UK 2024 Budget: CGT, National Insurance Contributions and Pensions overview
The UK’s 2024 Budget introduces significant updates across tax and relief categories, which will impact both business owners and individual investors alike. Changes to capital gains tax (CGT) rates mean that anyone selling assets, like shares or property, may now face higher tax liabilities on their gains. Meanwhile, the reduction in Business Asset Disposal Relief (BADR) rates increases tax on gains for business owners, raising the CGT rate on qualifying disposals from 10% to 14%—a shift aimed at increasing tax contributions from high-value business sales. These adjustments, especially for high-net-worth individuals or those with substantial investment portfolios, could prompt a re-evaluation of asset sale strategies, as the timing and structure of these transactions may now have more significant financial implications.
Other updates, such as changes to employer National Insurance contributions (NICs), will directly impact both employees and business owners, potentially altering payroll structures and employment costs across sectors. The new enforcement of inheritance tax (IHT) on certain pension inheritances further expands tax liabilities on estates, affecting beneficiaries’ take-home values from inherited pensions. This change, along with the increased CGT on certain assets, may prompt individuals to seek alternative legacy planning and tax-efficient wealth transfer strategies. By implementing these changes, the 2024 Budget signals a strategic shift toward capturing more tax revenue from wealth accumulation, making financial planning an essential focus for anyone with assets at risk of higher taxation.
Capital Gains Tax Increases
Current System
As of the last tax year, capital gains tax (CGT) rates in the UK were 10% for basic-rate taxpayers and 20% for higher-rate taxpayers, with rates for residential property gains set at 18% and 28%. The CGT allowance was reduced in 2023 to £6,000 and to £3,000 from April 2024.
Budget Changes
The 2024 budget proposes further increases to CGT rates, with basic-rate taxpayers now facing a 18% rate and higher-rate taxpayers seeing a jump to 24%. Residential property CGT rates will remain the same; 18% and 28% for basic and higher-rate taxpayers respectively. The £3,000 CGT allowance also remains the same.
Implications
This increase means significantly higher taxes on the sale of shares, property, and other assets. Investors may see a drop in their post-tax returns and could adjust their strategies to account for the higher tax burden. Those who typically rely on the CGT allowance, such as individuals selling smaller portfolios may feel this impact the most.
An important point here is that these increased rates apply immediately.
Case Study
Consider Lisa, a higher-rate taxpayer who has already made use of her CGT allowance, who recently sold shares with a gain of £100,000. Under the previous rules, she would pay capital gains tax (CGT) at a rate of 20%, resulting in a £20,000 tax bill. With the new changes, her CGT rate increases to 24%, meaning she now faces a £24,000 liability. This £4,000 increase illustrates how these revised rates can quickly impact the post-tax returns on significant share gains, encouraging investors to reassess their strategies.
Employers National Insurance Contributions
Current System
Currently, employers pay National Insurance Contributions (NICs) of 13.8% on most employees’ salaries above a threshold. NICs are a crucial revenue stream for the government, funding services like healthcare and pensions.
Budget Changes
From April 2025, the government will increase the employer’s NICs to 15%. They are also reducing the threshold at which employers must start paying NI on workers’ earnings, from £9,100 to £5,000. This shift aims to secure additional funding for public services, but it means higher operating costs for businesses.
Implications
Employers may feel the pinch, especially smaller businesses or those with high staff numbers. Higher NICs could reduce hiring plans, lead to restructuring, or shift companies toward freelance and part-time employment models to manage costs. It’s worth noting that the ‘employment allowance’, within which no National Insurance is due, will increase from £5,000 to £10,500, protecting employers with smaller workforces.
Case Study
Take Jamie, who owns a small tech startup with 15 employees. Each employee earns an average salary of £35,000, and under the current rate of 13.8%, Jamie pays £4,830 in NICs per employee, totalling around £72,450 annually. Under the new rate of 15%, this cost jumps to £5,250 per employee, adding £6,300 to his NICs costs each year. For Jamie, this increase could mean reallocating funds from expansion plans to meet payroll tax requirements.
Note that, in this simplified case, we haven’t outlined how the increase in the employment allowance mitigates Jamie’s employer National Insurance liability.
Business Asset Disposal Relief
Current System
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs' Relief, currently provides eligible business owners with a reduced capital gains tax (CGT) rate of 10% on gains up to a £1 million lifetime allowance. This relief was designed to encourage entrepreneurs by allowing them to pay a lower tax rate on the sale of qualifying business assets.
Budget Changes
The 2024 budget increases the rate on qualifying BADR gains from 10% to 14%, effective from April 2025, and to 18 per cent from 2026/27. Importantly, the £1 million lifetime allowance for qualifying gains remains unchanged.
Implications
With this increase, business owners selling their businesses will face a higher rate on gains, which reduces the net proceeds available post-sale. Although the lifetime limit remains the same, the rate increase may still lead business owners to reassess the timing of their exits or alternative financial planning strategies to minimize the impact.
Case Study
Let’s consider Alex, an owner of an online retail business who plans to sell for a £700,000 gain. Under the previous 10% rate, his liability would have been £70,000. However, with the new 14% rate, Alex will now owe £98,000 on the same gain—a £28,000 increase from the previous rules. This shift illustrates how the higher rate could impact many small business owners like Alex, making it essential for them to carefully consider the timing of any planned sales and factor in the new rate when calculating their after-tax proceeds.
Inheritance Tax on Pensions
Current System
Inheritance tax (IHT) is typically applied at a rate of 40% on estates valued above the £325,000 threshold. Under current rules, most pensions remain outside the scope of IHT, allowing pension wealth to be passed to beneficiaries without significant tax liabilities. This exclusion has made pensions an effective tool for tax-efficient wealth transfer.
Budget Changes
The 2024 budget outlines plans to enforce IHT on pensions. Starting from April 2027, pensions will be subject to IHT when inherited, particularly affecting pension wealth transferred to beneficiaries. This enforcement will have a significant impact on the total wealth that can be passed down by families.
Implications
This adjustment impacts individuals who plan to pass on substantial pension assets to their heirs, as IHT could now reduce the inheritance value. Those affected may seek financial advice on alternative, tax-efficient methods for transferring wealth, such as lifetime gifting or using trusts, to mitigate the impact of these changes.
Case Study
Consider Sarah, who has a £500,000 pension she intends to leave to her daughter. Under current regulations, this transfer would bypass IHT entirely. However, starting in April 2027, her daughter could face an IHT liability of 40% on the amount above the £325,000 threshold, potentially reducing the inheritance by £70,000. For families like Sarah's, this change underscores the importance of reviewing estate plans and exploring strategies for tax-efficient legacy planning.
Final Thoughts
These UK 2024 Budget changes highlight shifts in personal and business tax landscapes, especially for capital gains, employer NICs, business owners, and inheritance of pensions. For many, understanding these impacts is crucial to making informed financial decisions. If you’re considering how these changes affect your finances, its crucial to seek personalized financial advice to optimize your strategies under the new rules.
Get in touch
Do you have a question about the budge announcements? We’re here to make it simple. Leave us a message via the submission form button below, and let’s chat. We’re always happy to help.
No financial decisions should be taken based on the content of this website or associated videos. The guidance contained within this website is subject to the UK regulatory regime and is therefore primarily aimed at viewers in the UK. Always take full individual advice first. Regulations and legislation governing taxation, investments and pensions may change in the future.
The content on this page is accurate as of the 2024-25 tax year.