4 ways the Autumn Budget could affect you

After weeks of speculation, we finally know what Labour plans for the year ahead. But what do the Autumn Budget announcements mean for you? We’ve looked beyond the headlines at four typical scenarios to bring these changes to life.

After the first Labour Budget in 14 years, we now have more certainty over what they want to do. Significant changes in Rachel Reeves’ Budget include:

• Capital gains tax increasing
• Restrictions on inheritance tax (IHT) relief for agricultural and business property
• Big increases for employer national insurance (NI) contributions
• Stamp duty land tax increases
• VAT on private school fees

But those are just the headlines. Here are four examples of how people could be affected. Please get in touch if you think any of them sound like you:

#1 Brian – the accumulator

Brian is growing his wealth. With a private pension and various assets including an investment portfolio, his focus over the next 10 years or so is maximising his salary, while ensuring his savings and investments are as tax-efficient as possible.

A recent promotion means Brian’s annual salary, including bonuses, is now over £100,000. One of his biggest concerns is how he can avoid the 60% tax trap (where you’re effectively paying 60% tax on your salary due to how your tax-free personal allowance is tapered), which we discussed in our previous blog ‘6 things you need to know about pension planning‘. With tax thresholds still frozen and wages rising due to higher inflation, more people are at risk of moving up a tax bracket. Labour is lifting the freeze (income tax bands will again rise in line with inflation) but not until 2028/29.

Brian’s other concern is paying for his children’s private school fees. From January, these are no longer exempt from VAT. If his children’s school chooses to pass the full costs on to parents, this could mean an extra £3,000 on top of the £15,000 he already pays[1].

If you’re like Brian, you might be asking: Is my pension still the most tax-efficient way of saving for retirement?
Yes. There were no changes to income-tax relief on pension schemes in the current Budget. Increasing your contributions could help reduce your tax liabilities. We might also see more employers offering salary sacrifice schemes and increasing pension contributions, to offset their now higher national insurance contributions.

#2 Jane and Simon – the recently retired couple

Jane and Simon are at the point of retirement with assets of around £2 million, including around £1 million in their pension and the rest in other assets including some shares and a second home they plan to sell.

Their biggest headache will be reforms to capital gains tax (CGT). As higher-rate taxpayers, they’re liable for the main CGT rate, which has risen to 24% (the basic rate has also gone up to 18%). The tax-free allowance has already dropped dramatically in recent years, from £12,300 to £3,000, meaning the potential tax bill if they sell something now will be a lot more than if they had decided to do it a few years ago.

If you’re in the same boat, you might be asking: What about stamp duty? Will Labour’s changes affect me?
It depends on where you live. The government is raising stamp duty land tax to 5% on second homes. However, these changes only affect England. In Scotland, for example, the levy is already higher, at 6%.

#3 Angela – the legacy planner

Angela is a little further into her retirement. She’s been drawing down her pension, giving her a comfortable income, but still has around £2 million in terms of assets. Her focus is protecting these assets so she can pass on her wealth to her two children and their families.

Angela’s biggest concern is IHT. The threshold for when this tax becomes payable (known as the nil-rate band) will stay at £325,000 until 2030, meaning it will have been unchanged for 21 years. Many others like Angela, who are classed as ‘middle Britain’ (that is, not lower income or ultra-wealthy) could find themselves coming under the scope of IHT, with a standard rate of 40% applying to what they pass on.

A further complication is that from April 2027, inherited pensions are also now included, making the process of leaving a legacy more complicated.

If you’re like Angela, you might ask: How can I limit the IHT on my legacy?
You can still reduce your IHT liabilities. A married couple, for example, can leave up to £1 million free of IHT to their direct descendants (£325,000 plus £175,000 from each parent). However, the rules are complicated, and the prospect of the nil rate band being fixed for another five years increases the importance of thorough IHT planning.

#4 Paula – the business owner

Paula runs a small family farm in rural Aberdeenshire that she inherited from her parents. She’s grown her business into a £10 million+ enterprise, with a team of 50 employees.

Paula’s biggest immediate challenge is the increase in employer NI contributions. This rises to 15%, with the earnings threshold on salaries dropping from £9,100 to £5,000 per year. Labour has raised the employment allowance for smaller businesses, doubling it from £5,000 to £10,500, but Paula is unsure if her business will qualify.

The IHT changes could also affect Paula’s succession planning. Her eventual plan is to pass her business on to the next generation. Agricultural and business properties were previously exempt. Now though, Agricultural Property Relief and Business Relief only apply to the first £1 million of the total value of these properties in an estate. Above that value, relief is restricted to 50%. Under the new rules, if Paula decides to leave the business to her family, they could end up paying an effective rate of 20%, on anything over £1 million.

If you’re a business owner, you might be wondering: What is the best option for selling?
If you have a business and were already thinking about selling, the latest changes might mean it’s a good idea to do it sooner rather than later. It might also be worth considering passing the business on outright – rather than exploring holding the assets in a trust. These are complex areas of financial planning, and you should discuss the issue with your adviser first.

Speak to us first

These are just examples of how the 2024 Autumn Budget might affect you. But, as we’ve said in our 4 reasons why the next UK budget is no reason to worry article, our overall message to our clients is still, don’t panic!

Budget time always throws up some changes to consider. Whether they’re short-term or long-term, it’s always a good idea to sit down and work through them with a trusted adviser or planner first. Together we can go through the complexities, ensure you’re making the best use of any current tax allowances, and ensure your plan is optimised for your future.

Please get in touch if you’d like to know more.

[1] According to one estimate, average school fees in the UK are more than £15,000 (although some schools charge substantially more).