October Budget Update

As is tradition, I have sat through the Chancellor’s statement and read through the subsequent budget documents, a number of points jumped out at me which impact personal finance.  I am not commenting on the items which have been previously announced such as VAT being added to private school fees.

I am quoting directly from the Governments document in italics and my thoughts on each point are below:

Secondary Class 1 NICs (Employer NICs) – The government will increase the rate of employer NICs from 13.8% to 15% from 6 April 2025.

TKGFP Comment: This will be hugely significant for any firm with more than a handful of staff and will lead to a simple increase in costs across the board which will drive up inflation and interest rates.

The creation of a single adult wage rate and increasing the minimum wage by 6.7% to £12.21 per hour will similarly drive significant inflation and all businesses will have little option but to simply pass this on in higher costs. I expect employers will be much less willing to take on a young person versus an experienced hire which will hurt job prospects for young people.

I also feel sorry for any parents with young children trying to go back to work as nurseries will be particularly hard hit by each of these measures and will have no choice but to raise prices further. I still wince at the cost of sending our children for only a few mornings a week.

Capital Gains Tax Rates – The lower and higher main rates of Capital Gains Tax will increase to 18% and 24% respectively for disposals made on or after 30 October 2024.

TKGFP Comment: This was widely leaked before the budget and a number of clients took action to realise gains at the old rates and were wise to do so as the change is immediate. Mercifully rates were not increased to 40%. I do not think this will lead to a sea change in investment strategies and in my view, it still makes sense to try and wash out gains on an annual basis.

Inheritance tax: unused pension funds and death benefits – The government will bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027.

TKGFP Comment: This was another increase which was amongst a number of possible changes. It applies from 2027 and there are a number of strategies to work around this which I can advise you on. We will need to see the detail on how this will be applied as I expect it will apply to all pension monies and not just funds over the new Lump Sum Death Benefit Allowance.

It’s not yet clear if transfers between spouse’s will be exempt. It could create issues for non-married couples. Company death in service payouts are also treated as pension monies so this will be very detrimental for younger widows if the Government help themselves to 40% of the payout.  It would make much more sense to invoke this rule from age 65 but this does not appear to be the case.

Individuals that have not taken their Tax Free Cash sum will have several potential options to keep this sum out of the hands of the Government and careful planning will be needed.

Inheritance tax: 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.

TKGFP Comment: This is broadly a continuation of the current situation but having pension funds included without any increase in the overall tax free bands seems very unfair and for some it will be a massive tax increase. Its possible a new Government could reverse this in 5 years so best not to act precipitously!

Inheritance tax: agricultural property relief and business property relief – The government will reform these inheritance tax reliefs from 6 April 2026. In addition to existing nil-rate bands and exemptions, the current 100% rates of relief will continue for the first £1 million of combined agricultural and business property to help protect family businesses and farms. The rate of relief will be 50% thereafter, and in all circumstances for quoted shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM.

TKGFP Comment: I will need to look more closely at this aspect but my immediate thought is that this will be a hammer blow to family farms which are already under huge pressure. This also potentially makes a number of avenues for Inheritance Tax planning much less attractive. There are good reasons why small companies have preferential treatment for Inheritance Tax. On the one hand they are stating they wish to support business but I don’t see how this measure helps support and grow British companies, quite the opposite in fact as it could cut off a significant source of funding. Hopefully further clarification will be forthcoming.

Summary:

I am waiting to receive a number of detailed updates on the new rules from accountants who will be locked in a room with the Government documents for the next few days. Inevitably there will be further points which are not immediately obvious. I will send a more detailed update in the next week if this is the case.

On the surface of it, it was not as bad as I had expected so I am grateful for small mercies. Please contact me to discuss the effect on your personal circumstances.

The small print

The content of this Budget summary is intended for general information purposes only which is not intended to address your particular circumstances. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute advice.  While we believe this interpretation to be correct, it cannot be guaranteed that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this budget summary. Thresholds, percentage rates and tax legislation may change in Finance Acts and bases of, and reliefs from, taxation are subject to change and their value depends on an individual’s personal circumstances.