The Autumn Statement has stirred a lot of discussion since its release on the 30th of October 2024. Yet how does it affect you precisely?
In this guide, our Carlisle financial advisers examine Chancellor Reeves’ main announcements in greater detail and explain their likely impact on wealth management and household finances.
We hope these insights are helpful. Speak with a financial adviser for more information and discuss your goals and plan.
Capital gains tax (CGT)
One of the headline changes from the Autumn Statement was the immediate increase in CGT rates. Now, basic rate taxpayers will pay 18% on chargeable gains (rather than 10%), whilst higher rate taxpayers will pay 24%.
CGT rates for additional property remain unchanged. However, the stamp duty rate on buying additional properties was raised from 3% to 5%.
The CGT reform will undeniably make it harder for investors to generate tax-efficient returns in their general investment accounts (GIA). Earlier this year in April 2024, the Annual Exempt Amount (tax-free CGT allowance) also fell to £3,000 per year. So that’s a double whammy.
Together, these two changes make it even more important to plan your investments tax-efficiently. ISAs and pensions remain two powerful tools for achieving this.
In 2024-25, individuals can contribute up to £20,000 to their ISAs each tax year. Any interest, capital gains, and dividends generated inside will be tax-free.
There is no total “cap” on how much you can accumulate within ISAs. So, if you maximise your £20,000 allowance for several years, a sizeable tax-free portfolio can still be built up.
Similarly, any investment growth, interest, or dividend income generated inside pension “pots” (defined contribution pensions) are tax-free.
Pensions
Many people will be pleased to hear that their State Pension is set to rise in April 2025. The Autumn Statement confirmed a 4.1% increase for 2025-26, which is above the projected rate of inflation (2.5%). For many, this will result in a small real-terms boost in spending power.
Less encouragingly, the Autumn Statement also confirmed a plan to bring pensions into the value of individuals’ estates for inheritance tax (IHT) purposes from 2027.
Pension pots are currently exempt from IHT, making them useful for retirement and pension planning. If this benefit is removed, many will need to reexamine their IHT plans. This policy is open to consultation however, and there is no guarantee it will be implemented as announced.
This potential change is less important for those with defined benefit (or final salary) pensions. These pensions cannot be passed down to beneficiaries like pension pots when the member dies (although their spouse may receive a smaller ongoing income).
Please note that married couples and civil partners can still leave their pension pots to their surviving spouse or civil partner without IHT when they die.
Employment
The Autumn Statement contained two key changes that will have big implications for many business owners.
The first is the planned increase in the Living Wage to £12.21 in April 2025, i.e. a 6.7% rise. Whilst many workers will welcome this change, it also represents a rise in costs for many businesses (e.g. pubs and other hospitality businesses employing younger people starting out in their careers).
Secondly, the budget also confirmed a 1.2% rise in the Employer National Insurance (NI) rate, taking it up to 15%. This will apply to an employee with earnings over £5,000.
Smaller businesses will avoid much of the “sting” from this tax rise however due to the planned rise in the employment allowance to £10,500 per year.
However, there is little doubt that many businesses will see their costs rise from the combined effect of these two changes. Some will choose to absorb some of them, but many will likely pass the cost down to consumers (higher prices) or workers (less recruitment and/or pay rises).
The result could be downward pressure on UK economic growth and possibly upward pressure on inflation. This might partly explain why many lenders have raised interest rates for mortgage products in recent weeks despite the Bank of England’s 0.25% cut in the base rate.
Inheritance tax
We touched on this above, noting the plan to bring pensions into individuals’ estates for IHT purposes in 2027. However, the Autumn Statement also contained other key measures.
Firstly, the current freeze on the IHT-free threshold (the nil rate band) will be extended by two more years. Until 2030, it will remain at £325,000.
Secondly, IHT relief will be capped at £1m for agricultural and business assets from April 2026. For assets over this threshold, a 20% effective rate will apply i.e a 50% reduction on the normal IHT rate of 40%.
Similarly, 20% IHT will be charged on AIM (alternative investment market) investments. Previously, AIM shares were exempt from IHT upon the owner’s death provided they had been held for two years prior to the date of death.
This will make estate planning more challenging in the years ahead. However, there are still many options available to help mitigate a needless IHT bill. Plenty of planning opportunities remain.
Three ideas include using gifts (e.g. the £3,000 Annual Exemption), using a life insurance policy written in a suitable trust, and making investments expected to qualify for business relief. To explore your options, speak with a financial adviser.
We hope this information was useful. Please get in touch to discuss your financial goals and situation with a member of our team here in Cumbria.
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.