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While Budget 2024 introduced several growth-focused incentives, it also comes with some potentially challenging changes for individuals and businesses. At Black and White Accounting, we know that understanding the full picture is essential for effective financial planning, so we’re here to highlight the changes that may impact you negatively—and what you can do to mitigate them.
Let’s look at the adjustments in rates, allowances, and reliefs that could affect your bottom line.
1. Capital Gains Tax (CGT) Annual Exemption Cut
One of the most significant downsides is the reduction of the Capital Gains Tax (CGT) annual exempt amount from £6,000 to £3,000. This cut is likely to impact investors, property owners, and anyone selling valuable assets. The reduced exemption means that individuals will pay tax on a greater portion of their gains, potentially increasing their tax liabilities.
What to consider: For those with significant assets, strategic planning around sales, gifts, and transfers is more important than ever. We can help explore options like using tax-efficient investment vehicles and offsetting gains with losses to minimise the impact.
2. Inheritance Tax (IHT) Threshold Freeze Amid Rising Property Prices
The Inheritance Tax (IHT) threshold remains frozen at £325,000 despite climbing property values, which could push more estates over the taxable threshold. This freeze essentially increases the likelihood of IHT liabilities for many families as property and asset values continue to rise, making efficient estate planning more crucial than ever.
Our advice: Proactive planning around IHT can make a substantial difference. We’re here to help with strategies like gifting, trusts, and other planning tools to reduce the IHT burden on your loved ones.
3. Higher National Insurance (NI) for Some Businesses
While smaller businesses received an NI reduction, larger businesses face an increased burden, with National Insurance Contributions (NICs) rising by 1% for businesses with more than 50 employees. This change is likely to affect medium-sized companies already contending with rising costs and wage pressures, and it may slow down hiring and growth.
What to consider: For businesses affected, it’s worth reviewing workforce planning and employee benefits. We can advise on structuring payroll to reduce the impact, as well as exploring reliefs or incentives that may help balance the higher NICs.
4. Income Tax Band Adjustment for Higher Earners
Labour’s Budget brought a new 45% income tax rate on earnings above £150,000, effectively creating a higher tax band. Additionally, with the higher-rate threshold raised to £55,000, some individuals previously in the higher band may find themselves paying even more tax as they move up into the new band.
What to consider: For high earners, this change makes it more valuable than ever to explore tax-efficient savings, pension contributions, and other income-shielding options. We’re here to help optimise your tax strategy to manage these additional costs.
5. Reduced Pension Lifetime Allowance
In a significant shift, the Pension Lifetime Allowance has been reduced to £900,000, down from over £1 million. This means that high earners nearing retirement may hit this threshold faster, leading to an additional tax charge on any contributions or growth beyond this limit.
Our advice: If your pension is approaching this threshold, now is a critical time to review your retirement strategy. We can work with you to explore options like alternative savings vehicles or even restructuring your pension contributions to help avoid excess charges.
6. Corporation Tax Complexity: New Reliefs But No Rate Drop
While the headline Corporation Tax rate stays at 25%, the Budget introduced multiple new reliefs for green and tech investments, making it more complex for businesses to understand what they owe. Businesses that don’t meet the specific criteria for these reliefs may see no reduction in their tax rate but still face increased administrative burdens.
What to consider: For businesses without qualifying green or tech projects, it’s essential to plan for the full 25% rate. We’re here to support you in finding efficiencies elsewhere and exploring any reliefs or incentives that may be available.
7. Reduction in Tax-Free Dividend Allowance
The tax-free dividend allowance has been reduced from £1,000 to £500. This will impact shareholders, business owners, and anyone relying on dividend income as a significant source of earnings. With this lower threshold, more dividend income will now be subject to tax, which could decrease net returns for investors.
Our advice: For business owners and investors, it’s worth revisiting your income strategies. This may include exploring other tax-efficient distributions, drawing income via different structures, or timing dividends to minimise tax.
8. VAT Rise on Digital Services
To align with international tax standards, VAT on digital services provided to consumers has increased to 20% from 5%, impacting businesses offering digital goods and services. This change could raise costs for businesses providing digital services to UK consumers, especially smaller companies without a large pricing buffer.
What to consider: For digital businesses, it may be necessary to adjust pricing strategies or explore efficiencies to offset this VAT increase. We’re here to help with guidance on VAT-compliant pricing structures and cost-management strategies.
9. Deductions on R&D Tax Credits Adjusted
While R&D tax credits were enhanced for SMEs, some businesses—especially larger corporations—saw a reduction in the rate of R&D credits they can claim. This could deter innovation spending for some mid-sized companies and larger entities.
Our advice: If your business relies on R&D credits, it’s crucial to review your qualifying costs and ensure all claims are maximised. We’re here to help with efficient claiming processes and strategies for continuing innovation cost-effectively.
10. Higher Stamp Duty Land Tax (SDLT) for Second Homeowners
From tomorrow, individuals purchasing additional properties, including second homes and buy-to-let investments, will face an increased Stamp Duty Land Tax (SDLT) surcharge of 5%, up from the previous 3%. This increase will apply to both residential and commercial properties, raising the entry cost for those expanding their property portfolios. The higher rate is expected to impact investment decisions, potentially deterring some buyers from entering or expanding in the property market.
Our advice: For second-home buyers and property investors, this increased SDLT rate makes it more essential to carefully evaluate potential property returns and long-term profitability. At Black and White Accounting, we’re here to help you explore tax-efficient strategies, review your property investment plans, and assess other ways to optimise returns in light of this change.
Final Thoughts: Proactive Planning is Essential
Budget 2024 brings both opportunities and challenges. While there are benefits in certain areas, the downsides—such as reduced allowances, frozen thresholds, and increased taxes for specific groups—make strategic planning more important than ever. At Black and White Accounting, our team is dedicated to helping you navigate these changes, ensuring that you’re prepared and positioned to mitigate any negative impacts on your finances. As always the devil is in the detail and as we read more, we will provide a more detailed summary for you to review.
Whether you’re a business owner, investor, or individual navigating these new tax and allowance adjustments, we’re here to provide clear guidance and actionable strategies. Contact us today, and let’s tackle Budget 2024 together.
