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Switch NowThe Chancellor presented her Autumn Statement on 30 October 2024.
Much had been made of the proposed tax increases in the run up to her presentation on 30 October. We’re sure that you’ve already read about much of the actual headline changes. Here, we want to talk about key issues and any planning opportunities to mitigate pending changes to the tax system.
The rate is increasing from 13.8% to 15% from April 2025. The threshold where it applies from is dropping from £9,100 to £5,000. The Government predicts this will raise £25bn.
The only good news is that some small employers will be protected by an increase in the employment allowance to £10,500 from £5,000.
So, exactly who is affected? Some examples:
One thing to remember, if more than 50% of your income is from the Government, you are not entitled to the employment allowance.
As everyone’s circumstances are different, if you wish to know the precise impact on your payroll costs then please let us know and we will work this out for you.
Planning point: company with one employee who is a director
If you are a sole director/employee company, you will be unable to claim the employment allowance.
With the threshold for the employer’s NIC falling from £9,100 to £5,000, consider employing a family member of staff at just over £5,000 as this will enable you to claim the employment allowance. A family member will not be subject to national minimum wage rules.
Planning point: reducing director salary
For those employers whose national insurance will not be covered by the employment allowance you may think it is best to reduce your salary to £5,000 but remember that you currently need a salary in excess of £12,570 to get a qualifying year for your state pension.
We would suggest you login to your Government Gateway to see how many qualifying year’s you have accumulated, before you reduce your own salary.
No planning points here but if you employ staff you do need to know that the national minimum wage is increasing, especially for 18-20 year olds:
And of course, these rises will increase the employer’s national insurance.
The capital gains tax rates went up overnight from 10% to 18% for basic rate tax payers, 20% to 24% for higher rate tax payers and 20% to 24% for trusts.
The rates for Business Asset Disposal Relief and Investors’ Relief are increased from 10% to 14% on disposals after 6 April 2025 and 18% after 6 April 2026.
Planning point: selling business
If you were planning to sell your trading business in the next year or two, you may wish to consider bringing that sale forward.
For every £100,000 gain on the sale of a business the tax you pay will increase by £4,000 after 6 April 2025 and by £8,000 after 6 April 2026.
Planning point: selling investments
If you are a basic rate taxpayer and are thinking of disposing of investments then consider a sale before 5 April 2025, which could save you £80 per £1,000 of gain made.
A higher rate taxpayer could save £40 per £1,000 of gain made.
Both Business Property Relief (BPR) and Agricultural Property Relief (APR) will be restricted to 100% relief on the first £1m from April 2026 and 50% above £1m on combined values. These were previously tax free. The family business is often an asset that qualifies for BPR. Farmers rely on the APR to pass their farms to the next generation. The cashflow impact on businesses that are asset rich but cash poor will be hard.
Planning point: BPR and APR qualifying assets – lifetime planning?
Lifetime gifts could be used to mitigate against inheritance tax and the inevitable strain on cashflow to pay the tax from an existing business. However, planning is so important in these circumstances to assess the pros and cons of making these gifts.
From April 2027, unused pension funds will form part of the estate for the calculation of inheritance tax. The tax will be paid by the fund leaving less to your beneficiaries
.Planning point: Pension drawdown in your lifetime
Drawing down on your pension earlier than anticipated may avoid inheritance tax but may cause you higher income tax liabilities. It is an area where your financial advisor should be advising you to ensure you get the most tax efficient process. Certainly talk to them about drawing your tax fee sum. Leaving a pension fund to your spouse is still IHT free so there will be various options available to consider, including maximising gifts out of surplus income to reduce the value of your estate.
In the small print of the budget, they confirmed a previous proposal that double cab pickups would be treated as a car and not a commercial vehicle. This impacts the capital allowances that can be claimed and the benefit in kind that a director/employee is taxed on.
Most commercial vehicles are not subject to a benefit in kind charge where private use is incidental or the only private use is to/from work. This is now set to change.
First, the capital allowances – 100% can currently be claimed but this will change to 6% per annum.
Looking at a £40,000 Ford Ranger, the benefit in kind will be at 37% of list price of the vehicle (increasing to 39).
The benefit in kind will be £14,800 leading to an income tax charge of £5,920 for a 40% tax payer or £2,960 for a basic rate taxpayer.
Planning point: get the timing of your purchase right
There are transitional arrangements in place which we won’t go through in detail here but you need to order before 1 April 2025 and purchase the vehicle before 1 October 2025. If you already have a double cab pickup or are thinking of buying one through the business then please talk to us first so that you know what the implications are and you get your timing right. The tax implications are harsh if you get it wrong!
The benefit in kind on a company car is based on a % of the list price of the vehicle and will increase by 1% per year from 2025/26 to 2027/28. Your employer will also pay 15% NIC on this.
The government wants to continue to encourage us to use electric cars but the benefit in kind will increase by 2% to 7% in 2028/29 and then to 9% in 2029/30.
However, they are really not keen on hybrid cars. The benefit in kind on hybrids was determined by the range of the car under electric power, ranging from 2% to 14% of the list price of the vehicle.
This will change to 18% on all hybrid cars by 2028/29. This is a big increase for hybrids with a good electric range and seems to go against their green policies.
Planning point – changing car
With car contracts often being for 3 years and the increase in the benefit in kind on hybrids increasing to 18% in 2028/29, you need to think about the type of car you have when you next change car.
No planning points for the higher rate of stamp duty land tax (SDLT) as it increased on 31 October 2024 from 3% to 5% above standard residential rates. It’s already in force.
A £250,000 purchase of an additional property (or by a company) will cost an extra £5,000 in SDLT.
The 0% threshold will drop from £250,000 to £125,000 on 1 April 2025.
Planning point – buying before 1 April 2025
A £250,000 property purchased before 1 April 2025 (as your main residence) will save you £6,250 in SDLT. The key date is the date the contracts are exchanged, not the completion date.
This includes a commitment to keep the rates of corporation tax unchanged for this parliament, including the 19% rate and the £50,000 and £250,000 thresholds.
HMRC are increasing the interest rate they charge on unpaid or late tax payments by 1.5 percentage points. In particular this will impact on those estates unable to pay inheritance tax within 6 months of the date of death.
There have been significant increases in the tax burden announced in this budget which will impact on many of us. It is key to plan your financial circumstances so that any taxes can be managed as best as possible. Whilst it’s tempting to make knee jerk reactions off the back of this budget and reading this newsletter, you must seek professional advice before making any changes.
Don’t let the tax tail wag the dog.
The Team at Cleverdons
Whether you are an existing business looking to switch accountants or you are a new start up. We would love to help, so switch to us today.
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