Rachel Tax Raiser
The 1987 horror film, Hell Raiser centred on a group of beings who couldn’t differentiate between pain and pleasure. Yesterday, before a packed Parliament, Rachel Reeves created history as the first female Chancellor delivering £40 billion of tax rises, the largest amount since Norman Lamont’s 1993 Budget.
The new Government’s election manifesto left them little room for manoeuvre. Their pledge not to increase taxes for working people left the biggest tax generators, income tax, national insurance and VAT off limits. Added to which, the Chancellor needed to make sure there was no repeat of the disastrous Liz Truss mini budget of 2022, that created a revolt in the UK government bond market, with a massive sell off and fall in the value of the pound.
So, the largest pain was left to fall on businesses with the increase in employer’s National Insurance raising around half of the £40bn alone. But there were a raft of other tax rises too. Meanwhile, the UK stock and bond markets, initially quite receptive during the Chancellor’s speech, found little to cheer in the Office for Budget Responsibility’s Economic and Fiscal Outlook Report. Published minutes after the Chancellor sat down, it was critical, forecasting Reeves is to spend billions for sluggish economic growth.
We summarise below the main highlights for our Wealth clients.
Capital Gains Tax (CGT) & Business Asset Disposal Relief (BADR) changes
From 30th October, the lower rate of CGT will increase from 10% to 18%. The higher rate of CGT will increase from 20% to 24%. And the rates for sales of residential property remain unaltered at 18% and 24%.
BADR stays at 10% for 2024/25, then increases to 14% from 2025/26, and again to 18% from 2026/27.
The 14% difference between sales qualifying for BADR and the new main rate of CGT should be an incentive to crystallise capital gains before April 2025.
The ‘carried interest’ CGT rate is increasing to 32% from April 2025, with further reform from April 2026 to bring it into the charge to income tax. ‘Carried interest’ is a share of the profits generated by an investment fund, paid out to the fund’s investment managers.
Inheritance Tax (IHT) nil rate bands
The IHT nil rate band and residence nil rate band have been frozen for a further two years until 2030.
The first £325,000 of any estate can be inherited tax-free, £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.
The £325,000 nil rate band was first introduced in the 2009/10 tax year. The subsequent freezing of the band’s value marks to date a near 40% real terms reduction after accounting for inflation.
Pensions to be brought into charge for IHT
No changes were announced to income tax relief on pension contributions, annual pension contribution allowances and the maximum tax free cash limit of £268,275.
However, unused pensions on death, including lump sum death benefits, will be included in a person’s estate for inheritance tax from 6 April 2027. A consultation process will run from October 2024 to January 2025 on the new legislation and how to implement the changes.
This change creates an about reverse to the pension changes implemented in 2015 which took pensions out of a tax charge on death, with the potential for an effective tax charge on death of up to 67%.
Business Property Relief (BPR) & Agricultural Property Relief (APR) changes
Big changes announced in today’s Budget to two valuable IHT reliefs, APR and BPR.
Currently uncapped, from April 2026, the first £1m of combined qualifying assets will obtain 100% relief under APR and BPR.
For assets over £1m, the relief will be 50%, giving an effective rate of 20%.
Transitional provisions will apply the capped reliefs to gifts made from today’s date, if the donor dies after 6 April 2026.
Changes to Inheritance Tax relief for AIM shares
Today’s Budget announcement brings some changes to the inheritance tax relief for AIM shares.
The previous relief has been partially abolished, meaning that only 50% relief will now apply, which effectively sets the tax rate at 20%.
This shift is part of a broader package of inheritance tax measures aimed at raising up to £2 billion.
ISAs
No changes to the annual ISA limits of £20,000 per person per tax year, £9,000 for Junior ISAs and £4,000 for the Lifetime ISA.
The government stated, however, that these limits will remain frozen at these levels until 2030. The £20,000 ISA limit was brought in 2017, a 25% reduction in real term’s up to now.
And of no real surprise, they’ll be no resurrection of Jeremy Hunt’s ‘British ISA’ which he announced in the Spring 2024 Budget!
Stamp Duty Land Tax (SDLT)
The surcharge on purchases of additional residential properties by individuals or by trusts and companies increases from 3% to 5% with effect from 31 October 2024.
Also, where a company purchases a residential property and the value exceeds £500,000 the SDLT increases from 15% to 17%, again with effect from 31 October 2024.
Where contracts are exchanged prior to 31 October 2024 but complete after that date, transitional rules may apply.
VAT on private school fees
From January 2025, VAT will apply to private school fees, a move aimed at balancing contributions as 94% of children attend state schools. Previously announced changes apply to certain pre payments of fees made since the Summer for terms starting on or after 1 January 2025.
From April 2025, private schools will lose their business rates relief, as part of the government’s approach to make education funding fairer across the board.
Non-dom tax regime abolished
From 6 April 2025, the domicile regime will be replaced with the new 4 year FIG (Foreign Income & Gains) regime, as expected. From 6 April 2025, all current non-doms who are resident in the UK and not eligible for the 4-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG.
Overseas Workday Relief (OWR) will be extended from three to four years, broadly in line with the FIG regime, and this relief is available even if those overseas attributable earnings are brought into the UK.
For CGT, current and past remittance basis users can rebase personally held foreign assets to 5 April 2017.
A Temporary Repatriation Facility (TRF) will be available to past users of the remittance basis, which allows them to pay tax on untaxed FIG arising before 6 April 2025 at a reduced rate of 12% for 2025/26 and 2026/27, and 15% for 2027/28.
IHT will move to a residence-based system. Broadly speaking, an individual will be subject to IHT on overseas assets when they have been resident for 10 out of the last 20 tax years.
The protection from tax on FIG arising within offshore settlor interested trusts will no longer be available for settlors who do not personally qualify for the 4 year FIG regime. An extension of the TRF will be available for UK resident settlors or individuals receiving benefits from an offshore trust.
For IHT purposes, excluded property status for offshore assets held in trust will only be available at times when the settlor is not a long term resident.
Massive changes announced for employers
One of the biggest tax changes announced in the Budget was to Employers’ National Insurance contributions (NIC). These will increase by 1.2% to 15% from April 2025.
Less headline-grabbing but a further significant change to many businesses is the reduction in the secondary threshold for NIC. This will be reduced from £9,100 to £5,000 per annum from the same date, bringing more earnings into charge for Employers’ NIC. This could mean a further increase of £615 per employee, per annum, on top of the 1.2% rate increase.
The Chancellor says the changes will raise £25bn per year by the end of the forecast period.
Positives for some businesses, as the Chancellor announced an increase in the amount certain businesses can claim back from their NI bill under the Employment Allowance.
This will increase to £10,500 from £5,000. The Chancellor went on to say that this should mean 865,000 employers will not pay any NI next year.
National Minimum Wage increase
National Minimum Wage is set to increase from April 2025, with a record rise for under-21s marking a significant step towards the goal of a single rate for all adults. The minimum wage for 18-20 year-olds will increase by 16.3% from £8.60 to £10, which equates to almost £2,750 per year for someone working full-time.
The National Living Wage will rise by 6.7% from £11.44 to £12.21 an hour from April 2025. For a full-time worker, this equates to an increase of over £1,500 a year.
The biggest jump in pay is for apprentices. Their pay will increase by a massive 18% from £6.40 to £7.55 an hour.
These wage increases, coupled with the changes to Employers’ NIC discussed above, will be a significant cost for many businesses.
Electric vehicles
Labour’s commitment to support EV adoption will keep incentives for EVs in company car tax through 2028, providing a clear advantage for employers offering green options in their fleets.
From April 2025, there’s also an increased tax difference planned between fully electric and other vehicles under Vehicle Excise Duty. By keeping these benefits for EVs, the aim is to make going green even more appealing, while also contributing around £400 million by the end of the forecast period.
Fuel duty freeze
There will be no fuel duty increase next year. This means the 5p cut in fuel duty remains in place, preventing a potential 7p rise per litre at the pumps.
Penny off a pint in the pub
And finally… the Chancellor announced that prices at pub pumps will be slashed by 1.7% for draught sales, cutting a penny off a pint in the pub. May be politicians can distinguish between pain and pleasure afterall!
Check out the full Budget breakdown here.
