Rachel Reeves, the newly appointed Chancellor of the Exchequer for the Labour government, recently introduced her first Autumn Budget. Touted as a plan to “repair and bring change,” this budget signals a pivotal shift in taxation and investment policies. Reeves aims to raise £40 billion through changes in Capital Gains Tax (CGT) and National Insurance contributions from employers. Here’s a breakdown of the highlights of this 2024 Autumn Budget and what they mean for your finances.
Key Highlights of the 2024 Autumn Budget 📊
Let’s dive into the major policy changes introduced and how these measures might impact your finances, from inheritance tax adjustments to housing initiatives.
1. Tax Policy Changes 🔄
a) Freeze on Inheritance Tax Thresholds 🏛️
Inheritance tax (IHT) applies to estates valued over £325,000, with allowances that can rise to £500,000 for estates passing to direct descendants. This exemption doubles to £1 million for married couples. Originally set to expire in 2028, the current thresholds are now frozen until 2030.
Additionally, from April 2027, inherited pension assets will also be subject to inheritance tax. So, while pensions remain a valuable asset for retirement planning, their attractiveness for wealth transfer could diminish.
b) Capital Gains Tax (CGT) Increases 📈
CGT, which applies to profits from selling assets such as second homes, will see a substantial rise. The basic rate will jump from 10% to 18%, and the higher rate will increase from 20% to 24%, aligning property and asset taxes more closely. Importantly, these changes take effect immediately, leaving minimal room for last-minute adjustments.
c) Unfreezing Income Tax and National Insurance Thresholds 💷
From 2028-29, personal tax thresholds will be indexed to inflation, a shift from the previous “stealth tax” freeze, which gradually drew higher earners into higher tax bands. Although this promises a small relief, increasing wages could still place many in higher tax brackets over time.
d) Employer National Insurance Contribution Rate Rise 💸
Effective from April 2025, employer National Insurance rates will increase from 13.8% to 15%, while the threshold will drop from £9,100 to £5,000. This rise could prompt employers to evaluate staffing costs more critically, potentially affecting wage growth or hiring trends.
2. Housing Policies 🏠
Housing reforms are a significant aspect of the Autumn Budget, with both funding and policy adjustments aimed at boosting affordable housing availability.
a) Increased Stamp Duty for Second Homes 🏘️
Starting on October 31, buyers of second properties will face a higher Stamp Duty surcharge, which rises from 3% to 5%. This measure aims to deter multiple property ownership and improve the availability of homes for first-time buyers.
b) New Investment in Affordable Housing 💷
With a £5 billion investment, including £3.1 billion directed toward affordable housing, the government seeks to increase the supply of accessible homes. Additionally, £500 million will support constructing 5,000 new affordable homes, a move aimed at easing the housing crisis.
c) Social Housing Rent Increases and “Right to Buy” Adjustments 🏢
In a bid to support social housing developments, rent increases on social housing will be linked to the Consumer Price Index (CPI) plus 1% annually for the next five years. Furthermore, tenants hoping to purchase their homes under the “Right to Buy” scheme will see reduced discounts, with all sales revenue reinvested in housing stock.
d) Funding for Dangerous Cladding Removal 🚧
Following the Grenfell Tower tragedy, the government has pledged £1 billion to expedite the removal of unsafe cladding from buildings across England. This funding is part of a broader response to improve building safety.
3. Boosts for National Pension and Minimum Wage 💰
a) National Pension Increase 📈
Thanks to the “triple lock” policy, state pensions will rise by over £460 in 2025-26. With recent wage growth metrics, the government forecasts a 4.1% increase from April 2025, helping retirees maintain purchasing power in the face of inflation.
b) Minimum Wage Rise 💵
From next April, the minimum wage will increase by 6.7%, with those aged 21 and over earning £12.21 per hour, up from £11.44. Younger workers aged 18-20 and apprentices will also see wage increases, benefiting individuals across different age brackets and employment types.
4. Other Key Fiscal Measures 📋
a) Fuel Duty Freeze ⛽
The freeze on fuel duty will continue, with the temporary 5p cut per litre, introduced in 2022, extended for another year. This policy provides some relief for motorists facing high fuel costs.
b) Changes in Air Passenger Duty and “Sin Taxes” ✈️🚬
- Air Passenger Duty (APD): Economy-class passengers on short-haul flights will see a £2 increase in APD, while those on private flights will experience a 50% hike, amounting to about £450 per passenger.
- Sin Taxes on Tobacco and Alcohol: The government has raised tobacco duty by 2% above the Retail Price Index (RPI), with an extra 10% increase on rolled tobacco. New excise duties on vaping products, set to take effect in October 2026, will impose a £2.20 tax per 10ml of liquid. Alcohol taxes will also increase by the RPI inflation rate, although low-alcohol beer (under 8.5%) will see a slight reduction.
How These Budgetary Changes Could Affect You 🎯
- For Homeowners and Buyers: The rise in CGT and Stamp Duty could discourage property investment. However, for first-time buyers, the investment in affordable housing may improve accessibility and ease market entry.
- For Businesses and Employers: The increase in employer National Insurance contributions is likely to impact hiring practices, especially for smaller businesses. The higher costs could either translate to slower hiring or lead to adjustments in wage negotiations.
- For Workers and Retirees: Both the pension and minimum wage increases will benefit low-income earners and pensioners. However, retirees will need to consider the new IHT rules on pensions when planning for the future.
- For Smokers and Drinkers: The “sin taxes” on tobacco, alcohol, and vapes represent a dual goal of generating revenue and discouraging use. This increase will likely lead to higher consumer prices, impacting regular consumers of these products.
- For Travelers: Private jet travelers will see APD costs soar, while economy passengers on short-haul flights will face a smaller rise. Overall, these measures reflect the government’s focus on equity in tax contributions.
Conclusion: A Bold Step Towards Change 📉🚀
Rachel Reeves’ Autumn Budget marks a decisive shift in UK fiscal policy, aiming to create a fairer tax structure and addressing critical issues like affordable housing and social welfare. Although the tax increases may pose challenges for higher earners and business owners, the budget’s emphasis on supporting lower-income families and expanding public services sets a transformative tone for the future.
💭 Final Thoughts
The budget introduces ambitious reforms to rebalance the tax system and address urgent social needs, although it may be a mixed bag for different demographics. Whether you’re a property investor, business owner, or a minimum wage earner, this budget will influence your finances in some way.
Stay tuned as these policies roll out—2024 will surely be a year to watch for the UK economy!
