UK Budget: Key details

Please note: Barclays Private Bank and Wealth Management does not offer tax advice. Professional advice should always be sought. All numbers quoted are correct at the time of writing.

The Labour government has unveiled its first Budget since taking office in July. It brings to an end several months of fevered speculation about the future direction of UK taxation and spending.

As many commentators had suspected, wealth holders in the UK are facing higher tax bills, in one way or another.

A mixed backdrop

Broadly speaking, three events in the run-up to the Budget set the tone for what was to come.

• First, the pre-election Labour manifesto had ruled out increases to income tax, VAT or national insurance
• Second, and once in office, the Chancellor instructed HM Treasury to undertake an audit of public spending for 2024-25. This confirmed a ‘fiscal hole’ to the tune of £22 billion (a figure contested by the opposition). In order to cover this amount, protect government departments from real-term spending cuts, and build up a fiscal buffer, the Chancellor claimed she needed to find £40 billion
• Third, the lack of fiscal ‘wiggle room’ for Chancellor Rachel Reeves was slightly tempered by some better economic news in the week preceding the Budget. The International Monetary Fund (IMF) revised its UK growth forecasts for 2024 and 2025, citing falling inflation and interest rates as the drivers for stronger domestic demand. The IMF now projects 1.1% growth for 2024, up from its previous estimate of 0.7% in July, and it reaffirmed its 1.5% growth forecast for 2025.

Against that mixed backdrop, here’s a summary of how the UK government has decided to tax and spend on behalf of the country.

Capital Gains Tax (CGT)

As expected by many, and in a blow to savers and investors, the tax on capital gains will rise.

From 30 October 2024 (so effective immediately), the lower rate of CGT moves from 10% to 18%. The higher rate goes from 20% to 24%. 

The annual personal allowance remains frozen at £3,000 for individuals (per tax year) and £1,500 for trusts.

As a reminder, you don’t pay CGT on the sale of your primary residence.  However, for property that is not your primary residence (i.e. second properties) the tax remains at 18% for the basic rate and 24% for higher rate. 

Inheritance

Inheritance tax (IHT) is one of the more emotive tax topics but its scale is small. It is believed that less than 5% of estates in the UK currently pay it¹. 

That said, Labour has decided it is a lever worth pulling, albeit in a relatively passive way. The Chancellor announced her decision to extend the existing IHT threshold freeze by two years, until 2030. It means that as the value of estates rises over time, by default so too will the IHT receipts going into the government’s coffers. 

The decision was taken to reduce the IHT relief available on shares designated as “not listed” on the markets of a recognised stock exchange, such as AIM shares by 50%, effective 6 April 2026.  Meaning they will now be subject to a 20% charge on death, assuming the current rate of 40% remains.

From April 2026, the first £1 million of combined business and agricultural assets will be exempt from IHT.  The value in excess of this £1 million, will be subject to IHT at 50% of the prevailing rate, similar to AIM shares.  

While from April 2027, inherited pensions will be brought into scope for inheritance tax. 

Income tax

Despite personal income tax thresholds remaining frozen, change is coming. The Chancellor declared that they will rise from the fiscal year 2028/9 in line with inflation.

Until then, the personal allowance stays at £12,570. From there, earners will pay a ‘basic rate’ of 20% on salaried income between £12,571 and £50,270. The ‘higher rate’ threshold of 40% kicks in between £50,271 and £125,140, after which an ‘additional’ rate of 45% then applies.

Property

Second homeowners also face a bigger tax bill. Starting tomorrow (31 October 2024), there will be a 2% rise in the stamp duty land surcharge, taking the new rate to 5%. 

Business

The biggest tax burden of this Budget has arguably landed on the shoulders of businesses and business owners.

From April 2025, employer’s National Insurance (NI) will increase by 1.2% to 15%. 

Res non-dom (RND)

The removal of the RND tax regime by the previous Conversative government stole the thunder of Labour who had long touted the prospect of removing tax perks for wealthy foreigners in the UK.

However, the Chancellor doubled down on her party’s earlier commitments with a pledge to remove the concept of domicile from the UK tax system, starting from April 2025.

A new “residency-based regime” was also announced from 6 April 2025.  Broadly speaking, individuals who have been UK resident for 4 years or more will be subject to worldwide taxation on income and gains. 

After 10 years of UK residence, their global assets will be in scope for UK Inheritance Tax.  However, there is some good news, as the planned ‘10-year tail’ that would exist if an individual left the UK after being resident for 10 years, will now be phased in; for those who are resident between 10-13 years, their exposure will remain for 3 years after ceasing UK residence, which is the same as current rules.  For every year of residence thereafter, the tail increases by 1 year, all the way up to 20 years of residence, when the tail will exist for 10 years upon ceasing UK tax residence.

Specific announcements have been made with respect to offshore trusts.

Carried interest

Given recent speculation, it was hardly a surprise to see attention turn to the Private Equity sector, and the much-discussed topic of carried interest.

The government had previously spoken of its desire to clamp down on how earnings in the space are being classified and distributed, and therefore taxed.

From April 2025, the capital gains rate on carried interest will rise to 32%. And from April 2026, Rachel Reeves also pledged to simplify the tax treatment of private equity earnings, with it being taxed within the income tax regime. Further details are to be announced. 

Fuel duty, private jets and private schools

The Chancellor continued the fuel duty freeze set by the previous government for another year.

Conversely, Rachel Reeves pledged to increase the rate of air passenger duty for private jets by 50%.

She also confirmed that the scrappage of VAT allowances for private schools will start from January 2025. This will be followed by the removal of business rates relief. 

In summary

The 2024 Autumn Budget pins Labour’s colours to the mast, with a series of policies that rely heavily on higher taxation to fund investment ambitions, including additional funding for the NHS and education The impact on investors and savers in the UK, as well as foreign residents planning on living in the UK, is significant.

For wealth holders, there is a core message that continues to stand the test of time: know the tax allowances and structures available to you and know how to best use them. Failure to do so introduces inefficiency and friction in efforts to preserve and grow wealth over the long term.

Regardless of which party is in power, it is being proactive rather than reactive, and being diversified rather than concentrated, that are generally the better options when it comes to sound financial planning.

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