Budget 2024: Who are the winners and losers?
Updated
November 4, 2024
The Chancellor, Rachel Reeves, delivered her first budget this week, announcing £40 billion in tax hikes and £74 billion in increased government spending. The additional tax burden is the equivalent of nearly £600 extra tax per person each year if it was averaged out across the UK.
Reeves also relaxed the borrowing rules, saying she would change the way debt is measured to free up billions for NHS, education, and infrastructure spending. Experts warn that interest rates could fall more slowly as a result of the Treasury’s increased borrowing.
Investors and businesses will pay the lion’s share of the increased tax, with the Chancellor facing criticism about how tax rises align with Labour’s manifesto promise not to raise tax on “working people”.
After months of swirling rumours, many of the expected tax rises didn’t materialise. There were fewer changes to pensions taxes than many had predicted and frozen income tax thresholds were not extended beyond 2028 as expected.
In a budget with sweeping tax rises, there weren’t many winners, so let’s start with the losers.
The budget delivered a painful blow for investors, with the Chancellor introducing a significant increase to Capital Gains Tax (CGT) on shares, with immediate effect.
Investors holding shares outside an ISA or pension will now pay 18% tax on gains if they are a basic rate taxpayer, up from 10%, while higher rate taxpayers will see their tax rate increase from 20% to 24%.
Investors will take little comfort from the fact that the increase was less than many feared. Previous rumours had suggested that rates might soar to align with income tax rates of 20% and 40%.
Other decisions hitting investors included a freeze on the ISA allowance at £20,000 until 2030 and the official scrapping of short-lived plans for a British ISA. The ISA allowance will now be frozen for 13 years in total.
As the tax burden rises, it’s more important than ever to protect your investments inside a pension or ISA so they are shielded from both CGT and UK dividend tax.
Investors in AIM shares were hit with potential extra tax charges when they pass on assets in their estate.
AIM shares, usually investments in small and medium-sized businesses, were previously exempt from inheritance tax (IHT). But investors will see the amount of tax relief halved, with a new effective 20% tax rate.
While this may sting for some, rumoured changes were far more dramatic. As a result, the value of AIM shares recovered immediately following the budget.
One of the most significant and controversial changes in the budget was Reeves' decision to abolish the inheritance tax (IHT) exemption on pensions. Under new rules, pensions could be taxed at 40% when you die, assuming you have other assets to pass on that mean your estate exceeds the value protected from tax.
This change will take effect in April 2027 and there will be a consultation process first to iron out the details.
The good news for married pension savers, is that you can still pass your pension to your spouse without incurring IHT, as spouses are exempt from paying IHT on assets left to each other. But unmarried partners need to plan ahead as they could end up owing tax on a pension inherited from a partner.
Big businesses will bear the brunt of budget tax changes, with an increase to employers’ national insurance (NI) expected to raise an enormous £25 billion each year for the Treasury.
"I know that this is a difficult choice," said Reeves. "I do not take this decision lightly".
Starting next April, employers will face significantly bigger tax bills as employers’ NI contributions rise 1.2 percentage points from 13.8% to 15%. In addition, the Chancellor slashed the NI threshold, meaning employers will owe tax on employees’ earnings above £5,000, rather than the current £9,100.
The employers’ NI hike has sparked fierce debate on the nature of Labour’s manifesto promise not to raise taxes for “working people”. Critics argue that most of the tax rise will be passed on to employees in the form of reduced wages, reduced pension contributions or a freeze on hiring in the future.
For small businesses, the silver lining is an increase in the employers’ NI allowance which means many small businesses will actually pay less employers’ NI.
Buried in the detail was another tax hike for first time buyers. Currently, first time buyers enjoy lower stamp duty rates if they buy a home worth less than £625,000 and there’s no stamp duty to pay on homes worth less than £425,000.
However, from April 2025, first time buyers will only be eligible for a reduction if they buy a home worth less than £500,000 and the lower limit will be slashed to £300,000.
Given ever-increasing house prices, many more first time buyers will be dragged into the tax net with this change.
Landlords and business owners also lost out from budget announcements
Second home owners will now pay a higher rate of stamp duty, with the additional stamp duty surcharge on second homes rising from 3% to 5%.
Meanwhile, big IHT changes were announced for farmers and business owners. Reeves announced a 50% cut to business and agricultural property IHT relief making it harder to pass on a business or farmland intact to your family.
The much-rumoured introduction of VAT on private school fees is now confirmed for January 2025. The tax rise will also apply to any fees paid from July this year, relating to January 2025 onwards.
Now let’s finally touch on some of the budget winners.
There’s a glimmer of relief for workers as, despite previous rumours to the contrary, the freeze to income tax thresholds wasn’t extended. From April 2029 tax thresholds will again begin to rise with inflation, letting us keep more of our hard-earned cash.
Low-earning workers will also enjoy a pay boost, with an increase in the minimum wage from April 2025. Adults aged 21 and over will earn at least £12.21 an hour, while those aged between 18-20 will be paid at least £10 an hour.
Drivers can breathe a sigh of relief as fuel duty remains frozen at 52.95p per litre, despite rumours the duty may rise.
As expected, Reeves confirmed an increase to the state pension of 4.1% next April, boosting the full state pension by £470 a year to £11,976.
Meanwhile, there’s good news for unpaid carers who will benefit from an increase in the amount they can earn before losing carer’s allowance.
Despite the inheritance tax hit, there was also a sigh of relief for pension savers as many rumoured pension changes didn’t materialise.
Reeves opted not to touch the tax-free lump sum or make any changes to pension tax relief, perhaps deciding that these changes were too complicated to implement.
However, Labour’s much anticipated pension review will look further at the pension rules, so it’s possible there could be more tax changes to come.
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