Following weeks of speculation the 2024 Autumn Budget has been announced.
In what is one of the largest tax rising budgets in history, Rachel Reeves has set out her plans to ‘restore stability in the economy’ by raising £40bn in taxes.
She reiterated plans for investment in public services, and granted additional funding to devolved governments, which will see Scotland benefit from an extra £3.4bn in a new growth deal.
There is a lot to unpack, and our teams of expert lawyers have been busy analysing how these complex legislative and tax changes could impact businesses, individuals, employers and landowners.
We would advise all clients to review their assets and income with the support of our teams who are best placed to identify what opportunities are available.
In the meantime, three of Thorntons’ experienced Partners outline what these new regulations could mean for clients.
Considerations for Employers
Noele McClelland, Partner in Thorntons’ Employment Law division said:
Businesses and employers will be one the most affected by the Budget and the recent Employee Rights Bill, with costs and obligations to intensify.
The increase in the National Living Wage by 6.7% to £12.27 for those aged 21 years and above, and by 16.8% to £10 for those aged 18-20, along with a ‘move towards’ introducing single adult rate, is significantly above average pay awards and will very likely apply upward pressure on pay differentials.
While it is expected that this will increase participation of women in the economy, there is speculation amongst analysts that it could become a deterrent to employing more people and could have the negative affect of stagnating wage rises, as employers foot the majority of the new tax bill.
The 1.2% increase in employer National Insurance Contributions (NIC) has arguably been the biggest headline grabbing announcement of the Budget. This, together with the reduction of the threshold at which employers pay NIC from £9,100 to £5,000 will increase costs significantly.
For small businesses and charities with employer Class 1 NICs below £100,000, the Employment Allowance, which allows a reduction in the NICs employer’s, has increased from £5,000 to £10,000, will help the smallest employers.
The Apprenticeship Levy will be transformed into a new Growth and Skills Levy. This will be developed with employers, colleges and learners to give young people a clearer route into careers in critical sectors and will enable them to collect a wage while developing vital skills.
Beyond the Budget, the Employee Rights Bill which the Government labelled ‘the biggest upgrade to rights at work in a generation’ has unveiled even bigger changes.
Day 1 rights to unfair dismissal and more wide-reaching family friendly rights, including greater protection against dismissal for those returning from maternity leave, will have an impact on existing policies. Employers will now have the job of updating their current frameworks to ensure compliance with these new rules and may need to consider upskilling managers to ensure policies are properly understood.
Change will not be immediate and there are still uncertainties around the specifics. For example, Labour may well introduce a cap on probationary periods to nine months to ensure employers can’t exploit the loophole by implementing long review periods.”
Considerations for Private Clients
Audrey Dishington, Partner in Thorntons’ Private Client Team said:
With the Budget, the devil is always in the detail, and we will know much more about how these changes will impact clients in the coming days.
Changes to Inheritance Tax (IHT) was one of the most widely anticipated items in the Budget. However, rather surprisingly, many of the main rules around IHT will remain the same until 2030. For example, both the Nil-Rate Band is unaffected at £325,000 and the Residence Nil-Rate Band will stay at £175,000 for the next six years. Both bands continue to be transferable, which allows couples to combine their allowances, and continue to shield their estate from IHT.
Where individuals will see the pressure is through changes to Business Relief and Agricultural Property Relief on IHT from April 2026, this includes shares held in the Alternative Investment Market.
Pension Pots were traditionally seen as a loophole for the transfer of assets. Moving forward, unspent pension pots that are transferred to a relative who is not a spouse or civil partner may be subject to 40% inheritance tax as these assets will fall into your estate, where assets over the £325,000 threshold are taxable. With this in mind, we would advise individuals to consider reviewing their pension strategies to mitigate potential tax liabilities in the future.
Capital Gains Tax (CGT) was one of the most impacted areas, with significant adjustments outlined. Effective immediately, the lower rate will rise from 10% to 18%, while the higher rate will increase from 20% to 24%.
The residential property rates will remain unchanged, however, the increase in general rates will impact those who are considering selling or transferring assets, including second properties, stocks and shares, art, antiques or jewellery.
The abolishment of charitable status for independent schools and the application of the 20% VAT on fees, was one of the most publicised policies of the Labour Government.
This new framework will come into effect from 1 January 2025, with provisions in place for pupils with special educational needs that can only be met in a private school and for children of diplomatic staff and serving military personnel.
Income Tax will see no immediate increases. Whilst income tax charged on savings and dividend income is aligned throughout the UK, people resident in Scotland are taxed differently on their employment income, property income and self-employed trade profits. We currently have six income tax rates and any changes to these will be announced in the Scottish Budget on the 4 December.
Considerations for Rural Landowners
Kenneth Mackay Partner and Head of Thorntons Land & Rural Business team, said:
Rural landowners are one of the biggest groups impacted by the Autumn Budget, with many facing a raft of significant changes.
Changes to Inheritance Tax are particularly noteworthy for rural landowners. Reforms to Business Property Relief and Agricultural Property Relief from April 2026 will mean that combined business, (including commercial woodland and potential development land) and agricultural assets over £1m will now be subject to hefty inheritance tax frameworks.
While Reeves noted that assets below the £1m threshold will not be subject to additional liabilities, the news will mean big changes for most rural landowners, with the average value of Scottish farms estimated to be around £3m. This means inheritance tax bills could reach approximately £400,000 for the majority of farmers.
The introduction of increases in Capital Gains Tax with effect from 30 October is disappointing and is in effect retrospective legislation which may have caught out a number of landowners.
However, for some the extension of the Agricultural Property Relief framework to land managed under environmental agreements with the UK and devolved governments or other public bodies may help to reduce liabilities on the passing of assets upon death.
Agricultural funding will likely be linked to the Barnett Formula moving forward, which will incur a significant reduction in overall agricultural funding unless the Scottish Government are going to cover the shortfall.
Despite the challenges, there are still several opportunities for rural landowners to consider. Hold Over Relief for Capital Gains Tax (CGT) will remain in place, allowing for the deferral of tax on asset transfers. The Uplift on Death for CGT will also continue to be an important benefit, providing tax relief on inherited assets.
Lifetime Planning options such as Potentially Exempt Transfers (PETs) and transfers to trusts are still viable for tax-efficient estate management.
If you have any questions about how these legislative changes may affect your personal or business financial planning, contact us on 03330 430350.
