Autumn Budget 2024 — consequences of key tax changes explained

On 30 October 2024, Chancellor of the Exchequer Rachel Reeves delivered the Government’s first Budget since coming into power in July.

Prime Minister Sir Keir Starmer warned that "painful" decisions would be necessary to repair the UK's economic damage.

The most significant tax changes will impact successful entrepreneurs and individuals due to changes to inheritance tax, capital gains tax, the introduction of VAT on private school fees and the abolition of the non-dom tax regime. 

Businesses (and possibly indirectly employees) will be materially affected by the increase in national insurance contributions.

Business owners have also been hit with large erosions to tax reliefs.

We spoke to expert lawyers across our Brabners Personal and corporate teams to understand how the announcements will impact individuals and businesses.

Jump to:

• Inheritance tax
• VAT on private school fees
• Non-dom status
• Capital gains tax 

Inheritance tax rules to change 

Inheritance tax is currently charged at 40% on estates over £325,000. The tax is only applicable to the part of the estate above the threshold. 

While the Chancellor confirmed that the current threshold will stay the same until 2030, there will be changes to how the current system works, including:

• Inherited pensions will lose exemption from April 2027.
• Combined business and agricultural assets worth over £1m will only get 50% exemption from April 2026.
• AIM market shares will only get 50% exemption from April 2026.

Duncan Bailey, Partner and Head of Private Client, shared his thoughts:

“Confirmation of these changes may leave people feeling overwhelmed and uncertain about their finances.

While it can be tempting to move quickly, getting the right guidance is key as there are still a number of options to consider for those who want to leave something for their loved ones. This is especially due to some of the tax changes not coming in until April 2026 or April 2027, so there is time to plan.

It’s often said that when a tax rate tips over a certain point it starts to collect less, as people are sufficiently motivated to plan to avoid it. So, it’ll be interesting to see how this plays out in coming months.”

How can you prepare for the changes?

“Making use of current inheritance tax exemptions until the changes come into place is one option. This includes using lifetime allowances via direct gifts or setting up trusts to manage and protect your wealth for future generations.

While it can be tempting to move quickly in moments of political or economic uncertainty, getting the right financial and legal guidance is key.”

If you’re looking for up to date guidance, our Estate Review service looks at your circumstances, estate and goals to understand your specific requirements. We’ll then formulate a comprehensive report, tailored to the right practical solutions for you and your family, empowering you to make the right strategic decisions to protect your estate and assets.

Talk to our private client team to find out more.

VAT on private school fees 

The Chancellor confirmed that VAT will be charged on private school fees at a rate of 20% from January 2025. 

From April 2025, business rate relief for private schools will also be removed.

Helen Marriott, Partner and Head of Brabners Personal, has advice for parents on managing the added costs:

"If a court order is breached, this could result in arrears accruing and enforcement action... If parents know now that they won't be able to afford the fees from January, they should let the school know as soon as possible and begin looking for school places available from the New Year."

For parents unable to agree on fees, a court application is one option but may take months, or even up to a year to resolve. Helen stresses that parents "need to remember that while this is a financial decision, it’s one that can have a big impact on their children, especially for older students preparing for exams or children with special educational needs."

The abolition of non-dom tax status 

‘Non-dom’ status allows UK residents with a permanent home abroad to avoid paying tax on income earned outside the country.

Back in March 2024, previous Chancellor Jeremy Hunt announced plans to phase out the non-dom tax regime. Rachel Reeves has since confirmed that non-dom status will be abolished from April 2025. 

The Government has confirmed that this will be replaced by “an internationally competitive residence-based regime, providing 100% relief on eligible foreign incomes and gains (FIG) for new arrivals to the UK in their first four years of tax residence, provided they have not been UK tax resident in the ten tax years immediately prior to their arrival (four-year FIG regime).”

Cara Nuttall, Partner and Head of Family, explains the potential consequences of fleeing the UK before April to avoid tax changes: 

“While much has been said on the financial implications, there has been significantly less attention paid to the personal or family consequences. Divorce, for example, is one of the most common and costly issues that can arise after a move abroad. 

There’s no process whereby a divorce is dealt with as an ‘international divorce’ for non-doms — it must take place under the rules of one jurisdiction. Courts in most countries have strict rules as to when they can (or will) entertain a family law case. As a result, people may find themselves inadvertently removed from the ‘protection’ of the English court.

Couples may also find that wealth protection measures like pre-nuptial agreements don’t have the same standing or efficacy as the country they were prepared in.

If after moving abroad one partner wishes to return home, complexities concerning child arrangements may be inevitable. It’s easy to assume that as a parent you can return home with your child or in the event of a dispute the English court will consider the arrangements for a child born and previously raised in the UK. However, this often isn’t the case. 

Relocation applications, conflict over jurisdiction and habitual residence and cross-border enforcement of orders are just a handful of challenges that parents may face. Non-doms must also consider the differences with joint or full child arrangements between countries. Where parents can’t come to an agreement, child abduction may become a reality and the court will intervene.

Anyone contemplating a relocation should seek guidance from legal and financial advisors to ensure that they’re protecting their family — not just their finances.”

Capital gains tax increased with immediate effect

As anticipated, the Autumn Budget increased capital gains tax (CGT) rates:

• The lower rate rises from 10% to 18%.
• The higher rate rises from 20% to 24%.

The Chancellor confirmed that CGT rates on residential property will not change.

Business Asset Disposal Relief remains, but the current relieved rate of 10% will increase for disposals after 5th April 2025 to 14% and again for disposals after 5th April 2026 to 18%. The £1m lifetime limit remains.

Mark Rathbone, Partner and Head of Corporate, explained what this means for businesses:

“This news will see many entrepreneurs rest a little easier knowing that the relief will still apply should they decide to exit. However, the changes to this valuable relief for entrepreneurs on their business sales will result in a gradual rise over the next few years, so it’s likely to drive a busy cycle of deals completing before tax year end in April 2025 and April 2026. The end result will be a relieved tax rate that is only 2% below the full pre-budget rate and only 6% below the new full rate.

While there will always be people willing to sell up regardless of the tax incurred, many business owners only get one chance to sell their company and provide through that for their retirement. They may well have a non-negotiable net figure in mind.

The capital gains tax regime has historically seen a lot of ups and downs for owner-managed businesses, including complex reliefs and exemptions, so taking stock and reassessing deal priorities is sensible.

There are likely to be further changes to the regime to incentivise the growth being sought while balancing the tax take from it. Crucially, owner-managers are in the driver’s seat with respect to their businesses and can make alternative plans and strategies aligned with the new tax regime to meet their lifetime and lifestyle ambitions.”

Talk to us

If you have any questions about how the tax changes will impact you or your business, our experts are on-hand to provide practical tips and guidance. 

Talk to us by giving us a call, sending us an email or completing our contact form below.