Understanding the UK Budget 2024: Key Changes and Their Impact

The UK Budget 2024 outlines several significant changes that will impact businesses, employees, and households in the coming years. Here’s a breakdown of the main points, highlighting what you need to know and how it may affect you or your business.

1. Employer National Insurance (NI) Rate Increase
From April 2025, the Employer NI rate is set to increase from 13.8% to 15%. This change means a 1.2% rise in employer costs for every pound of an employee’s wage over the NI threshold. The current threshold is £758 per month, but this will drop to £416.67 per month. As a result, employers will start incurring NI costs more quickly, which may affect hiring budgets and payroll planning.

2. Employment Allowance Boost
In a positive move for small and medium-sized enterprises (SMEs), the Employment Allowance, which offsets Employer NI costs, will increase from £5,000 to £10,500 per year. This allowance doubles the tax relief available to eligible businesses, which could encourage hiring and help counterbalance the increased Employer NI rate.

3. Capital Gains Tax (CGT) Rate Hike
Effective from October 30, 2024, the Capital Gains Tax rate will rise from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers. This increase applies to gains from selling secondary residential properties and other assets, bringing CGT rates in line with other taxable assets. For anyone planning to dispose of property or investments, this hike is a critical consideration.

4. ISA Allowances Frozen
Individual Savings Account (ISA) contribution limits remain frozen at £20,000 per year until 2030, with Junior ISA caps also unchanged at £9,000. This freeze could impact long-term savers, particularly with rising inflation and the need for tax-free saving options.

5. Alcohol Duty Changes
From 2024, draught alcohol will see a small duty reduction of 1.7%, potentially reducing pub prices marginally, while alcohol duty on non-draught products will rise with the inflation-linked Retail Price Index. For businesses in the hospitality sector, this change is relatively minor, though it may slightly affect pricing strategies.

6. National Minimum Wage (NMW) Increase
A substantial increase in the National Minimum Wage is coming in April 2025, with the wage for individuals aged 21 and above rising to £12.21 per hour. Younger workers (ages 18-20) will see an increase to £10 per hour, while apprentices and those under 18 will see the largest percentage boost, up to £7.55 per hour. This hike may impact payroll budgets, but it could also help address inflation and cost-of-living concerns.

7. Inheritance Tax (IHT) Changes
Significant reforms to Inheritance Tax will take effect in April 2027. The exemption for inherited pensions will be removed, making them subject to IHT. Additionally, certain agricultural assets, such as land used for animal rearing or crop growth, will face a 20% tax if valued above £1 million. Families inheriting estates with such assets should prepare for a new tax burden.

8. Stamp Duty Increase on Second Homes
Stamp duty on second homes, buy-to-let properties, and corporate-owned residential properties in England and Northern Ireland will increase from 3% to 5% in 2024. This change aims to dampen demand in the investment property market and ease competition for primary home buyers.

9. VAT on Private School Fees
Starting January 2025, a standard 20% VAT will be applied to private school fees, aligning with a previously announced Labour Party policy. For families with children in private education, this VAT addition could increase financial strain, potentially shifting demand within the education sector.

Final Thoughts
The UK Budget 2024 brings about notable changes that will impact a range of sectors. Businesses will need to reassess payroll costs, especially with the upcoming NI increase and minimum wage rise, while individual taxpayers may want to plan around the CGT and IHT changes. The Employment Allowance increase is a bright spot for SMEs, potentially enabling them to hire more workers or retain existing staff. Families, savers, and property investors will also need to evaluate the effects of these changes on their financial strategies.

If you’re a business owner, investor, or concerned citizen, consulting with financial experts or tax professionals such as your local accountants can help navigate these shifts and optimise your strategies under the new policies.

Contact Cheylesmore Accountants today for any further advice or help regarding the UK Budget 2024