Budget 2024: What This Means For UK Muslims

The most anticipated Budget in recent years has finally landed. After weeks of speculation and drip-fed deliberate leaks, Chancellor Rachel Reeves has delivered the first Labour Budget in over 14 years. 

This is probably the most significant set of tax changes we have seen since 1993.

We’ve gone through the announcements and extracted the key highlights for both workers and businesses. We’ll also comment on the impact on Muslims especially.

What Is The Budget And Why Does It Matter?

The Budget is essentially the UK government’s annual financial master plan, where the Chancellor (currently Rachel Reeves) lays out how the government plans to raise money and, more importantly, how they’ll spend it.

From the taxes you pay to the benefits you receive, the investments in your local area to the support for businesses – the decisions made in the Budget will hit your wallet directly.

What Are The Key Budget Announcements?

The major headline from the Budget is an eye-watering £40 billion increase in taxes. Put another way, the UK’s tax burden as a proportion of GDP is now projected at 38.3% by 2027-8 compared to 36% today.

Let’s break down the key highlights that will impact you.

Capital Gains Tax Overhaul & Landlord Stamp Duty Increase

Capital gains tax (CGT) is a tax charged on the profits made from selling assets such as second homes or investments, including shares. Changes to the CGT rates were much discussed in the lead-up to the budget with rumours of the rates going from 20% to as high as 39%. 

The government didn’t go that far but investors and entrepreneurs will still be impacted. The lower rate of CGT will increase from 10% to 18%, and the higher rate will rise from 20% to 24%. Meanwhile, the CGT on residential property transactions will remain at 18% and 24%.

The other thing Reeves introduced was an increase to the stamp duty land tax that landlords pay on second properties from 3% to 5%. This continues a general trend where the tax burden continues to increase on private landlords.

What this means for you

These changes underscore the importance of using tax wrappers such as ISAs to invest where possible. UK investors can invest up to £20,000 every tax year which can be split into your various ISAs (including your cash ISA, stocks and shares ISA, innovative finance ISA (IFISA) and Lifetime ISA.)

Particularly when it comes to investing in property – it is increasingly becoming far less appealing to hold property directly if you have a small portfolio sub-£5m. 

For most folks, the most tax-efficient way of getting exposure to the property market is either by owning REITs via their ISA wrapper, or investing in property finance via an IFISA. (sharia-compliant options include Cur8 Capital’s GBP Income Fund and Nester).

National Insurance Hike for Employers

After the National Insurance (NI) cuts delivered by the previous government and the election commitments made by the new government to not raise ‘taxes for working people’, the employers have been hit by a double whammy of changes:

1. Employer NI contributions will rise from 13.8% to 15%.
2. The threshold at which businesses start paying NI will decrease significantly from £9,100 to £5,000.

To soften the blow, employment allowance (the discount employers get from their overall NI bill) will increase from £5,000 to £10,500. 

However, the bottom line is this will hurt for many businesses with these changes resulting in an extra £25 billion a year in tax rises. 

What this means for you

Now, many of you reading this will probably be employees and under the impression that you’ve dodged this tax rise but sadly this will have an indirect impact on you. 

These changes will increase the costs associated with employing workers which means there’s less room for pay rises and in the worst cases this could lead to fewer jobs.

Inheritance Tax Surprises

The big bombshells from the Budget undoubtedly in our view were the inheritance tax (IHT) announcements. The big change here is from 2027, inherited pensions will become subject to IHT.

There were some other changes announced that are likely to go under the radar which relate to business relief and the ability to pass on agricultural land tax-free. Business relief allowed many business owners to bequeath their businesses tax-free. Now, only the first £1m of combined business and agriculture assets will be IHT free, and IHT will apply on the excess at an effective rate of 20 per cent.

What this means for you

To show you the gravity of that change – folks with portfolios of £1m+ previously had some very well-known strategies to effectively avoid most if not all inheritance tax. Those options have just disappeared overnight.

These changes will fundamentally change retirement planning. Don’t fret though as there are ways to reduce your tax bill which we plan to cover in future pieces. (Sign up to our mailing list below to hear about it first).

Pensions in particular are still a great way to save for your retirement so don’t be spooked by the change. If you have a pension and are unsure whether it’s halal, we have a really simple guide on how to check here.

The Minimum Wage Will Increase

The minimum wage will go up in April 2025:

• For over 21s, from £11.44 to £12.21 an hour
• For under 21s, from £8.60 to £10 an hour
• For apprentices, from £6.40 to £7.55 an hour

Whilst this is welcome news for workers, it will increase the strain on businesses struggling under increased costs and other measures announced in the Budget.

The Introduction Of VAT To Private Schools

The Chancellor confirmed VAT will be introduced on private school fees from January 2025 alongside plans to remove their business rates relief from April 2025.

What this means for you

This has been a controversial topic but the bottom line is the cost of sending your children to private schools, be they conventional or Islamic will increase. This won’t just affect the rich but also hard-working Muslim parents who want their children to attend Islamic schools.

We are particularly disappointed to hear that there were no exemptions for cheaper faith-based schools who often charge £8000 or less – whose parents are usually not the most well-off. These are charitable projects – a far-cry from the £50,000 that some elite private schools charge. For these schools to be caught in the cross-fire is really quite disappointing.

Income And NI Tax Thresholds To Finally Increase (After 2028)

This was one of the Budget surprises. There was much speculation in the buildup that the income tax thresholds (the level at which you start paying tax) were due to be frozen beyond 2028.

Instead, the Chancellor announced that Income tax and NI thresholds will rise with inflation from 2028-29. 

What this means for you

This will ultimately reduce the tax you pay. However the caveat is that this won’t take effect until 2028 which means for the next 4 years, your payslips will be eroded by the effects of inflation. For more on inflation and how to respond, check out this article here.

Lack Of Clarity For Non-Doms (Still!)

The Labour government has long talked of its plans to abolish the non-domicile tax rules which was reaffirmed in the Budget, however details around its replacement are still sparse.

All we know is that it will be replaced by a new “internationally competitive” residence-based scheme. The government would be wise to share clarity on this sooner rather than later given that there are already reports of high-net-worth individuals leaving the UK. 

The risk here is by scaring them away, the UK may be deprived of significant investment capital, entrepreneurial talent, and revenue that these individuals bring to the economy.

Changes To BADR Are On The Way

Business Asset Disposal Relief (BADR) limits tax on exit takings of up to £1m to 10%. The Chancellor announced that the BADR rate will increase to 14% from April 2025 and 18% from April 2026. 

What this means for you

Business owners will be relieved to know that BADR won’t be completely scrapped but the upcoming rise will leave some business owners with a decision to make as to whether they should sell up early to beat the hikes.

More generally, changes like these run the risk of making the UK a less attractive place for entrepreneurs to set up and ultimately sell their businesses.

How Should You Respond To The Budget?

These are just some of the key highlights from a packed Budget. The bottom line is whilst workers have been directly protected, investors and business owners have been hit hard which in turn will trickle down to workers. That being said, there are workarounds available for savvy individuals which we plan on covering more in the coming months. 

The important thing is not to panic and to use this as an opportunity for you to review your financial situation, seek professional advice where necessary and adjust your plans accordingly.