Autumn Budget
Market Commentary
The £40bn tax raise
(2 min read)
30th October 2024
Note: this is page may be updated over time.
After four months of an information vacuum, which had been filled with all sorts of speculation, surrounding the new government’s economic policy – the UK stock market has flat lined during this period – Rachel Reeves delivered her tax and spend plans in today’s budget.
The economic forecasts, apart from government borrowing, look reasonably benign if not optimistic. The Office for Budget Responsibility’s (OBR) GDP forecast is for the economy to grow by 1.1% in 2024 (up from 0.75% in March) by 2.0% in 2025 and grow in a 1.5% to 1.75% range out until 2029. Inflation is forecast to remain close to the 2.0% Bank of England target, which has been maintained. Public sector borrowing is forecast to rise from £121.9 billion last year (4.5% of GDP) to £127 billion this year before falling back to £70.6 billion by 2029/30. Tax as a share of GDP is forecast to rise from 36.4% this year to a historic high of 38.2% - see chart below. The fiscal rules were also changed to allow increased borrowing for investment.
It will be interesting to see how the Bank of England reacts to the budget when it meets next week, 7th November, to decide whether to cut interest rates.
How does this affect me?
The chancellor raised taxes by £40billion. Here are the main changes that could could impact investors:
Capital Gains Tax (CGT): now aligned to residential property CGT. Lower rate increased from 10% to 18% and higher rate increased from 20% to 24%, effective 30 October 2024. CGT increases are less than feared, remaining below income tax rates.
Residential property CGT: remains unchanged at 18% basic rate and 24% higher rate.
Inherited pensions: brought into estates and therefore liable for inheritance tax from April 2027.
Inheritance Tax (IHT) and Business Relief (BR): the first £1m of combined business and agricultural assets will continue to attract 100% IHT relief (0% inheritance tax), but for assets exceeding the £1m lifetime cap then 50% relief will apply (an effective rate of 20% inheritance tax).
Nil Rate Bands (NRB): the rates at which you pay no IHT are frozen until 2030, an extension from 2028.
Alternative Investment Market (AIM): shares listed on the Alternative Investment Market (AIM) attract 20% IHT (previously 0% IHT).
Stamp Duty Land Tax (SDLT): surcharge on second homes increased by 2% to 5%.
Meanwhile:
No change to ISA allowances or ISA tax benefits.
No change to pension contribution tax relief or tax free cash entitlements.
No change to capital gains tax uplift on death.
No change to 100% inheritance tax relief on all assets passed to a spouse on death including a pension.
Tax as a share of GDP is forecast to rise from 36.4% this year to a historic high of 38.2%
