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In today’s announcement, Chancellor Rachel Reeves set forth the Autumn Budget 2024, emphasising a path to "national renewal" aimed at stabilising the economy, funding public services, and increasing investment. Here are the main takeaways from the budget and what it means for households, businesses, and the economy at large.
Economic Context and Fiscal Policy
This budget is built on tackling a £22 billion public spending gap due to rising inflation and post-pandemic pressures on public services, which have driven demand beyond current resources. Reeves introduced two primary fiscal rules: balancing the budget for day-to-day spending by 2029-30 and reducing net financial debt relative to GDP. These rules are aimed at ensuring borrowing is primarily for long-term investments rather than operational spending.
Key Budget Measures
Supporting Households and the Workforce
National Living Wage: To support low-income workers, the National Living Wage will rise by 6.7%, reaching £12.21 per hour. This increase represents a £1,400 annual boost for full-time workers and is expected to benefit over three million people.
State Pension: The government will maintain the State Pension Triple Lock, with pensioners seeing a 4.1% increase in April 2025, worth up to £470 annually.
Cost of Living Relief: £1 billion will be allocated to the Household Support Fund, extending the Discretionary Housing Payments for 2025-26. This is targeted at alleviating immediate financial hardships among low-income families.
Taxation and Revenue Generation
Employer National Insurance Contributions: The rate will rise from 13.8% to 15%, with the threshold reduced to £5,000. To alleviate the impact on small businesses, the Employment Allowance will be raised to £10,500, protecting 865,000 small employers from National Insurance costs.
Capital Gains and Inheritance Tax: The government has announced two fundamental changes to the capital gains rates (CGT). The lower CGT rate has increased from 10% to 18% and an increase on higher rates from 20% to 24% on all asset sales excluding residential property. In addition, the exemption for CGT has been reduced from £12,300 to £6,000 and will decrease further to £3,000 in the following year.
Private School Fees: Beginning in 2025, a VAT charge will be applied to private school fees, a measure anticipated to generate significant revenue.
Public Services and Infrastructure
Healthcare: The NHS is set to receive an additional £22.6 billion for operations, aiming to provide 40,000 extra elective appointments weekly. There’s also a £3.1 billion boost to capital budgets, supporting hospital upgrades, diagnostic capacity, and additional beds.
Education: An investment of £6.7 billion will support school infrastructure, with £2.3 billion directed at teacher recruitment and £1 billion to improve services for students with special educational needs.
Transport and Housing: The budget commits to ongoing rail improvements and an ambitious housing development goal of 1.5 million homes, including increased affordable housing stock.
Green Economy and Energy Initiatives
Reeves announced £3.4 billion for a Warm Homes Plan, aimed at making buildings more energy-efficient. Additionally, a new public entity, Great British Energy, will be established in Aberdeen to drive the UK's transition towards sustainable energy solutions.
Business and Investment Incentives
Business Rates Reform: To support the high street, there will be a freeze on business rates and a 40% relief for retail, hospitality, and leisure properties in 2025-26. A reduced duty on draught beer and spirits aims to boost pubs and small distilleries.
Corporate Tax Roadmap: Corporation tax will be capped at 25%, the lowest in the G7, along with significant R&D tax reliefs and incentives for green investments, including electric vehicle charging stations.
Macroeconomic Outlook
The government forecasts GDP growth to improve, reaching 2% by 2025, driven by increased investment and enhanced public spending. Inflation is expected to stabilise near the Bank of England’s 2% target by the end of the forecast period, although it remains above 2.5% in the near term.
Ramifications on Landlords
Individuals holding multiple properties will be subject to pay higher CGT on buy-to-let properties. Depending on their income tax bracket, this will be either 18% or 28%. Furthermore, due to recent increases in the value of houses, as reported from Bloomberg in September, there are fears this will lead to a subsequent rise in supply of houses and therefore a fall in prices. Furthermore, landlords may choose to hold onto the asset longer due to the less favourable market conditions of entering into a sale in what is predicted to be a bearish market.
Following on from this, there has been a notable change to Stamp Duty Land Tax (SDLT) imposed in the budget. Previously, the surcharge was capped at 3%, this has now risen on additional dwellings to 5%. There will be an additional 3% surcharge on top of standard rates. Now, properties valued between £40,000 and £125,000 will incur a 3% stamp duty, 5% up to £250,000, 8% up to £925,000, 13% up to £1.5 million and 15% over this level. There is also a further 2% charge on overseas buyers.
Within the agricultural sector, the first £1 million of combined business and agricultural assets will continue with no inheritance tax but for those that exceed £1 million, inheritance tax will apply at an effective rate of 20% from April 2026. This has the implications of many in the agricultural industry being subject to IHT henceforth.
Enterprise Investment Scheme Recognition
Due to the notable benefit of the Enterprise Investment Scheme (EIS) which has generated £32 billion since its inception in 1994, this has further been extended until 2035. This is a notable element of the budget, showcasing labours recognition of not only the benefit the innovation of these companies has had to the wider economy, but also the large returns investors see in their support of these world-shaping ventures. Notable examples include Rightmove where investors saw returns of 62 x Return on Investment (ROI) and ASOS investors who saw a 28 x ROI.
Reeves has announced the continuance of this which provides a monumental opportunity to defer taxation implications that have risen in the latest budget. These include:
30% Income tax relief on investment amounts, meaning on a £100,000 investment, one would receive £30,000 back from their previous or current tax bill whilst having no consequence on their equity holding.
45% loss coverage, on the remaining nominal amount, 45% of it is covered if there is a loss incurred in the company invested in. Therefore, in this case, the cash risk is £38,500 for £100,000 of equity in high growth businesses.
0% Inheritance and CGT tax: Once held for 2 years, an EIS company is exempt from any inheritance taxation and after 3 years it is exempt from any CGT. It is worth noting most holdings will be exceeding 3 years due to the stage of investment.
Capital Gains deferral: One may defer CGT owed, up to 20% of the investment amount. This can be backdated 3 years prior to the investment and 12 months post making it.
Conclusion
The Autumn Budget 2024 focuses on addressing long-standing structural issues within the UK economy. With a targeted approach to balancing fiscal stability and investment in growth sectors, the government is committed to tackling immediate economic challenges while paving the way for long-term development. By supporting workers, fortifying public services, and addressing the tax gap, this budget aims to lay the foundations for a resilient economy and improved living standards across the UK.
To learn more about the EIS Scheme, download our EIS Guide here.
To speak to one of our EIS consultants, book a call here.
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