Autumn Budget 2024: What’s the impact on divorcing or separating couples?
The long-awaited Autumn Budget was announced last week. In this blog, we pull together the key themes from the Autumn Budget that may affect divorce and family law. Our Private Client team have also produced a separate blog setting out a summary of the tax changes for individuals that you can read about here: Autumn Budget 2024: Summary of tax changes for individuals
Family Businesses
What’s new?
As a result of the Budget, family businesses will be taking two big financial hits. The first is that their National Insurance contributions for their employees will be increasing from 13.8% to 15% (and the threshold requiring contributions will reduce from £9,100 to £5,000). The second is that the National Living Wage is rising from £11.44 an hour to £12.21 an hour.
How might it affect me?
We regularly act for business owners whose business has been in their family for generations. The higher National Insurance contributions and the increase in the National Living Wage will inevitably affect their profitability and in some cases, their survival. When dealing with finances on divorce, the value of a business will be factored into negotiations. It may well be that we see more businesses with a question mark over their heads or at least a reduced valuation.
Where can I find out more?
Partner in our Private Wealth team, Catriona Attride, delves into more detail about how businesses will be affected by the budget here: Autumn Budget 2024: The impact on family businesses
Non-Dom Regime
What’s new?
Currently, those who are domiciled outside of the UK but are tax residents here can benefit from a more favourable tax treatment called the “Remittance Basis”. If you are taxable on the Remittance Basis, it means that your UK income and gains are taxable in the normal way, but your foreign income and gains are not taxable. The Autumn Budget sees this abolished over time.
How might it affect me?
High net-worth families often make decisions about where they live based on the treatment of their assets in different countries, and this may cause many to reconsider their place in the UK. In a family context, this may lead to decisions by parents to move their children abroad where it is more financially beneficial to do so, and this may lead to disagreements between parents on what living arrangements are right for their children.
Where can I find out more?
For more information about the changes to the non-dom regime, take a look at this blog from Alice Ogden, Ravi Francis and Sarah Cormack in our Private Wealth Team: Autumn Budget 2024: Changes to the Non-Dom Regime
Inheritance Tax Changes
What’s new?
There are some extensive changes coming to inheritance tax (IHT). One key change from the Budget is that unused pensions and pension death benefits will be subject to IHT from 6 April 2027. Previously, these assets were excluded from a person’s estate upon death for inheritance tax purposes. The Government are also introducing a cap of £1million for assets that would qualify for Agricultural or Business Relief.
How might it affect me?
Many individuals and families have used pensions as part of their wealth planning to avoid IHT for their beneficiaries on death. This has meant we often see individuals build up their pension in preference to other assets, such as savings or investments. Though as family lawyers dealing with finances on divorce, we do not expect to see any immediate change to the work we do, we do expect that overtime we will see this distribution of wealth change.
Where can I find out more?
Private Wealth Senior Associate, Orlando Beckett, has produced a worked example of what these changes may mean for families that you can follow here: Autumn Budget 2024: A deeper dive into the inheritance tax changes
Capital Gains Tax
What’s new?
The main rates of capital gains tax (CGT) have been increased. If you sell something other than residential property after 30 October 2024, you’ll pay more tax on the profit. The new rates are 18% for lower earners and 24% for higher earners. This change means taxes on any profits from selling assets will be higher for most people.
How might it affect me?
The new higher rates particularly target non and basic-rate taxpayers and could impact financial planning between spouses where the lower-rate income taxpayer holds most of the assets that are heavy with gains.
Business owners should also be aware that the Business Asset Disposal Relief from CGT, which reduces the tax on selling business assets, is also changing. Currently, the tax on these gains is 10%, but this will increase to 14% from April 2025 and to 18% from April 2026. For those already involved in negotiating a financial settlement involving a family business, we are likely to see a need to update business valuations or single joint expert reports to reflect the increase in the tax payable.
Where can I find out more?
Emma Geale and Jessica Cherry in our Private Client team have produced a handy quick guide to the tax changes for individuals which you can read here: Autumn Budget 2024: Summary of tax changes for individuals
Other changes
School fees
Starting 1 January 2025, private schools in the UK will charge a 20% VAT on education, boarding, and vocational training. Pre-paid fees from 29 July 2024 for terms beginning in or after January 2025 will also incur VAT. While HNW or UHNW clients may not feel the impact, other families might face affordability issues and might need to re-evaluate school fees or consider changing schools.
Stamp Duty Land Tax
The additional dwellings SDLT surcharge will rise from 3% to 5%, starting from 31 October 2024. For contracts exchanged prior to this date but completed (or substantially performed) after, transitional rules may apply so speak to your conveyancer. This increase, coupled with the earlier abolition of multiple dwellings relief, will affect smaller residential property investors.
The threshold for the 0% SDLT band on residential property will drop from £250,000 to £125,000 starting 1 April 2025, with a 2% rate applying to amounts between £125,001 and £250,000. For first-time buyers, the 0% band will decrease to £300,000 from 1 April 2025 for properties valued up to £500,000. These adjustments may strain available financial resources further in meeting housing needs.
Carried interest
Starting in April 2026, all carried interest (primarily owned by individuals in the private equity and hedge fund sectors) will be taxed under the income tax system and will be subject to class 4 National Insurance Contributions. The income tax rate for eligible carried interest will be modified using a 72.5% multiplier, which translates to a top rate of 32.6% when applied to the current maximum income tax rate of 45%. As an interim measure, the two existing CGT rates for carried interest will rise to 32% from 6 April 2025.
If you believe that your family matter may be affected by the recent Budget, then get in touch with one of our experts who can provide you with detailed and specialist advice, tailored to your circumstances.