This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in September 2024?
Now that the much-anticipated Autumn Budget has been unveiled, we’re here to unpack the latest tax reforms introduced by the new Labour government. As expected, this ‘Halloween Budget’ has brought a mix of changes aimed at addressing the substantial £22 billion gap in government finances.
The Chancellor Rachel Reeves has focused on three main areas:
- Inheritance Tax;
- employer National Insurance; and
- capital gains tax.
Keep reading to find out what impact the 2024 Autumn Budget will have.
What happened to stock markets?
In the UK, the FTSE 250 Index fell by over 3% in October. This brings the year-to-date performance close to +4%.
Source: BBC Market Data
In Europe (excluding the UK), the EuroStoxx 50 Index fell by almost 4% in October. This brings the year-to-date performance close to +7%.
Source: BBC Market Data
In North America, the S&P 500 Index fell by 1% in October. This brings the year-to-date performance close to +20%.
Source: BBC Market Data
In Japan, the Nikkei 225 Index rose by over 3% in October. This brings the year-to-date performance close to +17%.
Source: BBC Market Data
In the Asia Pacific (excluding Japan), the Hang Seng Index fell by almost 4% in October. This brings the year-to-date performance close to +19%.
Source: BBC Market Data
What impact will the 2024 Autumn Budget have on pensions?
Here’s a summary of the incoming changes announced on 30 October.
How is Inheritance Tax changing?
In the UK, your ‘estate’ is the value of all your financial holdings, including: cash, debts, investments, and property. This is used to calculate the amount of Inheritance Tax (IHT) that’s payable by your beneficiaries.
- IHT thresholds remain frozen - if the value of your estate is below £325,000, your beneficiaries won’t pay IHT. The 40% IHT rate still applies for the amount over £325,000.
- Certain exemptions still apply - if you leave 10% or more of your estate to charity, a reduced rate of 36% IHT will be applied to estates valued over £325,000. Also, your tax-free threshold may increase to £500,000 if you leave your home to your children, grandchildren, or great-grandchildren.
- Pensions will become part of your estate - this change comes into effect from April 2027. Historically the rules have been that if you die before age 75 and hadn’t withdrawn from your pension, your beneficiaries would have two years to claim your entire pot tax-free.
According to HMRC, only one-in-20 estates in the UK pay IHT. However, between frozen rates, rising property valuations and the inclusion of pensions; it’s hard to imagine that number remaining so low in future years.
How is National Insurance changing?
National Insurance Contributions (NIC) are important because they contribute to state benefits and pensions. You pay these contributions alongside your tax, and your employer deducts them from your wages before you receive your paycheck.
- No change to employee’s National Insurance (NI) - the government kept their manifesto pledge on not raising either: income tax, employee’s NI or VAT.
- Rise in employer’s NI - there will be a rise in employer’s NI, from 13.8% to 15%, in April 2025. Plus, the threshold where these contributions are due has dropped from £9,100 to £5,000 from April 2025.
This isn’t good news for employers. The Chancellor said this would raise £25 billion a year by the end of the forecast period. A small silver lining remains: that employers don’t have to pay NI on pension contributions.
How is capital gains tax changing?
Capital gains tax (CGT) is a tax on the profit you make when selling an asset that has increased in value. It’s the profit itself that gets taxed, not the total amount you receive from the sale.
- CGT raised for all - the lower rate was raised from 10% to 18%, while the higher rate was raised from 20% to 24% from 30 October. However, there’ll be no increase on the 24% capital gains rate imposed on second properties.
Despite these increases, the Chancellor claimed the UK will still have the lowest CGT rates in the G7. However, analysts have predicted that increasing CGT could result in lower overall tax revenue by the 2027/28 tax year.
What about the average worker?
In a significant boost for workers across the UK, the National Living Wage is set to increase from the current £11.44 to £12.21 in April 2025. This welcome change will not only enhance take-home pay, but also contribute to long-term financial security through increased pension contributions via Auto-Enrolment.
There’s good news for young workers too. The National Minimum Wage will rise to £10 for workers who are between 18 and 20 years old; and £7.55 for under 18s and apprentices. There’s a long-term plan to gradually align the National Minimum Wage with the National Living Wage.
Personal tax thresholds for income tax and NI have been frozen for some time, which means that as inflation increases wages, more people end up paying higher taxes without actually earning more in real terms. This situation is often referred to as a “stealth tax”. The Chancellor has announced that starting from the 2028/29 tax year, these thresholds will be adjusted to keep pace with inflation.
In summary
The Autumn Budget revealed the government’s challenge of balancing increased revenue needs with support for workers. The upcoming changes to CGT are expected to make tax-free savings products like ISAs more attractive to savers. On the other hand, changes to IHT might discourage people from saving into a pension.
While shifting the tax burden to businesses may seem beneficial, this squeeze could significantly impact hiring and wage growth, meaning that employees might not be as protected by this budget as it initially appears. Nevertheless, the planned increases in the National Living Wage and National Minimum Wage aim to enhance living standards in the face of rising inflation.
Have a question? Get in touch!
Do you want to know more about your pension plan with PensionBee? You can check out our Plans page to learn how your money is invested in different assets and locations, or log in to your BeeHive to see your specific plan. You can always send comments and questions to our team via engagement@pensionbee.com.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
