The much-awaited Autumn Statement was finally delivered by Rachel Reeves (the UK’s first female Chancellor) on the 30th of October 2024.
The tax rises were not unexpected. However, their precise manifestation took many by surprise. Investors, in particular, are still digesting the implications for their portfolios.
In this article, we explain how the Autumn Statement directly affects UK investors now – and how its knock-on effects could impact portfolio planning in the months ahead.
Capital Gains Tax
For some time now, capital gains tax (CGT) rates in the UK have been far lower than income tax rates. In 2023-24, a basic rate taxpayer would pay 10% on the disposal of chargeable shares (e.g. in a general investment account).
Now, however, they will pay 20% under the Autumn Statement’s latest changes. For higher rate taxpayers, the rate will be 24% instead of 20%. CGT rates for property (e.g. Buy to Let sales) have stayed the same.
Naturally, this makes it more difficult for investors to generate tax-efficient returns – especially with the shrunken Annual Exempt Amount, which now stands at just £3,000 per year (compared to £12,300 three years ago).
The increase in CGT has some key implications for investors:
- ISAs are likely to become more important for tax-efficient investing. In 2024-25, individuals can contribute up to £20,000 to their ISAs each tax year (this limit has been frozen). Any capital gains accrued inside will be tax-free.
- Pensions could also become more attractive. Any investment growth within a defined contribution scheme is free from CGT.
- Venture capital programmes like the Enterprise Investment Scheme (EIS) are also poised to draw more investor interest. EIS offers a “CGT deferral” mechanism, which can help investors delay paying CGT on their non-EIS asset disposals (e.g. until a future tax year, when the tax landscape could be more favourable).
Alternative Investments
Fortunately, the Autumn Statement did not directly change the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS).
However, it did target certain alternative investments. Specifically, AIM (alternative investment market) shares will no longer enjoy 100% inheritance tax (IHT) relief.
This will have big implications for estate planning. Now, an effective tax rate of 20% will apply to AIM shares upon the owner’s death if their estate is over the nil rate band (£325,000).
Whilst this is better than the 40% typical IHT rate levied on someone’s assets when they die, the AIM change will likely require certain investors to re-think their long-term financial plans.
Employer National Insurance
One of the biggest changes in the Autumn Statement was the 1.2% increase in employer National Insurance (NI) contributions, increasing the rate to 15%.
Whilst not a direct tax on investors, this could have key knock-on effects on shareholders. The rise in employer NI raises costs for firms, including startups.
To cover those costs, many will need to pass them down to consumers (raising prices) and/or staff (delaying plans for pay rises and recruitment).
The result could be depressed profit margins across many verticals. This is especially pressing for businesses that employ people on the Living Wage since this will increase to £12.21 in April 2025.
Some startups are better placed to manoeuvre around these changes. For instance, SaaS firms could avoid excessive cost increases by offshoring certain job roles (e.g. sales). Moreover, accelerating automation – such as via artificial intelligence (AI) – could be a solution.
Other sectors, like retail and hospitality, are in a more difficult position after the Autumn Statement due to their workforce-heavy business models.
Investors should factor this new tax landscape – and its effects on different verticals – into their portfolio planning going forward.
Pensions
Pensions have long been a popular “vehicle” for building retirement wealth. They offer tax-free dividends and investment growth, and members can claim tax relief on their contributions (equivalent to their highest marginal income tax rate).
However, the Autumn Statement did remove a key pension perk—their IHT-free status. From April 2027, pension pots will no longer fall outside an individual’s estate when they die.
This means that pensions have become less valuable as an estate planning tool. In short, it will soon be harder to mitigate IHT by moving large capital amounts (e.g. from general investment accounts) to pension pots to mitigate IHT.
How EIS Can Help
Overall, the Autumn Statement brought much tough news for business owners and investors (we have yet to even talk about how farmers could be hit by the new Agricultural Property Relief [APR] rules).
However, there is good news in that the government has largely left EIS, SEIS and venture capital trusts (VCTs) alone. Indeed, it confirmed an extension to the “sunset clause” until 2035.
EIS, in particular, still offers powerful mechanisms to generate tax-efficient returns (albeit at a higher risk level, given the younger nature of the companies). These include:
- Up-front 30% income tax relief on the value of EIS investments, up to £1 million per tax year (or £2 million if the EIS companies qualify as “knowledge-intensive”).
- Loss relief on EIS shares sold below the investor’s original purchase price. This is equivalent to the investor’s highest marginal rate (e.g. 45% for an additional rate taxpayer).
- IHT relief on EIS shares held for at least 2 years. This previously stood at 100% under the old Busines Relief rules. However, after the 2024 Autumn Statement, an effective 20% rate will apply.
- CGT relief on shares held for at least 3 years (assuming you have claimed income tax relief on them and the companies still qualify.).
- CGT deferral, which allows an investor to “put off” CGT due on non-EIS assets if the gains are reinvested into EIS shares.
If you’d like to make sure you’re taking the right steps to safeguard your financial future, please get in touch.
