Chancellor Rachel Reeves announced £40bn of tax rises and pledged to improve public services as she delivered Labour’s first Budget in 14 years.
With fevered speculation about precisely where tax increases would land, the chancellor unveiled big reforms to pensions, inheritance tax, national insurance and capital gains tax, but some pre-Budget rumours proved wide of the mark.
Here are the key points:
Pensions
Reeves announced she would close the loophole on inherited pensions, which will be brought into inheritance tax (IHT) from April 2027. The exemption for spouses and civil partners will remain in place.
A consultation has been announced, with recommendations due to be made in early 2025, and we’ll be assessing the potential impact of these.
The annual allowance that caps tax-efficient pension contributions stays at £60,000 with no change to the tapering rules for high earners.
Meanwhile, the triple lock will remain in place for the duration of this Parliament. The State Pension will rise by 4.1% in April 2025.
IHT
The IHT nil rate band of £325,000 and residence nil rate band of £175,000 will be frozen for a further two years to 2030.
From April 2026, the 100% rate of relief from IHT will continue for combined agricultural and business assets up to £1million, and relief will be 50% on funds over £1million (an IHT rate of 20%).
UK stocks listed on the Alternative Investment Market (AIM) will qualify for 50% relief with IHT at 20%.
Capital Gains Tax
The chancellor announced that the lower rate of Capital Gains Tax (CGT) will rise from 10% to 18% per cent, and the higher rate from 20% to 24%. The changes will apply from today.
Rates of CGT on residential property sales (excluding the main home) will remain at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.
There were no changes announced to the tax-free CGT allowance of £3,000.
The £1million lifetime limit on capital gains from the sale of all or part of a company under business asset disposal relief (BADR) stays. However, the CGT rate will rise from 10% to 14% from 2025 and 18% from 2026.
The CGT rates on carried interest will increase to 32% from April 2025, with further reforms due from 2026.
Employers’ National Insurance hike
Employer National Insurance (NI) will be increased to 15% and the lower earnings threshold at which companies pay will reduce from £9,100 to £5,000. This will raise an extra £25bn in tax revenue. This increase in costs for employers is likely to affect employees by scaling back pay increases or hiring plans.
The employment allowance will increase to £10,500 from £5,000, meaning some businesses will not pay any Employer NI next year.
Stamp duty
The stamp duty surcharge on second homes and investment properties will be increased from 3% to 5% tonight.
ISA allowances
ISA thresholds have also been frozen until 2030.
The limits will remain at £20,000 for the ISA, £4,000 for the Lifetime ISA, and £9,000 for the Junior ISA and Child Trust Funds respectively.
VCTs & EIS commitment
The Chancellor reiterated the Government’s commitment to the tax-efficient VCT and EIS schemes – extending these through to 2035.
Domicile
The concept of domicile will be removed from the tax system from April 2025 and be replaced with a new residence-based regime.
Income Tax
Reeves announced she would not extend a freeze on personal income tax thresholds, which has dragged millions of workers into higher tax bands. Instead from 2028-29, thresholds will rise in line with inflation, giving workers more headroom for salary growth before they hit the next income tax band.
VAT on private school fees
The Chancellor reconfirmed that VAT at 20% will be introduced on private school fees from January 2025 and business rate relief will be withdrawn from April 2025.
Other measures
The government has committed £1.8bn to expand childcare services in a move that is a continuation of its predecessors’ plan to roll out 30 hours of free childcare for parents with children aged over nine months in England from September 2025.
Fuel duty will remain frozen next year, and the chancellor will keep a temporary 5p cut that was introduced in 2022 after energy prices rose following Russia’s invasion of Ukraine.
The national living wage for workers aged 21 and above will increase to £12.21 per hour from April next year. Announced on Tuesday, the rise is a 6.7% increase for those aged over 21. For 18- to 20-year-olds, the hourly rate will rise by £1.40 to £10.00 per hour as the government moved towards a single adult rate.
Clean energy mission
Reeves confirmed plans to invest in battery gigafactories, carbon capture and storage projects, electric vehicle supply chains, domestic energy efficiency upgrades, and new green hydrogen production plants, as she promised to deliver on Labour’s pledge to turn the UK into a ‘clean energy superpower’.
Further details
The EQ Investors team will continue to review the changes and their impacts over the coming days and weeks.
Please do get in touch if you have any questions or would like more information.
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