At Cleveden Park Wealth, we are committed to providing you with insightful information that enhances your financial prospects. In our latest newsletter, we explore the crucial updates from the October 2024 Budget, which could profoundly influence your financial planning strategies.
Here's a breakdown of the key highlights:
Capital Gains Tax (CGT)
Announcement: Starting October 30, 2024, CGT rates will increase to 18% for lower rate taxpayers and 24% for higher rate taxpayers, aligning residential property rates with these new figures.
Impact: This change adjusts the lower CGT rates from 10% and the higher from 20%, aiming to harmonise tax rates across property types.
Planning Opportunities: Consider revisiting past tax returns to adjust carried forward losses. Explore tax deferral options like Enterprise Investment Schemes (EIS), or consider asset gifting to reduce CGT liabilities. Utilising investment vehicles like unit trusts may provide tax deferral benefits, and reassessing investment holdings in personal or family investment companies might be prudent due to the narrowing gap between corporate and capital gains tax rates.
Inheritance Tax (IHT)
Announcement: Starting in 2027, pensions will be subject to IHT, and the current IHT threshold of £325,000 is extended until April 2030.
Impact: Pensions, which were previously excluded from IHT calculations, will now be considered, potentially complicating estate planning, especially for those who pass away before age 75. The extension of the IHT threshold freeze, amidst inflation and asset value increases, will likely push more estates over the IHT taxable limit.
Planning Opportunities: Withdrawing tax-free lump sums to use or gift during one's lifetime could mitigate future IHT liabilities. Consider gifting to family members and surviving seven years post-gift to avoid IHT on those transfers.
ISAs
Announcement: The British ISA will not be introduced following mixed feedback. Current ISA subscription limits—£20,000 for ISAs, £4,000 for Lifetime ISAs, and £9,000 for Junior ISAs and Child Trust Funds—will remain unchanged until April 2030.
Impact: Keeping ISA allowances static will lessen their utility in long-term financial planning as costs and inflation rise.
Planning Opportunities: Continue to maximise contributions to ISAs as primary tax-efficient savings accounts. Consider alternative investment strategies as the benefits of ISAs diminish in real terms over time.
Income Tax Bands Remain Frozen
Announcement: Income tax bands will stay frozen until April 2028, after which they will rise with inflation, aligning with Labour's commitment to protect working people. Current tax rates will continue.
Impact: The ongoing freeze, which began in 2021, will lead more individuals into higher tax brackets due to fiscal drag, increasing their tax burden as incomes rise with inflation.
Planning Opportunities: Consider making pension contributions or charitable donations to potentially extend your basic rate tax band, which could lower your total tax liability and possibly enhance eligibility for certain benefits like child benefit.
VAT on Private School Fees
Announcement: A 20% VAT will be applied to private school fees starting from 1 January 2025.
Impact: This will lead to an increase in annual fees by £2,130 for day pupils and £7,100 for boarders, based on 2023 averages from the Independent Schools Council.
Planning Opportunities: Consider leveraging tax-efficient savings options like Junior ISAs and ISAs. Early planning can combine state and private education provisions effectively. Grandparents and other family members can also contribute through regular, exempt gifting within IHT allowances, helping to manage increased costs.
Business Asset Disposal Relief (BADR) and Investors Relief (IR)
Announcement: Tax rates for BADR and IR will increase to 14% in April 2025 and to 18% in April 2026. The lifetime limit for investors relief will decrease from £10 million to £1 million from 30 October 2024, while the £1 million limit for BADR remains unchanged.
Impact: Sellers will face increased tax burdens, with potential tax increases of £40,000 by April 2025 and £80,000 by April 2026 for disposals of £1 million. Those with gains over £1 million will be taxed at standard CGT rates for the excess.
Planning Opportunities: Couples may share allowances by transferring shares, potentially reducing tax liabilities. Accelerating sales before rate hikes and considering relocation for tax advantages might also be beneficial.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)
Announcement: Both EIS and VCT schemes are extended to at least 2035.
Impact: This extension provides long-term stability for start-ups seeking funding and investors looking for tax-efficient investment opportunities.
Planning Opportunity: Investors can confidently continue or begin participating in these schemes. Given the potential tax reliefs offsetting rising tax environments, seeking professional investment advice is highly recommended due to the associated risks with these investment types.
Reform to Business Relief (BR) and Agricultural Property Relief (APR)
Announcement: From April 2026, full relief from IHT on BR and APR-qualifying assets will be limited to the first £1 million per individual, with a 50% relief rate (effective tax rate of 20%) applied to amounts above this. Non-listed investments, including those on AIM, will also see a shift to 50% relief.
Impact: Business owners, farmers, or AIM share holders might face new IHT liabilities, potentially seeing a significant rise in IHT bills.
Planning Opportunities: Individuals might consider insurance to manage potential IHT liabilities or establishing trusts to maximise tax relief. Succession planning could include transferring shares into trusts to leverage current unlimited relief before changes take effect.
Stamp Duty Land Tax (SDLT)
Announcement: SDLT rates for additional dwellings, including second homes and buy-to-let properties, will rise from 3% to 5% starting 31 October 2024. For corporate purchases over £500,000, rates will increase from 15% to 17%.
Impact: The increase aims to better position first-time buyers against investors in the property market. Contracts exchanged before the rate change will not be affected.
Planning Opportunity: Consider investing in property through Real Estate Investment Trusts (REITs) which could offer property exposure with lower initial costs.
Increase to Employers’ National Insurance (NI)
Announcement: Employers' Class 1 NICs will increase from 13.8% to 15% effective from 6 April 2025. The employment allowance is also raised from £5,000 to £10,500.
Impact: This increase will see employers starting to pay NICs on earnings above £5,000, up from the current threshold of £9,100, potentially costing employers an additional £615 annually for each employee earning over £9,100. To mitigate the burden, the raised employment allowance will exempt 865,000 businesses from paying any NI next year, with a further million paying the same or less than before.
Planning Opportunities: Businesses may find salary sacrifice schemes more appealing, as they offer tax and NI savings. Companies could expedite payments before the new rates apply. Those operating through Family Investment Companies (FICs) or Personal Investment Companies (PICs) might reassess the balance between salary and dividends.
Increase to the National Minimum Wage
Announcement: Starting April 2025, the minimum wage will rise to £12.21 per hour for those over 21, £10 for 18- to 20-year-olds, and £7.55 for those under 18 and apprentices.
Impact: The wage increase may strain businesses financially, possibly leading to workforce reductions, hiring freezes, or higher consumer prices due to the compounded effect of increased employer National Insurance contributions.
Planning Opportunity: Individuals should maximise any matched contributions from their workplace pensions to enhance their long-term financial stability.
UK Non-Dom Tax Status Abolished and Replaced with New Regime
Announcement: Starting 6 April 2025, the current remittance basis for non-domiciled UK residents will be abolished. A new tax regime will apply, offering a tax holiday for the first four years for eligible individuals on foreign income or gains, and Overseas Workday Relief eligibility will depend on the 4-year foreign income and gains regime. A new residence-based system for inheritance tax (IHT) will also be introduced.
Impact: Non-doms will need to pay UK tax on overseas income and gains if they arrived in the UK before 6 April 2022. The transition introduces a simpler but shorter tax relief period for foreign income and gains, with significant changes affecting how non-UK assets are taxed in terms of IHT.
Planning Opportunities: Potential UK residents should seek advice to understand the tax implications of the changes. Current non-doms should consider planning strategies to take advantage of transitional arrangements and explore insurance solutions to mitigate potential IHT liabilities.
Transitional Arrangements for Existing Non-Doms
Announcement: Changes have been made to the transitional arrangements for non-doms, effective from 6 April 2025. Those losing access to the remittance basis will not receive a tax rate reduction previously proposed, and will be able to rebase capital assets to 5 April 2017 levels for sales post this date. A new flat tax rate of 12% will apply to remitted foreign income and gains predating 6 April 2025 for two years, increasing to 15% in the third year. Settlor interested trusts will see changes in taxation depending on the settlor's ability to utilise the new four-year regime.
Impact: This restructuring provides significant but temporary benefits, offering potential tax relief on foreign income and gains. Long-term UK residents will see an increase in exposure to UK IHT.
Planning Opportunities: Non-doms should consider utilising the temporary repatriation facility for tax-efficient transfer of foreign income. Early rebasing of assets and strategic remittances during the specified tax years can optimise tax liabilities. Individuals should seek professional advice to navigate these complex changes effectively.
Please note: Some provisions such as changes to stamp duty and income tax bands are not applicable in Scotland
Conclusion
The latest budget announcement brings several significant changes that could impact various aspects of the economy and personal finances. From tax adjustments and wage increases to strategic investments in healthcare and infrastructure, understanding these changes is crucial for effective financial planning.
Should you have any questions or need further clarification on how these changes might impact your personal financial situation, please do not hesitate to reach out. Our team is here to assist you with personalised advice tailored to your unique circumstances.
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