On 30 October 2024, chancellor Rachel Reeves delivered her much-anticipated Budget. In it, she outlined a range of legislative changes designed to raise tax revenues and balance the public finances.
Several of these changes could affect you now and in the future, so it’s important to follow the latest developments without becoming overwhelmed by media noise.
So, here are five important Budget changes that could affect your financial plan.
1. Capital Gains Tax rates have increased
As expected by many, the chancellor announced changes to Capital Gains Tax (CGT) in the Budget.
In 2024/25, you can earn up to £3,000 in capital gains from selling or otherwise disposing of qualifying assets without paying tax. This is known as your “Annual Exempt Amount”. Any further gains would previously have been taxed at:
- 10% if you’re a basic-rate taxpayer (18% for a residential property that isn’t your main home)
- 20% if you’re a higher- or additional-rate taxpayer (24% for a residential property that isn’t your main home).
However, Reeves increased the rates of CGT with immediate effect on 30 October 2024. The change brought the CGT on all asset disposals in line with the pre-existing rates for property. This means that you could now pay:
- 18% if you’re a basic-rate taxpayer
- 24% if you’re a higher- or additional-rate taxpayer.
As a result, you may pay more tax when selling or otherwise disposing of qualifying assets.
For example, if you bought some shares outside an ISA for £5,000 and later sold them for £10,000, you’d make gains of £5,000. After applying the Annual Exempt Amount, you may then pay CGT on the remaining £2,000.
Under previous rules, this means you would pay £400 in CGT as a higher- or additional-rate taxpayer.
However, after the rates increased, you would now pay £480.
The chancellor also changed the rules around Business Asset Disposal Relief (BADR) and Investors’ Relief (IR), which offer a partial reduction in CGT when selling certain business assets or investing in unlisted trading companies.
The BADR and IR rate of CGT will remain at 10% until April 2025, when it will rise to 14%. It will increase again to 18% in April 2026.
Consequently, it may be more important than ever to find ways to potentially mitigate CGT in the future. We can support you with this.
2. There are several important changes to the Inheritance Tax regime
The chancellor announced several important changes to Inheritance Tax (IHT) that could affect your estate plan in the future.
Firstly, in 2024/25, you can pass up to £325,000 to your beneficiaries without triggering a tax charge. This is your “nil-rate band”. You may also benefit from the “residence nil-rate band” of £175,000 when passing your main home to a direct descendant such as a child or grandchild.
These nil-rate bands were previously frozen until 2028 by the Conservative party and, in the Budget, Reeves announced that she would extend the freeze until 2030.
This could be an issue because the value of your estate may increase over time. As the nil-rate bands remain frozen, more of your wealth could exceed the threshold in the future and your beneficiaries may pay more IHT as a result.
Unfortunately, the chancellor also announced changes to several important exemptions, potentially making it harder to mitigate IHT in the future.
Currently, your pensions typically fall outside your estate for IHT purposes, making them an effective estate planning tool.
However, Reeves announced that after April 2027, this would no longer be the case, and your pensions would be considered part of your estate when calculating IHT.
According to Money Week, this measure is predicted to affect around 8% of estates each year and raise £640 million in 2027/28. By 2028/29, the government could raise as much as £1.3 billion from this change.
Reeves also announced changes to Agricultural Property Relief and Business Property Relief, which potentially reduced IHT on certain farming or business assets.
We can help you explore ways to reduce IHT in the future, such as lifetime gifting or trusts.
3. The second home Stamp Duty surcharge has increased
A second home could be a useful investment for the future, or you might want to purchase a holiday home to use with your family. But after the Budget, this could be more expensive as the chancellor announced an increase in Stamp Duty on second homes.
From 31 October 2024, the Stamp Duty paid on the purchases of second homes, buy-to-let properties, and companies purchasing residential property in England and Northern Ireland will increase from 3% to 5%.
This could represent a significant difference in the cost of buying a second property. For instance, the Office for National Statistics (ONS) reports that the average UK house price in the 12 months to August 2024 was £293,000.
If you purchased a second home at this price before 31 October 2024, you would have paid £8,790 in Stamp Duty.
After the rate increased, you would now pay £14,650 Stamp Duty on the same property.
4. ISA subscription limits are frozen until 2030
There was some speculation about whether the chancellor would announce changes to streamline the ISA system, but this didn’t happen.
However, she did freeze the ISA subscription limits at their current levels until 2030.
This means that, each year, you can contribute:
- £20,000 to your ISAs
- £9,000 to a Junior ISA or Child Trust Fund
- £4,000 to a Lifetime ISA, within the overall £20,000 subscription limit for adult ISAs.
As such, ISAs remain an important tax-efficient savings tool, but savers shouldn’t expect to see an increase in the amount they can contribute for another six years.
5. The freeze on Income Tax thresholds will end in 2028
Perhaps one of the more surprising announcements was that the freeze on Income Tax thresholds would end in 2028. Previously, it had been rumoured that Reeves would extend this freeze.
In 2024/25, the Personal Allowance – the amount you can earn without paying Income Tax – is £12,570 and has been frozen at this level since 2021.
Yet, your income from work and other sources may have increased during this time. Consequently, more of your wealth could be in the taxable range, meaning you’d pay more Income Tax.
This is known as “fiscal drag” and according to the UK parliament, the freeze on Income Tax thresholds is expected to raise more than £35 billion a year for the government by 2028/29.
This is more than four times higher than the forecast for 2025/26, which was calculated in March 2021 when the freeze was first introduced.
Now that the chancellor has announced the freeze will end in 2028, fiscal drag may not affect you as much in the future and it could be easier to mitigate the Income Tax you pay.
Get in touch
If you’re concerned about how the recent Budget announcement could affect your financial plan, we can advise you.
Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, tax planning or trusts.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.