Labour's Autumn Budget 2024

As the dust settles on Labour’s first budget since returning to power, significant policy changes are set to impact investors and their strategies.

With the Government aiming to raise £40 billion to close the spending gap in the coming years, Chancellor Rachel Reeves has announced a wide range of tax reforms. Below, we outline the key changes most relevant to your investments and how they could shape your financial decisions.

Key changes to Capital Gains Tax

The Chancellor has announced a hike in Capital Gains Tax (CGT), raising the lower rate from 10% to 18% and the higher rate from 20% to 24%, effective from 30 October 2024. These adjustments may affect how investors approach their portfolios.

For individuals, the annual CGT exemption remains at £3,000, meaning any gains over this amount from shares, funds or investment trusts may be subject to tax.

On top of that, the CGT rates for Business Asset Disposal Relief and Investors' Relief will gradually increase to 14% starting from April 2025, eventually aligning with the new lower rate of 18% from 6 April 2026. This phased approach gives business owners some time to adjust.

The CGT rates on residential property will remain unchanged at 18% and 24% – CGT also applies to profits made from selling assets such as second homes.

Investments held in Individual Savings Accounts (ISAs), Self-Invested Personal Pensions (SIPPs) and their junior equivalents will continue to be exempt from CGT and income tax.

Actions to consider: Investors may wish to consider maximising their contributions to ISAs and SIPPs, since all investments in these accounts are exempt from CGT and income tax.

This year, twice as many Smart Investor customers have already maxed out their £20,000 ISA allowance in their Investment ISAs compared to last year. Plus, October 2024 saw a 150% jump in Bed and ISA deals, allowing customers to transfer their holdings from Investment Accounts to Investment ISAs, which helps keep future income and gains free from UK income tax and CGT.

New rules and thresholds for Inheritance Tax

Chancellor Rachel Reeves has extended the Inheritance Tax threshold freeze until 2030, allowing the first £325,000 of any estate to be inherited tax-free. If the estate includes a primary residence passed to direct descendants, this allowance rises to £500,000 (depending on personal circumstances), and up to £1 million when the unused allowance is transferred to a surviving spouse or civil partner .

Starting in April 2027, inherited pensions, including SIPPs, will be subject to Inheritance Tax.

Lifetime gifts will still be exempt from tax if given more than seven years before someone passes away, but there's a sliding scale of Inheritance Tax charge for gifts made within that seven-year window. For a full breakdown of current allowances, see our guide: Key tax rates, limits and allowances: At-a-glance.

There are also plans to reform Agricultural Property Relief and Business Property Relief. Agricultural and business property relief will change from April 2026. The first £1 million will continue to be tax free, but over £1 million will receive 50% relief (resulting in a 20% tax rate).

Actions to consider: Investors may be able to reduce Inheritance Tax exposure by using annual gift allowances (up to £3,000) and gifting larger amounts to children early. Placing assets in trusts may also shield wealth from Inheritance Tax, however tax advice should be considered in advance.

Although ISAs are included in an estate for Inheritance Tax purposes after death, transfers to a spouse or civil partner remain exempt. Additionally, with inherited pensions now subject to Inheritance Tax starting April 2027, it's important to consider these implications when planning your estate.

Given the complexity, it’s always advisable to speak to a financial and tax adviser before making any decisions regarding Inheritance Tax.

British ISAs scrapped

In what was the only change to the ISA system, Chancellor Rachel Reeves’ decision to scrap the British ISA makes it easier for investors to focus on straightforward savings and investing strategies.

While the British ISA may have been a noble idea, it risked making ISAs more complicated for investors. ISAs continue to be the most straightforward, tax-efficient way to grow your money.

Increased employer National Insurance contributions

The major tax-raising initiative in the Budget sees a 1.2% increase in employer National Insurance contributions to 15% (effective from 6 April 2025), which is expected to raise £25 billion for the Treasury. Additionally, the threshold at which businesses begin paying National Insurance on employees’ earnings will be lowered from £9,100 to £5,000. Small businesses will receive an increased employment allowance of £10,500 (previously £5,000) from April 2025.

Some businesses will be impacted as they contribute more to fund public services – the effect of this change is yet to be analysed but it could potentially lead to reduced hiring, lower wages, or increased consumer prices.

Employee National Insurance contributions (those paid directly by employees) remain unchanged and unaffected by these Budget changes.

Other Budget announcements: At a glance

Here are some other Budget announcements that, while important, won’t necessarily affect your investments directly but are useful to consider:

• No extension to income tax threshold freeze: The Chancellor has opted not to extend the freeze on income tax thresholds, which will begin to rise annually from April 2028 after being held steady by the previous Conservative government since 2022.
• VAT imposed on private school fees: In the Budget, the Chancellor confirmed that private school fees will now incur 20% VAT from January 2025, a decision that generates over £9 billion for the Treasury.
• State pension increase: The state pension will rise by 4.1% from April 2025, increasing weekly payments from £221.20 to £230.30 for full recipients.
• Abolition of ‘non-dom’ tax regime: The scrapping of the non-domicile tax regime was confirmed, effective April 2025. The current regime allows UK residents and non-UK domiciled individuals to claim the remittance basis of taxation which can result in UK tax not being payable on certain foreign income and gains not brought into the UK. In its place, a new residence-based scheme with competitive arrangements for temporary residents will be introduced.
• Stamp duty increase for second homes:  Starting on 31 October 2024, the government will raise the stamp duty land surcharge for second homes by 2% – bringing the total to 5%.
• No increase in fuel prices: Fuel duty will remain frozen, meaning drivers won’t see higher prices at the petrol pumps in the near term.
• Good news for pubgoers: Chancellor Rachel Reeves has announced a cut in duty on draught alcohol, resulting in a penny off pints at pubs. However, duty rates on non-draught products will go up in line with the Retail Price Index (RPI) starting February next year.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.