Insights Category: Financial Planning

Although there were no changes to the headline Income Tax rates and thresholds, the thresholds remain frozen until April 2028. This stealth tax enables wage inflation to drag a higher proportion of UK taxpayers into paying increased amounts of income tax.

The OBR has forecast that 7.8 million UK taxpayers are likely to be dragged into higher tax bands during the freeze; 4.2 million will start paying Income Tax, with 3 million more pushed into paying the Higher Rate, and an extra 600,000 forced to pay the Additional Rate by 2027-28.

Employees generally pay Income Tax at 20% on income between the Personal Allowance Threshold and the Higher Rate Threshold; at 40% on income between the Higher Rate Threshold and the Additional Rate Threshold; and at 45% on income above the Additional Rate Threshold.

Employees continue to see their Personal Allowance tapered at a rate of £1 for every £2 of income between £100,000 and £125,140, resulting in an effective 60% rate of income tax on this portion of their income.

Employees generally pay National Insurance Contributions (NICs) at 8% on income between the Primary Threshold and Upper Earnings Limit, and at 2% on income above the Upper Earnings Limit.

• Personal Allowance frozen at £12,570 per year
• Higher Rate Threshold frozen at £50,270 per year
• Additional Rate Threshold frozen at £125,140 per year
• NIC Primary Threshold frozen at £242 per week
• NIC Lower Earnings Limit frozen at £123 per week
• NIC Upper Earnings Limit frozen at £967 per week
• NIC Lower Profits Limit frozen at £12,570 per year
• NIC Upper Profits Limit frozen at £50,270 per year

The last government introduced a plan to assess the threshold at which Child Benefit gets clawed back to be based on household income, rather than at the individual level. Labour are scrapping this plan.

Different rates and thresholds of Income Tax apply to Scottish residents.

Effective immediately, from 30 October 2024, the rates of Capital Gains Tax (CGT) on shares and various other assets, are increased as follows;

• CGT Lower Rate increases from 10% to 18% (a rise of almost double)
• CGT Higher/Additional Rate increases from 20% to 24% (a rise of one fifth)

The CGT rates for residential property gains, which do not qualify for the private residence exemption, remain at 18% and 24% respectively.

A small, annual Capital Gains Tax (CGT) Allowance remains at £3,000.

Despite the headline Inheritance Tax (IHT) rates and thresholds remaining unchanged, they have been frozen until 2030; an extension to the freeze of two further years. This stealth tax enables inflation to drag a higher proportion of Estates into paying IHT duties.

The majority of your assets will be subject to IHT if, when you die, the value of those assets exceeds the standard nil-rate band which currently stands at £325,000. If your spouse dies before you without fully using their nil-rate band, any unused percentage can be carried forward to use when you die, subject to a claim being made by your executors within two years of your death.

With the family home often making up a large percentage of an estate, the government has introduced an additional nil-rate band on top of the £325,000, known as the ‘residence nil-rate band’. The current residence nil-rate band is up to £175,000.

This means that if you give away a home that you have lived in as your main home to your children (including adopted, foster or stepchildren) or grandchildren, they won’t have to pay IHT on the first £500,000 (£325,000 nil rate band + £175,000 residence nil-rate band).

If you are a married couple or in a civil partnership then you can combine both your nil-rate bands, meaning that the first £1 million of your assets, including your property, are free from IHT.

Gifting allowances remain unchanged.

IHT Relief on AIM shares is reduced to 50%, giving an effective IHT rate of 20%.

Crucially, Pensions will be brought inside of Estates for IHT purposes from April 2027.

Meanwhile, Agricultural Property Relief and Business Property Relief will be reformed.

Finally, a person’s assets worldwide will be considered for IHT purposes in some circumstances, including for instance where they have lived in the UK for 10 of the last 20 years.

From January 2025, VAT will apply on Private School Fees at 20%. Schools will also be subject to business rates, where they had previously been exempt.

Many independent schools have already confirmed that they will pass some or all of the increased cost on to parents and fee payers.

While the cost of tuition fees can vary widely depending on the school and location, sending your child to a private school as a day pupil currently costs, on average, £23,925 per year, rising to £42,459 for pupils who board.² The application of VAT could bring the average day fee to £28,710, and the average boarding fee to £50,951, overnight.

2 ISC Census and Annual Report, January 2024

Effective the day after the Autumn Statement, from 31 October 2024, the Stamp Duty Land Tax (SDLT) Higher Rate for Additional Dwellings is increased by two thirds, from 3% to 5%.

This Higher Rate is applicable when you buy a residential property (or a part of one) for £40,000 or more, if it will not be the only residential property worth £40,000 or more that you own (or part own) anywhere in the world.

You may have to pay the Higher Rate even if you intend to live in the property you’re buying, and regardless of whether or not you already own a residential property. This is because the rules do not apply only to you (the buyer), but also to anyone you’re married to or buying with.

Effective immediately, the lifetime limit for Investors’ Relief is reduced, from £10 million to £1 million.

This will apply to qualifying disposals made on or after 30 October 2024, as well as to certain disposals made before 30 October 2024.

With immediate effect, tax benefits are reduced for non-domiciled individuals who move money into Offshore Trusts.

From April 2025, the rate of Employer National Insurance Contributions (NICs) will rise from 13.8% to 15%.

The threshold at which Employer NICs is due, will also be lowered, from £9,100 to £5,000 per year.

Together, these measures will result in additional costs to employers of at least £615 per year, per employee – and in many cases, significantly more.

Prior to the measures introduced in the Autumn Statement, earnings adjusted for inflation were due for a modest increase of 0.2pc in 2026 and 0.3pc in 2027. Now they are set to fall by -0.2 and -0.1pc respectively. The OBR has stated that it estimates approximately 76% of the additional Employer National Insurance cost will be passed on to employees.³

More than 700,000 UK workers ‘inside IR35’ will wear the whole uplift, owing both Employer and Employee NICs.

However, more than 865,000 small businesses will benefit from changes to the Employment Allowance, which increases from £5,000 to £10,500. Employment Allowance lets businesses, charities and sports clubs reduce their annual National Insurance (NI) liability, if their employers’ Class 1 NI liability fell below £100,000 in the previous tax year.

Furthermore, businesses can still offer salary sacrifice schemes to their employees, which may have the effect of reducing Employer NIC liabilities. And, as a business owner, you could utilise a Small Self-Administered (Pension) Scheme (SSAS) to build your own tax-efficient investment pot towards retirement.

3 Office for Budget Responsibility, October 2024

From April 2025, those qualifying for Business Rates Relief will see their discount fall, from 75% to 40%. It is estimated that this discount ‘replacement’ will see qualifying businesses’ rates bills rise by 140% as a result.

From April 2025, the rate of Business Asset Disposal Relief (BADR) increases from 10% to 14%.

It is due to increase again from April 2026, to 18%.

BADR is available on disposals of business assets. It had reduced the rate of Capital Gains Tax (CGT) on qualifying gains to 10%, but now the relief/reduction is less.

From April 2025, the rate of Capital Gains Tax (CGT) on Carried Interest will increase, from 18% for basic rate taxpayers and 28% for higher/additional rate taxpayers, into a single unified rate of 32%.

Further reforms to the way that Carried Interest is taxed, are mooted from April 2026.

Carried Interest (or ‘carry’ for short) is one of the main forms of compensation in the private equity industry, and continue to attract a lower rate of tax than traditional income.

The Non-Domicile Tax Regime will be abolished from April 2025.

It is set to be replaced by a residence-based scheme, described during the Autumn Statement as “internationally competitive.” Tax relief will apply to Foreign Income and Gains (FIG), and a Temporary Repatriation Facility will be introduced.

From April 2025, the State Pension will rise by 4.1%, meaning a gain of up to £470 per year for those in receipt of the Full New State Pension.

From April 2026, a £1 million allowance will be introduced for Inheritance Tax (IHT) relief on business assets and agricultural assets.

A new effective 20% rate of IHT will apply on the value of relevant assets above £1 million.

From April 2026, once again the rate of Business Asset Disposal Relief is increased, from 14% to 18% (vs 10% currently).

Whilst details are yet to be given, it is mooted that Capital Gains Tax (CGT) on Carried Interest will be reformed altogether from April 2026.

From April 2026, the Standard Rate of Air Passenger Duty (APD) will rise by 13% for long haul flights, reaching up to £253.

APD is chargeable per passenger, on flights departing the UK. The Standard Rate applies to most premium economy, business class and first class fares.

Meanwhile, the Higher Rate of APD, applicable to each passenger travelling by private jet, will increase by 50%, reaching up to £1,141. Generally used as capital assets by corporations, jets allow businesses to increase productivity, and this extortionate increase in APD may have the effect of harming growth, and ultimately tax receipts. It is estimated that 70% of private aviation passengers are “middle managers going about their working day,” according to Steve Varsano, who runs The Jet Business aircraft brokerage on Park Lane.

From April 2027, any inherited Pension will be considered as part of an Estate for Inheritance Tax (IHT) purposes, meaning that for the first time, IHT will be due at up to 40%, subject to existing IHT rates and allowances.

From April 2027, Agricultural Property Relief, and Business Property Relief, are each set to be reformed, though little more has been announced.

From April 2027, Air Passenger Duty (APD) will rise once again, according to forecast Retail Price Index (RPI) at that time.

The effect will be felt most severely by those travelling privately, and in premium economy, business class and first class.

Employees continue to pay Income Tax at 20% on income between the Personal Allowance Threshold and the Higher Rate Threshold; at 40% on income between the Higher Rate Threshold and the Additional Rate Threshold; and at 45% on income above the Additional Rate Threshold.

Employees continue to see their Personal Allowance tapered at a rate of £1 for every £2 of income between £100,000 and £125,140, resulting in an effective 60% rate of income tax on this portion of their income.

• Personal Allowance frozen at £12,570 per year
• Higher Rate Threshold frozen at £50,270 per year
• Additional Rate Threshold frozen at £125,140 per year

The last government introduced a plan to assess the threshold at which Child Benefit gets clawed back to be based on household income, rather than at the individual level. Labour are scrapping this plan.

Different rates and thresholds of Income Tax apply to Scottish residents.

Income Tax Relief continues to be made available on Pension Contributions made personally, up to 100% of earnings or £3,600, whichever is higher.

They are further limited by an Annual Allowance, usually £60,000 which includes not only personal contributions, but also employer contributions, and any tax relief received by the scheme. Exceeding the Annual Allowance may result in a tax charge.

Pension tax relief will be granted at one’s marginal rate of tax.

Employees continue to pay National Insurance Contributions (NICs) at 8% on income between the Primary Threshold and Upper Earnings Limit, and at 2% on income above the Upper Earnings Limit.

• NIC Primary Threshold frozen at £242 per week
• NIC Lower Earnings Limit frozen at £123 per week
• NIC Upper Earnings Limit frozen at £967 per week
• NIC Lower Profits Limit frozen at £12,570 per year
• NIC Upper Profits Limit frozen at £50,270 per year

The rate of Capital Gains Tax (CGT) chargeable on gains from residential and buy-to-let property assets remains unchanged, at 18% for basic rate taxpayers and 24% for higher/additional rate taxpayers.

The majority of your assets will be subject to IHT if, when you die, the value of those assets exceeds the standard nil-rate band which remains at £325,000. If your spouse dies before you without fully using their nil-rate band, any unused percentage can be carried forward to use when you die, subject to a claim being made by your executors within two years of your death.

With the family home often making up a large percentage of an estate, the government has introduced an additional nil-rate band on top of the £325,000, known as the ‘residence nil-rate band’. The current residence nil-rate band remains up to £175,000.

This means that if you give away a home that you have lived in as your main home to your children (including adopted, foster or stepchildren) or grandchildren, they won’t have to pay IHT on the first £500,000 (£325,000 nil rate band + £175,000 residence nil-rate band).

If you are a married couple or in a civil partnership then you can combine both your nil-rate bands, meaning that the first £1 million of your assets, including your property, are free from IHT.

Gifting allowances also remain unchanged.

IHT Relief on AIM shares is reduced to 50%, giving an effective IHT rate of 20%.

Crucially, Pensions will be brought inside of Estates for IHT purposes from April 2027. Meanwhile, Agricultural Property Relief and Business Property Relief will be reformed.

In a further blow, the government will increase the interest rate HMRC can charge on unpaid tax, from 7.5% to 9%. Families have six months to pay inheritance tax after the death of a loved one before interest is added to the bill; but grants of probate currently take nine weeks on average to obtain, and in complex cases, the process can drag on for over a year.⁴

⁴ Probate Registry, October 2024

The current rates and thresholds for Stamp Duty Land Tax (SDLT) remain unchanged for the purchase of a primary residence.

From 31 March 2025, the temporary increase to thresholds will end, and SDLT will be due on primary residences from £125,000 (currently £250,000), with the nil-rate threshold for First Time Buyer’s Relief also due to fall, from £425,000 to £300,000.

The headline rate of Corporation Tax remains at 25%.

Current expensing reliefs are maintained.

Individual Savings Account (ISA) Allowances are now frozen until 2030; an extension of two years that will face significant fiscal drag as a result of inflation.

By the end of the decade, the annual deposit cap of £20,000 will have remained unchanged for a total of 13 years. The issue is exacerbated by the hike in Capital Gains Tax rates.

The total ISA Allowance remains at £20,000.

The total Junior ISA Allowance (for under 18s) remains at £9,000.

The Lifetime ISA Allowance (for saving towards a first home or retirement) remains at £4,000, with a 25% government bonus provided on contributions. The home value limit of £450,000 appears to be unchanged.

The standard Pension Annual Allowance remains at £60,000, although it may be reduced to as low as £10,000 if one has flexibly accessed income via their pension, or if they have high earnings and are subject to the tapered annual allowance.

The ability to Carry Forward unused Pension Annual Allowances from the previous three tax years, remains.

This means a theoretical maximum contribution of £200,000 may be made in the current tax year, subject to relevant earnings. For now, this is expected to rise to £220,000 in the 2025/26 tax year, and to £240,000 in the 2026/27 tax year, based on historical Annual Allowances.

The Personal Savings Allowance (PSA) is the maximum amount of cash savings on which interest is not taxed, and remains unchanged as follows;

• For Additional Rate Income Taxpayers, the PSA is zero
• For Higher Rate Income Taxpayers, the PSA is £500
• For Basic Rate Income Taxpayers, the PSA is £1,000

Each UK adult continues to benefit from a Capital Gains Tax (CGT) Allowance of £3,000 per year.

Interspousal mechanisms remain.

• Dividend Ordinary Rate remains at 8.75%
• Dividend Upper Rate remains at 33.75%
• Dividend Additional Rate remains at 39.35%

Each UK adult continues to benefit from a Dividend Tax Allowance of £500 per year.

Replacing the now abolished Lifetime Allowance (LTA) are;

• Lump Sum Allowance (LSA) of 25% of the value of your pensions up to a maximum of £268,275
• Lump Sum Death Benefit Allowance (LSDBA) of £1,073,100
• Overseas Transfer Allowance (OTA) equivalent to the LSDBA

The Lump Sum Allowance (LSA) limits the tax-free lump sums you can take from pensions. Any amount you take over your allowance will be taxed at your marginal rate of income tax.

The Lump Sum and Death Benefit Allowance (LSDBA) limits the tax-free lump sums you can take from pensions, as well as tax-free lump sums that can be paid to beneficiaries after your death.

The Overseas Transfer Allowance (OTA) limits the amount you can transfer to a qualifying recognised overseas pension scheme (QROPS) without tax charges applying.

These allowances, first introduced in April 2024, remain unchanged, despite speculation that the LSA in particular might have been reduced to £100,000. If you recently made a request to draw a lump sum from your pension, as a result of this speculation, then you may wish to consider whether this decision is still in your best interests.