Summary of the UK Autumn Budget 2024

The UK economy has flatlined in recent years. Since 2010, it has experienced low productivity growth, rising debt levels, and declining public service performance. In July, the government published an audit of public spending which set out £22 billion of in-year spending pressures, the vast majority of which are recurring costs.

Pressures identified by the audit are recurring costs in future years, including public sector pay settlements, health pressures, asylum and illegal immigration costs, rail passenger service and maintenance costs.

Background

The UK economy has faced unprecedented shocks, including the pandemic and Russia’s illegal invasion of Ukraine, which contributed to the largest increase in inflation in almost 50 years. Any material escalation that further disrupts energy and goods trade could contribute to higher oil prices and increased shipping costs.

Since Q2 2010, real business investment in the UK has averaged 9.6% of GDP, the lowest level in the G7.

The UK economy has many enduring strengths. It has high-quality research institutions, many innovative firms, a recognised set of strong institutions for regulation and competition, a pro-entrepreneurial environment, a highly skilled workforce, and investment opportunities across the country. Coupled with its status as a global trading nation with comparative advantage in high-value sectors across services and manufacturing.

Forecasts

• The OBR forecasts the economy to grow by 1.1% in 2024, before increasing to 2.0% and 1.8% in 2025 and 2026.
• OBR expects annual CPI inflation to remain close to the 2% target throughout the forecast period. The OBR forecasts inflation to average 2.5% in 2024, before increasing to 2.6% in 2025. It is expected to fall towards target across the final three years of the OBR forecast.
• The current budget deficit is forecast to be £55.5 billion in 2024-25. 

Key Changes

• The basic and new State Pension will increase by 4.1% in 2025-26.
• The government has committed to not increase taxes on working people, which is why it is not increasing the basic, higher or additional rates of income tax, National Insurance contributions (NICs) or VAT.
• The government will not extend the freeze to income tax and National Insurance contributions thresholds. From April 2028, these personal tax thresholds will be uprated in line with inflation.
• Pints 1p cheaper (alcohol duty).
• The government will cap the rate of Corporation Tax at 25%, the lowest in the G7.
• Increase of the rate of employer NICs by 1.2 percentage points to 15%. For small businesses, the government is increasing the Employment Allowance from £5,000 to £10,500 and removing the £100,000 threshold, expanding this to all eligible employers. This means that 865,000 employers will pay no NICs next year.
• The Budget increases the lower rate of Capital Gains Tax (CGT) from 10% to 18% and the higher rate from 20% to 24%.
• Applying inheritance tax to unspent pensions pots and restricting the generosity of agricultural property relief and business property relief for the wealthiest estates. The government is also removing the opportunity for individuals to use pensions as a vehicle for inheritance tax planning by bringing unspent pots into the scope of inheritance tax from April 2027, which will affect around 8% of estates each year 
• Replacing the non-dom tax regime with a new residence-based system.
• Increasing the Higher Rates for Additional Dwellings in Stamp Duty Land Tax on the purchases of second homes, buy-to-let residential properties, and companies purchasing residential property, from 3% to 5% from 31 October 2024.
• Charging VAT on private school fees and to remove business rates charitable relief in England.
• An additional £22.6 billion of resource spending in 2025-26, compared to 2023-24 outturn, for the Department of Health and Social Care.
• Recruitment of 6,500 new teachers in England.
• Significant efficiencies across departments, including £107 million savings in HM Revenue and Customs (HMRC) in 2025-26 through continuous improvement and more than £250 million in the Department for Work and Pensions (DWP) in savings and efficiencies in 2025-26, including through its service modernisation programme.

On Pensions 

• Preventing non-compliance from the transfer overseas of UK tax-relieved pension funds.
• Reducing tax-free overseas transfers of tax relieved UK pensions – The government will remove the exclusion from the Overseas Transfer Charge for transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) in the European Economic Area (EEA) or Gibraltar from 30 October 2024 to address the risk of individuals receiving double tax-free allowances.

On Inheritance Tax

• Include unused pension funds and death benefits payable from a pension in the value of estates from 6 April 2027.
• Reform agricultural property relief and business property relief from 6 April 2026 by maintaining 100% relief for the first £1m of combined assets and 50% relief thereafter, and 50% relief for “not listed” shares on the markets of a recognised stock exchange.
• Nil-rate band and residence nil-rate band – The inheritance tax nil-rate bands are already set at current levels until 5 April 2028 and will stay fixed at these levels for a further two years until 5 April 2030. The nil-rate band will continue at £325,000, the residence nil-rate band will continue at £175,000, and the residence nil-rate band taper will continue to start at £2 million. Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.

For British Overseas Residents

• Offshore tax compliance – The government is committed to tackling offshore non-compliance as part of the ambition to close the tax gap and is committing additional resources, including the scaling up of compliance activity to tackle serious offshore non-compliance including fraud by wealthy customers and intermediaries, corporates they control and other connected entities.
• Requirements for European Economic Area Overseas Pension Schemes – The government will bring in line the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA with OPS and ROPS established in the rest of the world from 6 April 2025.
• UK resident pension scheme administrators – The government will require scheme administrators of registered pension schemes to be UK resident from 6 April 2026.

The government will legislate to abolish the remittance basis of taxation for non-UK domiciled individuals and replace it with a simpler and internationally competitive residence-based regime, which will take effect from 6 April 2025. Individuals who opt-in to the regime will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence. From 6 April 2025 the government will introduce a new residence-based system for Inheritance Tax (IHT), ending the use of offshore trusts to shelter assets from IHT, and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.

If you’d like to chat about how the UK Autumn Budget affects your retirement plans, contact us now.