How New UK Budget Will Affect Your Money; “Non-Dom” Tax, State Pension, Inheritance Tax and more

The Chancellor’s transformative budget introduces significant changes to the tax system, property acquisition rules, and state pension funding, which will fundamentally alter the UK’s fiscal and economic landscape. The abolition of the “non-dom” tax status, higher stamp duties on additional properties, and a prolonged freeze on the inheritance tax threshold signal a push to close tax loopholes and demand greater contributions from wealthier individuals. These reforms aim to build a stronger social safety net, yet they may impose new financial challenges for property investors and high-income individuals. Be prepared for substantial adjustments in tax obligations and long-term financial planning.

Key Fiscal Reforms: “Non-Dom” Tax Abolishment and Stamp Duty Increases

Abolishing the “non-dom” tax status and increasing stamp duty on additional properties are among the standout changes aimed at promoting fairness and generating revenue for public services:

1) “Non-Dom” Tax Status Abolishment:

The “non-dom” (non-domiciled) tax regime, which allowed certain UK residents with overseas ties to avoid paying tax on foreign income, will be abolished. This change aims to increase the tax base by ensuring all long-term UK residents contribute fairly, regardless of where their wealth is held. Abolishing this system is expected to bring in billions in additional revenue over the coming years, with a focus on addressing wealth inequality.

Revenue and Fairness: By eliminating this status, the government will gain additional tax revenue from high-net-worth individuals, which can be redirected toward essential services like healthcare and education.

Closing Loopholes: The abolishment of this tax status closes a longstanding tax loophole, aligning the UK’s tax practices with fairness principles and ensuring that wealthy residents contribute similarly to other UK citizens.

2) Increased Stamp Duty on Additional Properties:

Stamp duty will rise from 2% to 5% for individuals purchasing more than one dwelling, a move intended to cool the property market for buy-to-let investors and those purchasing additional homes. This measure is designed to level the playing field for first-time buyers and working families by curbing speculative investments in residential property.

Revenue Generation for Public Services: The increased stamp duty rate is expected to raise significant funds, helping to support public services and infrastructure projects across the UK.

Impact on Housing Affordability: By making it more costly for investors to purchase additional properties, this policy aims to reduce competition for available housing, thus promoting greater accessibility and affordability for first-time buyers and renters.

Spending on State Pension and Social Security Adjustments

In an effort to support the aging population and address the cost-of-living challenges faced by retirees, the budget outlines an increase in spending on state pensions:

State Pension Increase: Spending on state pensions is projected to rise by 4.1% in 2025-26. This increase aims to provide financial stability for pensioners, helping them cope with rising living costs, particularly in light of higher utility and healthcare expenses. The additional funds will help the government keep pace with inflation and ensure that pensioners maintain a standard of living aligned with the economy.

Triple Lock Policy: The government’s commitment to maintaining the “triple lock” for state pensions, which links pension increases to the highest of inflation, wage growth, or 2.5%, is reinforced through this additional spending. This approach aims to protect pensioners from economic fluctuations and ensures a consistent, reliable income.

Support for Future Retirees: With the aging population projected to increase over the coming decades, the government’s focus on raising pension spending is part of a longer-term strategy to secure the well-being of future retirees.

Inheritance Tax Threshold Freeze Extended

To ensure continued contributions from wealthier estates, the budget includes an extension of the inheritance tax threshold freeze until 2030:

Threshold Freeze: The inheritance tax threshold will remain fixed at its current level, which is £325,000 per individual, until 2030. By not increasing the threshold in line with inflation, the government will gradually increase the number of estates liable for inheritance tax, thereby raising additional revenue without introducing new taxes.

Impact on High-Net-Worth Estates: The threshold freeze effectively captures more value from larger estates, while the majority of average estates will continue to fall below the taxable threshold, ensuring a progressive approach to inheritance tax.

Revenue Allocation: Revenue generated through the threshold freeze is expected to fund public services and long-term investments, helping to sustain essential services without increasing taxes on lower and middle-income households.

Key Budget Initiatives in Public Investment and Infrastructure

With over £100 billion earmarked for public investment over the next five years, the budget is set to transform infrastructure, healthcare, and education:

NHS and Healthcare Investment: An additional £22.6 billion for the NHS will enable the system to cut down waiting lists and improve patient care by delivering 40,000 extra weekly elective appointments. This funding aims to enhance healthcare access and efficiency, particularly in light of increased demand post-pandemic.

Education and School Infrastructure: The government has allocated £4 billion to enhance school funding, including £2.3 billion for core budgets. Additionally, £1.4 billion will be directed to the School Rebuilding Programme, addressing urgent infrastructure needs and ensuring safe learning environments for students.

Local Road and Transportation Investment: With an extra £500 million for local road maintenance, the budget sets the goal of fixing an additional 1 million potholes annually. Investment in digital infrastructure and public transport projects further complements this commitment, aiming to enhance connectivity and support economic growth across the UK.

Support for Working Families and Income Stability

The budget’s support for working families focuses on wage increases, tax stability, and reduced deductions from benefits:

National Living Wage Increase: Rising to £12.21 per hour from April 2025, the 6.7% increase in the National Living Wage will benefit millions of workers, particularly in lower-income roles. This wage hike is designed to keep pace with inflation, ensuring that wages reflect the cost of living and providing additional support to household incomes.

Tax Stability: The Chancellor confirmed no increases to income tax, employee National Insurance, or VAT rates for working individuals, safeguarding disposable income for households and ensuring that working people are not further taxed during a challenging economic period.

Universal Credit Debt Repayment Cap: Adjustments to Universal Credit will cap debt repayments at 15% of benefits, providing low-income families with greater financial stability and ensuring that they retain a larger portion of their benefits to cover essential costs.

Conclusion

The Chancellor’s Autumn Budget 2024 outlines a robust, balanced approach to economic stability, public investment, and fair taxation. By abolishing the “non-dom” tax system, increasing stamp duty on additional properties, and extending the inheritance tax threshold freeze, the government seeks to promote fairness and generate revenue for essential services. Enhanced public investment, increased state pension spending, and protections for working people further emphasize the government’s commitment to a prosperous and equitable future.

This Budget is a significant step toward rebuilding the UK economy, securing social stability, and creating a strong foundation for long-term growth and resilience.