The Autumn Budget and your savings: what you need to know

On a historic day for Britain, the first female Chancellor Rachel Reeves presented Labour’s Autumn Budget, outlining the government’s ‘growth-focused’ plan for the UK.

Reeves detailed a fiscal plan that includes tax increases and spending strategies aimed at tackling what she described as a £22bn ‘black hole’ in the nation’s finances.

Inflation outlook and economic growth

The government’s key economic goals are to stabilise the economy and encourage long-term growth. Inflation, measured by the Consumer Price Index (CPI), is projected to average 2.5% for 2024, and gradually ease to 2.0% by 2029.

In terms of economic growth, the Office for Budget Responsibility forecasts a 2.0% increase in real GDP for 2025, with consistent yet modest growth in the subsequent years. Reeves believes these measures will boost the UK’s economic potential and improve its financial outlook.

Here’s a breakdown of the key updates from today's announcement and how they might impact your personal finances.

Changes to Capital Gains Tax

In a significant development for savers and investors, Reeves announced an increase in Capital Gains Tax (CGT). This tax applies to the profits made from selling assets like a second home or investments, including stocks.

Starting in April 2025, the rates on Capital Gains Tax will rise with:

• the lower rate increasing from 10% to 18%
• the higher rate increasing from 20% to 24%

For those with investment portfolios or second homes, these changes could lead to higher tax bills when selling for a profit.

Commenting on this change, CEO & Co-Founder of Flagstone, Simon Merchant, says: “Investors must now choose which investments to keep and which to divest to minimise the impact of higher CGT liability further down the line. More than a third (34%) of Flagstone savers expect to invest less now or in the future as a result of the CGT change*. Investors exiting investments would be wise to consider the competitive risk-adjusted returns they can enjoy from savings.”

With Capital Gains Tax increasing, many investors face an important decision: sell assets now to lock in current rates or wait and risk higher taxes. But selling now could leave you with substantial cash and no clear plan for next steps.

This is where Flagstone’s cash deposit platform can help. Instead of letting your cash sit idle in low-interest accounts, manage and grow your funds securely with access to over 60 banks – all in one place. Maximise your money while navigating the market and waiting for the opportune time to reinvest.

See how it works

Stricter rules on Inheritance Tax

The Chancellor has announced stricter rules on Inheritance Tax in a bid to raise more than £2bn. She said:

“First, the previous government froze Inheritance Tax thresholds until 2028. I will extend that freeze for a further two years until 2030. That means the first £325,000 of any estate can be inherited tax free, rising to £500,000 if the estate includes a residence passed to direct descendants. And £1m when a tax-free allowance is passed to a surviving spouse or civil partner.

“Second, we will close the loophole created by the previous government, made even bigger when the Lifetime Allowance was abolished, by bringing inherited pensions into Inheritance Tax from April 2027.”

If you’re thinking about passing on your assets, keep in mind that these changes could result in more of your estate being taxed. 

State Pension rise

In a bid to support retirees, the Chancellor confirmed that the state pension will increase by £470 per person in 2025-26, aligned with the triple-lock system. Reeves reaffirmed Labour’s commitment to protecting pensioners’ financial security, even as the government takes steps to close fiscal gaps.

Non-domicile status abolished

Reeves announced another big change: the non-domicile tax status will be removed. The status allows some people living in the UK, but whose permanent home is in another country, to not pay UK tax on money they earn from abroad.

Starting in April 2025, this will change. The government will introduce a new tax system based on residency, meaning that everyone living in the UK will have to pay taxes on their worldwide income. This change is expected to bring in an extra £12.7bn over five years.

VAT on private school fees

Starting on 1 January 2025, private schools in the UK will be subject to 20% VAT on all education, training, and boarding services. Reeves stated that this move aims to ensure every child has access to a high-quality education and will generate funds to invest in state education – thereby improving standards and opportunities for all students.

Alongside the introduction of VAT, the government plans to remove business rates relief for private schools starting from April 2025. This change reflects a broader strategy to level the playing field in education funding and redirect resources towards the public sector.

Personal Savings Allowance remains static

Although the Personal Savings Allowance (PSA) will remain unchanged, more savers may see their interest income become taxable if the Bank of England base rate increases.

When Income Tax thresholds stay the same while the Bank of England raises rates, it can result in a larger portion of your interest income exceeding the Personal Savings Allowance. This scenario occurs because higher interest rates generally mean that savers earn more on their savings. As a result, this could increase your tax liability.

Merchant comments: “Failing to increase the PSA is a grossly unfair penalty on hard-working people who see value in putting in the effort to make their savings work harder for them. More savers than ever are being dragged into crossing the tax threshold on their savings interest, simply by being proactive and doing their best to maximise the value of their hard-earned savings.”

Next steps for savers and investors

Savers and investors should consider reviewing their portfolios, particularly regarding Capital Gains Tax and Inheritance Tax planning. These changes could impact your investment returns and legacy planning in the coming years.

For personalised guidance tailored to your financial situation, consult a Financial Adviser who can help you navigate the latest fiscal policies.

Optimise cash savings with high-interest accounts

If you’re looking to optimise your cash savings in the wake of these budget adjustments, exploring diversified, high-interest savings options could help shield your savings from inflation and taxation pressures. Find out how Flagstone’s cash management platform can help you grow and protect your cash savings.

Calculate your potential earnings now

*Flagstone customer poll, October 2024