The Autumn Budget 2024 was a historic event for a variety of reasons – the first to be given by a female Chancellor, the first from a Labour government for 14 years and, as it turned out, a Budget that is set to raise the UK tax take to a historic high. The Government's stated mission to improve living standards and drive investment in public services requires cash, and new rules on public borrowing for investment were always going to need to sit alongside increased tax revenues to facilitate this. The only question was where those tax revenues would come from, particularly given the Government's self-imposed red lines around increasing tax on working people (however that term might be defined).
As it turned out, the main revenue-raising measure announced was the increase in employer national insurance contributions from 13.8% to 15% from April 2025, along with a reduction in the threshold at which contributions are payable. The tax raised from this measure dwarfs what is raised from any other change, with annual revenues topping £25m by the end of the parliament, but will doubtless cause debate about whether the indirect impact on jobs and employees is in the spirit of the Government's manifesto commitments. However, the impact of this change was somewhat sweetened by the announcement that the freeze on tax thresholds introduced by the previous Government (and designed to increase tax revenues through the "fiscal drag" effect) would not continue beyond 2028/9, and the lack of change in the area of pensions tax, where all speculation on changes to the tax-free lump sum and the imposition of NIC on employer contributions came to nothing.
Other changes were numerous, but more incremental in the amount of tax that they are projected to raise. As expected, the Government confirmed that it will continue with its stated policies of levying VAT on private school fees, replacing the "non-dom" regime and reforming the tax treatment of carried interest.
In relation to non-doms, the move to a new residence-based system of taxing foreign income and gains from April 2025 was confirmed, with only a limited relaxation of the rules to allow for lower rates of tax for income and gains repatriated to the UK in the tax years 2025/6 to 2027/8. The residence-based rules will also apply in relation to inheritance tax, with no grandfathering protection for non-UK assets settled into trust before the rule change – a measure that many high-profile non-doms have suggested is a "deal-breaker" in their decision as to whether to remain in the UK.
For carried interest, it appears that an already complex system of taxation is set to become even more so in the longer term. As an interim measure, the Government has announced an increase in the capital gains tax rate on carried interest from 28% to 32% from April 2025, but as of April 2026, carried interest will be taxed within the income tax framework, but with "qualifying" carried interest being taxed as trading income (and subject to Class 4 NICs) subject to a 72.5% multiplier (giving a 34.1% effective tax rate). The exact method for incorporating this change within an already extensive network of rules in the UK and internationally is to be confirmed, and whilst the headline rate of tax appears still to be within the range of comparable European rates (albeit at the high end), a question remains as to whether the complexity of the resulting rules will harm the UK's attractiveness as a location for asset managers.
In relation to capital gains tax rates more generally, given the initial dire predictions of a rate increase to 39% or even a 45% equalisation with income tax, the announced increase from 20-24% (for higher rate taxpayers) with immediate effect felt very much at the modest end. Also notable was the fact that there was no significant change elsewhere in the system of reliefs beyond some minor tweaking to Business Asset Disposal Relief – and particularly no capping of principal private residence relief on the sale of homes or removal of rebasing of assets on death.
Whilst the headline announcement on inheritance tax was the fact the maintenance of existing nil rate bands, the changes to Business Property Relief and Agricultural Property Relief (capping both at £1 million and introducing a new effective IHT rate of 20% on relevant assets from 2026) were significant, particularly given the potential impact of the changes for investment in shares listed on AIM. At the time of writing, AIM was up 3.8%, perhaps reflecting a degree of relief that the Chancellor had not imposed a 40% rate, but the longer term effect remains to be seen. Also significant is the inclusion of inherited unused pension pots within the scope of IHT.
As predicted, this was a Budget where the noise was very much around the taxation of private wealth and in the area of corporate taxes, the approach was more "steady as she goes", favouring stability, continuity and tax competitiveness over change. The Government's corporate tax roadmap for the coming parliament emphasised this approach. The key headlines from the roadmap were the maintenance of the 25% main corporation tax rate (and 19% small companies rate) for the duration of the parliament, the continuation of the permanent full expensing system for capital expenditure and the intention to retain and look at the improvement of various tax reliefs, such as capital allowances and R&D tax credits. Consultations on the UK's transfer pricing, permanent establishment and diverted profits tax rules are promised, along with further measures to implement the OECD's Pillar 2 minimum tax rate, including legislation introducing the undertaxed profits rule.
And finally, no Budget can be complete without a raft of measures targeting avoidance, in this case through umbrella companies, offshore structures, LLPs, extraction of profits from close companies and others. Added to this is a push to close the "tax gap", through increased investment in HMRC's people and systems, estimated to raise an additional £6.4 billion by the end of this parliament.
Overall, this was a Budget where all of the worst-case scenarios had been dissected and debated beforehand and the actual changes made (though significant in total), were individually perhaps less substantial than was feared. However, the £40 billion total increase in tax revenues will no doubt live in the collective memory for some time to come, and now that the speculation is over, it will fall to the Chancellor to ensure that the money raised is well-spent.
