Budget 2024: Views from BRI Wealth Management

After months of speculation and worry we finally know what taxes will be increased to try and fix the country. We also know what the definition of a working person is, enlightening for many, I’m sure! Despite the months of endless speculation and raft of changes announced, Reeves fell far short of taking the award for the longest budget ever speaking for ‘only’ 79 minutes (Gladstone in 1853 took a whopping 4 hours 45 minutes!)  about how she proposes to fix broken Britain. I’ll cover off the main announcements in the budget and try and provide some analysis where possible. As you’ll appreciate, there is a lot to digest and consider, and for a fuller analysis then we’ll be sending something out over the coming weeks.

Tax Rises

 Capital Taxes

• CGT rates- The lower rate increased to 18% from 10%, higher rate to 24% from 20%. CGT rates for property will stay the same at 18% and 24% for basic and higher rate taxpayers respectively. Effective immediately. Not as bad as people feared.
• BADR(Entrepreneurs relief)- The allowance remains at £1m, but the rate of tax increases to 14% from 6^th April 2025, and 18% from 6^th April 2026. This is clearly bad news for small business owners, with a potential £80k tax hit from April 2026 onwards. We expect to see a significant uptick in small business exits over the coming months.
• IHT- Reeves extended the allowance freeze to 2030 from 2028. That is, the £325k allowance and the potential £175k residential nil-rate band remains in place until 2030.
• IHT/Pensions- Pensions will now fall into a person’s estate as of April 2027. This is a huge change for pensions and will be incredibly complicated to implement. The devil will be in the detail. Pensions have been used as an inter-generational vehicle for transferring wealth, and it’s likely that pensions will be drawn upon sooner than before.
• Business/Agricultural Property Relief- from April 2026 BR/APR will only apply to the first £1m of assets, in addition to the usual allowances. Thereafter, 20% tax will be levied. The AIM market which currently attracts BPR will attract a tax of 20% in all circumstances. These are dreadful policies which will significantly impact business owners and farmers, and lead to lasting economic damage. Having reflected on this in the last few days, it is even more damaging than I originally envisaged. There are a number of ways that people can mitigate this, though it requires careful planning.
• Carried Interest (Private Equity)- A new CGT rate of 32% will apply from April 2025.

Employment Taxes

• Employers’ National Insurance to 15% from 13.8% from April 2025. The threshold for paying NI has also decreased to £5000 from £9100. This is a huge tax increase for businesses and is a bit of a sucker punch given all that businesses have gone through over the past 5 years.
• Not a tax per se but minimum wage set to rise by 6.7%, £12.21 per hour, and a single adult rate phased in over time.
• This causes a huge amount of pressure for businesses. Small businesses account for 61% of total UK employment and it really feels like they’re being targeted disproportionately in this budget.

Property Taxes

• Stamp duty- The surcharge for stamp duty on additional dwellings will increase by 2% to 5%.

Changes to definitions of debt

• Moved to Public Sector Net Financial Liabilities (PSNFL) from Public Sector Net Debt (PSND). Moving to PSNFL includes a wider range of government assets, thus enabling greater borrowing. This provides an extra c.£50bn of additional firepower for long-term investment as opposed to day-to-day expenditure. Our self-imposed fiscal rules have always been a bit too rigid and short-term in nature. This is a sensible move from the Chancellor, assuming the investments are reasonable, and projects are managed carefully.

 Market reaction

• UK Government Bonds – Price have fallen and the yield on the 10-year gilt has risen from 4.2% to 4.44%. Not the biggest sign of confidence and quite damaging.
• FTSE 100- has been broadly flat. We have seen some rotation from large international companies to those that are domestically orientated, mainly due to the additional money being pumped into the economy.
• FTSE 250- domestic companies initially rallied but we’ve seen some quite sharp falls in house building companies and other associated industries.
• AIM 100 Market- up c.3%. Whilst IHT will now be levied at 20% on AIM shares, it’s better than feared and we’re seeing a relief rally.
• Sterling- marginally weakened given the increased spending and prospect of interest rates staying higher for longer. This is an inflationary budget and the Bank of England will need to be more careful with rate cuts.

The budget raises c.£40bn in total, which appears to be the largest amount of tax rises to have ever occurred in a budget. Overall, whilst many would agree that the country needs investment and reform, a number of the revenue raising measures have the potential to cause significant economic harm. There is a lot of detail to work through, but the main areas of concern are around costs for small businesses, the exemptions for IHT (including pensions become liable for IHT), and increases to the rates of capital gains taxes. The positive is that a significant amount of money will be directed towards investing in the economy and infrastructure. This was meant to be a budget for growth, but it doesn’t feel like that.

There are a lot of threats for many people in this budget, but a number of these can be mitigated with appropriate planning. Please feel free to contact us if you have any questions.

This is a personal blog post.  Any opinions, findings, and conclusion or recommendations expressed in this article are those of the authors and do not necessarily reflect the view of the Centre for the New Midlands or any of our associated organisations/individuals.

ABOUT OUR AUTHOR:

Dan joined BRI in 2011 and has held roles of increasing seniority within the investment team at BRI. Dan left BRI in 2017 to conduct an MBA at Warwick Business School, specialising in the strategies of high growth companies. Dan was appointed to the position of Chief Executive in April 2022. Dan is a Chartered Fellow of CISI, holds an MBA from Warwick Business School, and is the Chairman of a charitable trust. Dan regularly features on television and in national newspapers commenting on investment and finance matters. Dan has also been awarded the Citywire top 30 under 30 rising stars of investment management three times and the IOD West Midlands Young Director of the Year in 2016.

“If you would like assistance with financial planning matters, then please don’t hesitate to contact me via dbw@brigroup.co.uk”