trust distributions after this date.
Income Tax
Income tax and National Insurance thresholds are currently frozen until 5 April 2028. It was announced today that from 6 April 2028 the thresholds will increase in line with inflation.
The Government will increase the late payment interest rate charged by HMRC on unpaid tax liabilities by 1.5% with effect from 6 April 2025. The current rate of interest is 7.5% per annum.
Employment taxes
Whilst the Chancellor arguably maintained the Government’s manifesto pledge not to increase the taxes on “working people”, the much anticipated rise in Employer National Insurance Contributions (NIC), accomplished through an increase in the rate and a significant reduction in the earnings threshold at which employers start paying NIC, was higher than predicted.
Taken together with the rises announced in relation to the National Minimum Wage (NMW), the increased employer costs may inevitably affect businesses’ ability to hire, raise salaries and ultimately increase consumer prices as employers seek to recoup these additional costs.
Changes to Employer NIC and Employment Allowance
The Government’s main income generating measure announced in this budget is the increase to the rate of Employer NICs for employers, which will rise 1.2 percentage points to 15% when the new tax year begins in April 2025. In addition, the threshold at which businesses start paying NIC on a worker’s earnings will be lowered from £9,100 to £5,000. Whilst employers will have time to budget for the increases announced today, the majority of businesses will face an unavoidable increase in their PAYE costs.
However, in a measure that may mitigate some of this increase and provide some much needed relief to smaller businesses, the Government also announced they will increase the Employment Allowance from £5,000 to £10,500 and remove the restriction that currently means only employers who have incurred an Employer NICs liability of less than £100,000 in the tax year are able to claim.
Whilst the announcements on the Employment Allowance could potentially boost recruitment for smaller businesses who make up the majority of employers in the UK it may negatively impact growth, hiring and productivity for many others.
As businesses seek to address these costs, the proposed changes could make salary sacrifice schemes more attractive to employers but it could also make them rethink their recruitment polices and further increase the incentive for businesses to switch to contracting with the self-employed with the associated risk of ensuring employment status is assessed correctly on the engagement to prevent a later challenge by HMRC.
National Minimum Wage (NMW)
In addition to the rises in Employers’ NIC, businesses will also have to contend with an increase to the minimum wage. From April 2025 the National Living Wage (NLW) will increase by 6.7%, to £12.21 per hour, for employees aged 21 and over. This represents an annual £1,400 pay rise for a full-time worker on the minimum wage. For employees aged 18-20 years old, the NLW will increase to £10 per hour and for apprentices, to £7.55 per hour.
The Government’s commitment to ensuring work is well paid and fulfilling is to be welcomed, but some employers may struggle to accommodate these increases in the current challenging economic climate.
Taxation of company cars/vans
The Government has announced company car tax rates for tax years 2028/29 and 2029/30. Appropriate percentages for zero emission and electric vehicles will increase by 2 percentage points per year in 2028/29 and 2029/30, rising to 9% in tax year 2029 to 2030. Cars with emissions of 1g to 50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in tax year 2028/29 and 19% in tax year 2029/30. Appropriate percentages for all other vehicle bands will increase by 1 percentage point per year in these tax years. This will be to a maximum appropriate percentage of 38% for tax year 2028/29 and 39% for tax year 2029/30.
This measure will provide long term certainty on company car tax rates including continued incentives to support the take-up of zero emission and electric vehicles. Rates for electric vehicles will increase gradually, while maintaining a significant differential between electric vehicles and internal combustion engine vehicles.
Mandatory reporting of BIKs in payroll
The Government confirmed today, as first announced in January 2024, that the use of payroll software to report and pay tax on benefits in kind will become mandatory (in phases) from April 2026.
In most cases, this will remove the end of year P11D form reporting process. This measure does not change tax liabilities. It will be mandatory to payroll all benefits in kind, except for employment related loans and accommodation.
Payrolling for these two benefits will be introduced on a voluntary basis from April 2026 and the Government will set out the next steps on when they will be mandated in due course.
Umbrella companies
The Government will introduce legislation in a future Finance Bill to make recruitment agencies responsible for accounting for PAYE on payments made to workers that are supplied using umbrella companies.
HMRC data shows that £500 million was lost to disguised remuneration tax avoidance schemes in 2022 to 2023, almost all of which was facilitated by umbrella companies. These schemes can leave taxpayers with substantial tax bills. In order to protect temporary workers from large, unexpected tax bills, the agency that supplies the worker to the end client will be legally responsible for operating PAYE on the worker’s pay.
If there is no agency involved in the supply of the umbrella company worker, this responsibility will fall to the end client business. This will take effect from April 2026. Draft legislation to implement this measure is expected to be published in due course.
Business taxes
The Autumn Budget 2024 contained limited new announcements in respect of UK corporation tax. Rather, it is the Chancellor’s announcements to other taxes that will likely capture immediate attention. However, the Government has acknowledged that the business community requires stability and certainty.
Therefore, alongside the Budget, the Government published a Corporate Tax Roadmap setting out the Government’s plans on Corporation Tax, including commitments to key features of the system and highlights several areas where the Government will be exploring change to ensure the tax system remains dynamic and up-to-date.
Corporation Tax Roadmap - major commitments
- Rate and marginal relief at their current rates and thresholds
- Capital Allowances - maintaining permanent full expensing (and continuing to explore an extension of same to assets that are bought for leasing or hiring), the £1 million Annual Investment Allowance, and Structures and Building Allowance
- R&D reliefs - maintaining the rates for the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs and confirming a consultation on widening the use of advance clearances in the R&D reliefs
- Maintaining the current Patent Box and intangible assets regimes
- Maintaining an Audio-Visual Expenditure Credit and a Video Game Expenditure Credit
- Publishing an update in the spring on how the Government will take forward its ambitions on modernising the technology the corporate tax system relies on.
The Government has also highlighted a number of areas where they will actively investigate change, and have committed to the following consultations that will allow businesses to influence future changes including:
- Consultation on tax treatment of predevelopment costs
- Consultation on reforms to the UK’s rules on transfer pricing, permanent establishments, and Diverted Profits Tax – including the potential removal of UK-to-UK transfer pricing
- Potentially lowering the thresholds for exemption from transfer pricing and introducing a requirement for multinationals to report cross-border related party transactions to HMRC
- Consultation on a new process that will give investors in major projects increased advance certainty
- Consultation on widening the use of advanced clearances in the R&D relief.
Further matters in relation to corporation tax referenced in the Autumn Budget 2024 are summarised below.
Pillar 2 related measures
The UK introduced the Multinational Top-up Tax and Domestic Top-up Tax in Finance (No.2) Act 2023. These taxes are the UK’s adoption of the Pillar 2 Global Anti-Base Erosion rules. These taxes will mainly take effect for accounting periods beginning on or after 31 December 2024, although some amendments will have effect from 31 December 2023. The Government announced it will introduce legislation to make additional amendments to MTT and DTT to include:
- The introduction of the transitional country by country reporting safe harbour anti-arbitrage rule, which took effect from 14 March 2024. Draft legislation for this rule was published for consultation at July Statement 2024. Minor changes have been made reflecting responses received
- The introduction of the undertaxed profits rule (UTPR), which is the UK’s adoption of the third and final Pillar 2 rule
- The repeal the ORIP rules as they are no longer required due to the introduction of the Pillar 2 rules which more effectively address the multinational tax-planning arrangements that offshore receipts in respect of intangible property sought to counter. The repeal will take place alongside the introduction of Pillar 2’s UTPR from 31 December 2024.
Close company shareholders
Legislation will be introduced to prevent avoidance of the section 455 Corporation Tax Act 2010 (Loans to Participators) charge, through the use of arrangements aimed at avoiding existing legislation meant to prevent untaxed extractions of company funds by their shareholders. As part of this measure, Targeted Anti-Avoidance Rule (TAAR) within the loans to participators regime will be brought into line with other TAARs.
From 30 October 2024, where the TAAR applies (i.e., where companies and their shareholders are attempting to avoid the s455 charge on any extractions), s455 tax will be payable whether or not there has apparently been a repayment, or a repayment is subsequently made.
Changes to tax rules on liquidations of Limited Liability Partnerships (LLPs)
Currently assets held by a Limited Liability Partnership are treated as if held by its members in a normal partnership. Consequently, no chargeable gains accrue when a member contributes an asset to the Limited Liability Partnership.
Legislation will be introduced with effect from 30 October 2024 which will deem that a disposal arises when a Limited Liability Partnership is liquidated and assets a member has contributed are disposed of to the member, or to a company or other person connected to them. The tax liability will arise on the chargeable gains made at the time the asset was contributed to the LLP.
Property taxes
From a property perspective the Chancellor’s message was clear, “get Britain building again”. That message was well received with shares in housebuilders rising as the Budget was delivered. Acknowledging that building houses is vital to long-term economic growth, the Chancellor set out a series of new investments to promote the housing market and deliver the biggest increase to social and affordable housing in a generation. This includes:
- A £500 million boost to the Affordable Homes Programme to build up to 5,000 additional affordable homes
- Reducing discounts on the Right to Buy scheme and enabling councils in England to keep all the receipts generated by sales to reinvest
- £3 billion of additional support for SMEs and the Build to Rent sector
- A commitment to improving building safety and accelerating remediation of unsafe cladding with investment to rise to over £1 billion in 2025-26.
Further property related matters were announced as follows.
Stamp duty land tax (“SDLT”)
The Government will introduce legislation in Finance Bill 2024-25 to increase the higher rates of Stamp Duty Land Tax (“SDLT”), payable by purchasers of additional dwellings and by companies, from 3% to 5% above the standard residential rates. The Government will also increase the single rate of SDLT payable by companies and non-natural persons acquiring dwellings for more than £500,000, from 15% to 17%.
The changes will apply to transactions with an effective date on or after 31 October 2024. Where contracts are exchanged prior to 31 October 2024 but complete or are substantially performed on or after that date, transitional rules may apply.
Business rates
The Chancellor recognised that many businesses have expressed concern that the current business rates system disincentivises investment. Having acknowledged that change is needed, the Chancellor announced the following first steps to reform the business rates system for England:
- An intention to introduce permanently lower multipliers for retail, hospitality and leisure (“RHL”) properties with a rateable value (“RV”) under £500,000 (to be funded via a higher multiplier on properties with RV of £500,000 and above)
- Providing support for RHL properties in the interim period leading up to the new permanent multiplier by providing 40% relief to RHL businesses on their business rates in 2025-26, up to a cash cap of £110,000 per business
- Protecting the smallest properties by freezing the small business multiplier in 2025-26 and protecting over one million properties from inflationary bill increases
- Remove eligibility of private schools for charitable rate relief from 1 April 2025 (as previously announced in July 2024).
Recognising that the system cannot be transformed overnight, the Government will aim to make further improvements over this Parliament, inviting those interested parties to engage by registering their interest or providing written representations.
It is important to note that business rates are devolved to the Northern Ireland Executive and no changes have currently been announced to the Northern Ireland regime. Calls are expected to be made to the Executive to provide similar rates relief for businesses.
Furnished holiday lets
As previously announced at the July Statement 2024, the Government will introduce legislation in Finance Bill 2024-25 to remove the Furnished Holiday Lettings regime with such income and gains forming part of a person’s UK or overseas property business. These measures will take effect from 6 April 2025 for Income Tax purposes and 1 April 2025 for Corporation Tax.
Capital gains tax on property
As covered in detail elsewhere, there will be no changes made to the 18% and 24% rates of Capital Gains Tax that currently apply to residential property gains.
Indirect taxes
As expected, the Budget was relatively quiet from an Indirect Tax perspective. The Chancellor stuck with her pre-election commitment not to increase VAT rates and pressed ahead with much trailed changes to VAT for private schools. Announcements also included the usual list of changes to various duty rates and some updates on consultations, including the UK Carbon Border Adjustment Mechanism.
The main Indirect Tax and Duties announcements were as follows:
VAT on private school fees
Although there had been a range of well publicised objections to this change, the Chancellor is delivering on her commitment to remove the VAT exemption for private school fees with effect from 1 January 2025, and any suggestion of the change being delayed to the beginning of the next academic year has fallen away.
The headline change is that all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools. The Government has published a response to its technical consultation on this policy and those affected should consider the detail as they determine the impact of the changes.
It is notable that some of the objections have been acknowledged, specifically in relation to pupils with special educational needs and children of diplomatic staff and serving military personnel. In response to these challenges, local authorities and devolved governments that fund places for pupils with special educational needs that can only be met in a private school will be compensated for the VAT they are charged on those pupils’ fees. In addition, increased funding will be provided for the Continuity of Education Allowance for diplomatic staff and serving military personnel.
Schools and those working with schools, or using school facilities, should consider the implications of these changes and take necessary steps to manage their impact.
VAT treatment of private hire vehicles
The responses to the recent consultation on the VAT treatment of private hire vehicles are being considered, along with the Uber Britannia Ltd Court of Appeal judgment, and the Government will respond to the consultation in due course.
Electronic invoicing
Following the announcement on 23 September that the Government would consult on e-invoicing, the Government will publish a consultation in early 2025 to explore this area and how it can establish standards, increase adoption of e-invoicing and support business in this regard.
Carbon Border Adjustment Mechanism (CBAM)
The Government response to the consultation on the introduction of a UK CBAM was published as part of the Budget, where it was confirmed that a UK CBAM will be introduced on 1 January 2027. It will place a carbon price on goods that are at risk of carbon leakage which are imported into the UK from the aluminium, cement, fertiliser, hydrogen, iron and steel sectors.
Two headline changes from the consultation are (i) products in the glass and ceramics sectors will not be in scope (to enable time to address feasibility concerns) and (ii) the registration threshold will be set at £50,000 rather than the initial proposal of £10,000.
The UK CBAM is intended to ensure that UK decarbonisation efforts lead to a reduction in global emissions, rather than simply displacing carbon emissions overseas.
Duty rates
A number of changes were announced to various duty rates as follows:
- Fuel duty: The freeze on fuel duty will apply to 2025/26 and the temporary 5 pence cut which was due to end in March 2025, has been extended for another year to 22 March 2026
- Alcohol duty: The alcohol duty on draught products (below 8.5% ABV) will be cut from February 2025, reducing it by one penny per average strength pint, with the non-draught rates of alcohol duty increasing in line with RPI
- Soft Drinks Industry Levy: This is to be increased to maintain incentives for soft drinks manufacturers to reduce their sugar content. Increases over the next 5 years will reflect the 27% CPI inflation between 2018 and 2024
- Tobacco Duty: The Tobacco Duty escalator of RPI + 2% will be renewed for the remainder of this Parliament and the duty on hand-rolling tobacco will increase by a further 10% this year. There will also be a one-off increase in Tobacco Duty when the Vaping Products Duty is introduced, to maintain the financial incentive to switch from tobacco to vaping
- Vaping Products Duty: As announced in the Spring Budget, this is being introduced from 1 October 2026. This will apply at a flat rate of £2.20 per 10ml vaping liquid
- Air Passenger Duty (APD): It has been acknowledged that the APD rates have fallen behind inflation, with private jets being relatively undertaxed. Therefore, APD rates will be adjusted, which will equate to £1 more for domestic flights in economy class, £2 more for those flying to short-haul destinations in economy class and the higher rate for larger private jets will rise by a further 50%. The Government will consult on extending this rate to all private jets within the APD regime
- Vehicle Excise Duty: The differential in Vehicle Excise Duty first year rates between electric vehicles and hybrids or internal combustion engine cars is increasing to help drive the transition to electric vehicles. The standard Vehicle Excise Duty for cars, vans and motorcycles will increase in line with the RPI from 1 April 2025.
Get in touch
If you have any queries on the UK Autumn Budget and its impact for your business, please get in touch with Johnny Hanna or Mathew Scott.
We’d be delighted to hear from you.
Johnny Hanna
Partner-in-charge
KPMG in Northern Ireland
Mathew Scott
Partner
KPMG in Northern Ireland
