The unveiling of her proposals followed weeks of speculation and testing of public opinion, with the chancellor promising to bring an end to austerity with a focus on protecting working people, fixing the NHS and rebuilding Britain. Trainee Solicitor, Ella Collie, explains more on the tax implications.
Headlined as ‘Fixing the foundations of our economy’, Rachel Reeves said many tough choices had been forced by the economic inheritance of the previous government, which she said had created a black hole of £22bn. The result was what Reeves, a former Bank of England economist, described as a ’painful’ £40bn tax-raising budget to cover the black hole while also enabling investment in public services and stimulating economic growth.
Having made an election promise not to increase the burden on ‘working people’ through rises in income tax, national insurance contributions or VAT, the chancellor turned to levies on wealth, targeting capital gains tax, inheritance tax, and stamp duty on second homes, as well as the long-trailed application of VAT on private school fees and the ending of non-domicile status, which will be replaced by a residence-based regime.
Capital Gains Tax (CGT) rates have been increased with immediate effect: The lower rate rises from 10 to 18% and the upper rate from 20 to 24%, matching the current residential property CGT rates, which remain. Rates of CGT on Business Asset Disposal Relief and Investors’ Relief will be held until April 2025, when they will increase to 14%, and then to 18% from April 2026.
Landlords and second homeowners will find themselves paying a higher rate of Stamp Duty Land Tax (SDLT) on property purchases. These transactions already attract a higher rate of stamp duty, and this 3% surcharge will increase by 2% to 5% from 31 October 2024.
For Inheritance Tax (IHT), the ‘loophole’ which had allowed pension pots to pass on tax-free will be closed from April 2027, and the government will reform agricultural property relief and business property relief from April 2026, with a 50% relief on combined agricultural and business assets beyond the first £1m.
IHT thresholds were already due to be frozen until April 2028, but this is now extended to April 2030, meaning the IHT nil rate band will remain at £325,000, and the residence nil-rate band at £175,000, with the residence nil-rate band taper starting at £2million.
This means each person can pass on a maximum of £325,000 in assets tax free when they die, including shares and property. There is an extra £175,000 allowance when the main home passes to a direct descendant. If someone is in a marriage or civil partnership, they can leave everything free of IHT to their partner, and when the second partner dies, two allowances are added together when calculating whether tax is due on the combined value of the estate.
This freezing, particularly alongside steep rises in property values, will see many more estates drawn into paying inheritance tax and overall changes to IHT are predicted to bring in £2bn.
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The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
