Autumn Budget commentary 2024.

The Chancellor of the Exchequer, Rachel Reeves, has today delivered the first Labour Budget in 14 years.

Capital Gains

As always, there was much speculation about potential announcements circulating in the press in the lead up to the Budget. It was therefore no surprise when it was announced that Capital Gains Tax (CGT) rates will increase – however, instead of aligning CGT with income tax (as was widely rumoured), the increase will align with residential property, which is charged at 18% for basic rate taxpayers and 24% for higher rate taxpayers. This increase will be taking place from today, 30 October 2024.

Income Tax

Income Tax band thresholds will continue to be frozen until April 2028, which was put in place by the previous government, and will then start to increase in line with inflation from the 2028/29 tax year.  At this point, it will prevent more people being dragged into higher rate tax bands as wages or pension income increases.

Pensions

The State Pension Triple Lock will remain for the duration of this parliament. The basic and new State Pension will increase by 4.1% in 2025/26, in line with earnings growth, meaning over 12 million pensioners will receive up to an extra £470 per year.

Inheritance Tax

Current Inheritance Tax (IHT) thresholds will remain at their present levels until 2030.  From 6 April 2027, Pensions will form part of an individual’s estate for Inheritance Tax purposes. This is under consultation and further details will be released in due course.

ISAs

ISAs were also rumoured to be subject to change, such as a lifetime cap being introduced or a reduction in the annual allowance. However, it has been confirmed that Individual Savings Accounts (ISAs) will remain unchanged until at least 2030. The current rates are:

• ISA – £20,000
• Junior ISA – £9,000
• Lifetime ISA – £4,000 (excluding government bonus)
• Child Trust Fund – £9,000.

With recent reductions in the annual capital gains tax exemption, as well as the newly announced increases to capital gains tax rates, making the most of your annual ISA allowance is now more important than ever.

In March 2024, Jeremy Hunt introduced the concept of a new ‘UK ISA’ but this will no longer be going ahead.

As a reminder, the tax rates and thresholds for the 2024/25 tax year in England, Wales and Northern Ireland are:

Income, capital gains and savings taxes

*your Personal Allowance may be greater than £12,570 if you claim Marriage Allowance or you are eligible for the Blind Person’s Allowance.  It can also be reduced for high earners (earning more than £100,000) and is zero if your income is £125,140 or above.

Dividend tax allowance

You only have to pay tax if your dividends exceed the dividend tax allowance of £500 in the tax year.

The tax you pay depends on your income band – please note, you must add your dividend income to any other taxable income to determine the rate of tax you will pay.

Capital Gains Tax (CGT)

The Annual Exempt Amount for capital gains tax is £3,000.

From 30 October 2024, CGT will align with residential property, meaning CGT will be paid at 18% if the chargeable gain fell within an individual’s basic rate band. Any gain that is above an individual’s basic rate band will be charged at 24%.

Personal savings allowance

This was first introduced in 2016 and applies to savings income such as interest on savings accounts, gilts or corporate bonds.  The allowance remains at £1,000 for basic rate taxpayers and £500 for higher rate tax payers.

2024/25 Income tax rates for Scotland

*As with the rest of the UK, those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.