Overview
Significant changes to Employers’ National Insurance Contributions, Capital Gains Tax and Inheritance Tax were among the headline announcements in today’s Budget.
It was clear from early in the speech that the total rise in taxes would be very substantial, with Chancellor Rachel Reeves saying the amount would be around £40bn. This would make it the second highest increase in taxes announced in one Budget on record, according to some early analysis.
But Ms Reeves, who was making history as the first female Chancellor in UK history to deliver a Budget, said that without bringing in these tax rises the country would instead face more ‘austerity.
Aside from the headlines mentioned above, some of the other most significant announcements included:
- No rises in Income Tax or VAT
- No rise in Employee National Insurance Contributions
- Corporation Tax to be capped
- Employment Allowance to increase
- Reforms to rules for Carried interest
- 5,000 extra HMRC compliance staff
- Stamp Duty to increase on second homes
- Non-Dom tax regime to be scrapped
- Increases to National Minimum Wage
Below, we delve into more details. Read More
|
|
Capital Gain Tax
One of the hot topics in the months leading up to today’s Budget was Capital Gains Tax. Many different ideas were proposed by commentators and tax analysts on how it might change to raise extra revenue.
The predictions were right in the sense that we got a rise in the rates. The changes announced were more straightforward than some had imagined.
The key changes are:
- The main rates of CGT will increase to 18% and 24% respectively from today
- The lower rate increases from 10% to 18%
- The higher rate increases from 20% to 24%
- The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate rises to 14% from 6 April 2025 and to 18% from 6 April 2026
Residential property rates are not changing.
According to the official Budget papers, released after the speech, CGT is only paid by “fewer than 1% of adults each year.”
The Budget papers also explained: “Phasing in the BADR and IR rate increases demonstrates the government’s commitment to a predictable tax system.”
Ms Reeves said that the UK’s CGT rates would still be the lowest of any European G7 economy after her alterations. The OBR says the CGT changes will raise £2.5bn by the end of the forecast, she added.
|
Employers National Insurance
NI Employer Contributions (NICs) to rise next year
Arguably one of the most contentious policy areas in the lead up to the Budget surrounded NI Employer Contributions. With Labour pledging no rise in NI during the General Election campaign, critics said it broke the promise. But Labour said its pledge related to employee contributions not rising.
Employer NICs will rise from 13.8%, as it stands now, to 15% from 6 April 2025.
Changes were also revealed for the Secondary Threshold – the point at which employers become liable to pay NICs on employees’ earnings. This will go down to £5,000 a year from 6 April 2025 until 6 April 2028, dropping from the current rate of £9,100 a year. From 2028, it will increase in line with the Consumer Price Index (CPI).
Employment Allowance more than doubles
Alongside the Employers’ NI announcement, Ms Reeves revealed she is increasing the Employment Allowance from £5,000 to £10,500. The desire to protect smaller businesses is the reason behind it, she told MPs. This means that 865,000 employers will not pay any NI at all. The Government is also scrapping the £100,000 threshold for eligibility, expanding it to all eligible employers with employer NICs bills from 6 April 2025.
National Minimum Wage to increase
A significant rise for the National Living Wage was announced. It will rise by 6.7% to £12.21. The current rate stands at £11.44. The National Minimum Wage for 18-20 year-olds will rise 16.3% to £10 an hour.
|
|
Reforms To Business Rates
Immediately after the Budget, the Treasury released a ‘discussion paper’ called ‘Transforming business rates’. It will soon begin asking for views.
The paper stated: “Over the parliament, the government will create a fairer business rates system that protects the high-street, supports investment, and is fit for the 21st century.”
Today, Ms Reeves announced an intention to introduce “permanently lower business rates for retail, hospitality and leisure properties from 2026-27 to level the playing field for the high-street.”
In further documents, the Government said it is providing £1.9 billion of support to small businesses and the high street in 2025-26 by “freezing the small business multiplier and providing 40% relief on bills for RHL properties, up to a £110,000 cash cap”.
|
VAT for Private Schools Confirmed
One of Labour’s long-stated policies, going back into their time as the Opposition, was to remove the exemption on VAT for private schools. There had been calls to delay the introduction of the plans, which some had said would cause chaos ahead of a January implementation date. But the Chancellor confirmed today that the 20% VAT on private school fees will go ahead from January 2025. This will apply to all training, boarding and education services provided by private schools, HM Treasury said.
Another move confirmed surrounded schools in England with charitable status. They will no longer get Business Rates Charitable Rate Relief from April 2025. The two combined policies will raise an estimated £1.8 billion a year by 2029/30, the Government claimed.
|
|
Inheritance Tax Changes
There had been speculation aplenty about changes to Inheritance Tax (IHT), with many expecting this to be among the core announcements in terms of tax rises.
Some of the rumours around aspects of the rules like gifting didn’t materialise. In fact, gifting was not mentioned at all.
One key announcement on IHT was that thresholds will remain frozen until 2030. That’s two years further than the previous Government had already planned. The consequence of this is that IHT will, in effect, rise during that time.
One of the key changes was that inherited pension pots will be counted within IHT from April 2027. The Treasury stated: “This removes a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.”
The Budget papers stated that the Government will “bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027. This will restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pensions reforms.”
And, as had been rumoured in the media in recent weeks, Agricultural Property Relief and Business Property Relief will be cut from 6 April 2026. With what the Treasury called a new allowance, the first £1m of combined business and agricultural assets will continue to be free of IHT but for assets over that amount, it will apply with 50% relief.
The Treasury gave an example saying the allowance will cover a “combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.
Ms Reeves also said the Government will apply a 50% relief, IHT for shares on the Alternative Investment Market (AIM) and other similar markets “in all circumstances”. She said this created an effective rate of tax of 20%.
However, some key elements of IHT will remain the same. The first £325,000 of any estate will still be tax-free – or £500,000 if the estate includes a residence passed to direct descendants. The inheritance tax nil-rate bands will stay fixed at these levels for a further two years until 5 April 2030.
The nil-rate band (currently £325,000) and the residence nil-rate band (£175,000) also remain the same. Furthermore, the residence nil-rate band taper will continue to start at £2 million. The “qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability,” the Budget papers also stated.
Only 6% of estates will pay IHT this year, Ms Reeves said during her speech. According to a Treasury press release, published after the Budget, more than 90% of estates each year will not pay IHT under the new rules.
|
|
|
