Autumn 2024 Budget Highlights: Key Changes and Implications for easyMoney Investors
This is a financial promotion and is intended to provide information, not investment advice.
The Autumn 2024 UK Budget, announced by the Labour Chancellor Rachel Reeves on October 30th 2024, presents a range of changes with significant implications for investors. For easyMoney’s investors, understanding how these adjustments could influence investment strategies, tax planning, and long-term financial goals is crucial. This budget introduces changes to capital gains tax, inheritance tax, interest rate expectations, and more, which could impact how investors structure their portfolios moving forward.
In this post, we break down the budget's most relevant aspects for easyMoney investors, focusing on tax-free savings options like Innovative Finance ISAs and IFISAs, and strategies to shield wealth from tax impacts.
1. Rising Capital Gains Tax Rates
Key Changes
One of the headline adjustments in the budget is the increase in capital gains tax (CGT) rates, effective from April 2025. The CGT rate for basic-rate taxpayers will rise from 10% to 18%, while the rate for higher-rate taxpayers will increase from 20% to 24%. This shift is particularly impactful for investments held outside tax-advantaged accounts, where gains on assets such as property, shares, or investments will now incur higher tax liabilities upon disposal making tax efficient account, like ISAs and IFISAs, even more appealing.
Implications for Investors
For easyMoney investors who aim to minimise tax impacts, CGT increases underscore the importance of tax-efficient accounts, such as ISAs and IFISAs. Investments within an IFISA are not subject to CGT, allowing for tax-free returns regardless of portfolio growth. This increase in CGT makes tax-free alternatives more appealing for investors who would otherwise face new higher CGT rates on traditional investments.
2. Adjustments to Inheritance Tax and Pension Rules
New Rules on Inheritance Tax (IHT) for Pensions
The 2024 budget introduces stricter tax rules on pensions left to beneficiaries (applying from April 2027), making them part of the deceased’s estate and subject to inheritance tax. This significant change highlights the evolving landscape of estate planning for high-net-worth investors who may have previously relied on pensions as a tax-efficient way to transfer wealth.
Implications for ISAs and IFISAs
While ISAs, including IFISAs, are subject to IHT if left to heirs outside a spouse or civil partnership, they offer relative flexibility for gifting under HMRC’s annual gift allowances and other rules, enabling tax-efficient wealth transfers. For easyMoney investors interested in legacy planning, a combined strategy using both ISAs and gifting allowances can support estate value preservation. IFISAs, with their tax-free growth and flexible accessibility, remain valuable for wealth management and intergenerational planning.
3. Interest Rates and Inflation: Impact on Savings Products
Current Economic Climate
The inflation rate has decreased to 1.7% (as of October 2024), with expectations of further stabilisation at somewhat higher levels. In response, the Bank of England is considering interest rate cuts in 2025 to support economic activity. Lower interest rates often mean diminished returns on traditional savings products, such as cash ISAs and fixed-income investments, which directly correlate with market interest rates.
Why This Matters for Investors
Traditional savings products, including cash ISAs, may offer lower returns during periods of reduced interest rates. For easyMoney investors seeking above-average returns, property-backed IFISAs present an attractive alternative. With target returns ranging from 5.5% to 7% (as per October 2024), IFISAs offer higher-than-cash ISA yields, creating a buffer against inflationary pressures without exposing funds to the volatility of equity markets.
4. Corporate Investment Strategies in Light of Budget Changes
Corporate Taxation Adjustments
The budget also increases employer National Insurance contributions from April 2025, alongside a rise in the Minimum Wage. These adjustments may impact corporate cash flow, leaving companies seeking efficient ways to invest any surplus funds to maximise returns.
Alternative for Corporate Investors
easyMoney’s corporate investment options allow businesses to invest in property-backed P2P lending with the potential for attractive returns on surplus cash. Compared to corporate savings accounts, which are likely to see diminishing returns as interest rates fall, easyMoney’s IFISAs offer a diversified investment strategy with more substantial income potential for companies balancing tax obligations and cash management.
5. ISA Allowances and Potential Changes to Tax-Free Limits
Speculation on Allowance Adjustments
While this budget does not change the annual ISA allowance, there is ongoing speculation that future budgets may reduce or restrict tax-free limits. Currently, the ISA allowance for 2024-2025 remains at £20,000, allowing investors to shelter gains from CGT and income tax.
Optimising Investments Within Current Allowances
For easyMoney investors, maximising ISA and IFISA contributions while these allowances are intact could protect significant wealth from tax impacts in the future. ISAs offer a tax-free growth advantage compared to non-ISA investments, where returns are subject to taxation. By capitalising on easyMoney’s IFISAs, investors can secure tax-free returns on property-backed loans, an especially appealing option given the potential for future tax limitations.
6. Market Volatility in Property and Equity Investments
Risks and Returns Across Asset Classes
Market volatility remains a concern, especially in the property and equity sectors. While property-backed investments are generally considered stable, market fluctuations can impact asset values, affecting both traditional investments and P2P lending returns. Additionally, equities have seen varied performance, especially in the short term (in the long term equities historically tend to perform well), with many investors looking for diversified investment strategy amidst economic changes.
Balancing Stability and Growth
Diversifying through a mix of asset classes, including property-backed IFISAs, offers a balanced approach for easyMoney investors. Property-backed loans typically present lower volatility than equities and provide a consistent income stream. In comparison, equity-based investments may offer higher growth potential but come with increased exposure to market volatility, making IFISAs an attractive middle ground for investors prioritising steady returns and mitigating risks.
7. Retirement Strategies and IFISAs
Building a Tax-Efficient Retirement Portfolio
With traditional pensions becoming increasingly complex due to new inheritance tax rules, diversifying retirement funds into alternative options like IFISAs can provide retirees with tax-efficient growth and withdrawals. Unlike pensions, where contributions are tax-deductible but withdrawals are taxed, ISAs are funded with post-tax income and grow tax-free, creating a valuable complement to pension-based retirement savings.
Advantages of a Mixed Portfolio
For easyMoney investors, combining IFISAs with traditional retirement accounts can reduce tax burdens during retirement. While pensions offer tax relief upfront, IFISAs allow for tax-free withdrawals, ensuring a flexible and potentially tax-efficient retirement income. By holding a portion of retirement savings in easyMoney’s IFISA, investors can secure a steady income without incurring additional tax charges at the time of withdrawal, unlike pension drawdowns.
Conclusion: Planning Ahead for 2025 and Beyond
The Autumn 2024 Budget presents a blend of adjustments that carry implications for high-net-worth individuals seeking efficient wealth management. Key changes to capital gains tax, corporate tax, and inheritance regulations underscore the need for diversified, tax-efficient strategies.
With target returns of 5.5% to 7% (as per October 2024), easyMoney’s property-backed IFISA offers a compelling option for investors looking to offset the impacts of lower interest rates, increased CGT, and the complexities of traditional pensions. By leveraging the tax-free benefits of IFISAs, investors can safeguard their wealth, minimise tax obligations, and achieve stable growth.
As always, it is crucial for investors to assess risk tolerance, and easyMoney’s approach to balancing property security with flexible returns provides an appealing strategy for managing the economic changes anticipated for 2025 and beyond.
Past performance is no guarantee for future results.
Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.