Chancellor Rachel Reeves delivered Labour's first Budget outlining the government’s plans for financial priorities.
Back before the election, Labour promised not to increase taxes on working people, saying it would not raise VAT, income tax or National Insurance.
Many were expecting the budget statement to involve difficult decisions on tax, spending on health, schools, police and other public services, and benefits.
Reeves set out a long list of priorities the Budget is designed to tackle – restore economic stability, increase investment and build new infrastructure, work with devolved nations and regions to develop local growth plans, improve employment prospects and skills, launch the Government’s industrial strategy, drive innovation through R&D, and maximise the growth benefits of its clean energy mission.
Tom Haywood, associate in the company commercial team at Wake Smith Solicitors looks at some of the changes and what they might mean to business owners and individuals.
Capital Gains Tax (CGT)
CGT is charged on the profit made from the sale of assets that have increased in value, such as second homes or investments. It is commonly paid by the sellers of shares. The rate of CGT and any applicable reliefs are key considerations for the sellers of a business, as it directly impacts the amount in their pockets after the sale.
The Chancellor announced an increase in the lower rate from 10% to 18% and the higher rate from 20% to 24%. Certain eligible sellers of businesses have been able to claim Business Asset Disposal Relief (BADR, which lowers their effective tax rate to 10%. BADR remains, but the lifetime allowance stays at £1,000,000 and the rate increases to 14% in April 2025. It is therefore important for people who are considering selling their business to take action immediately, if they intend on taking advantage of the current rate of BADR.
The Chancellor has announced a reform of the rules around Employee Ownership Trusts to challenge abuse. In particular, HMRC will require additional information on the transaction and will need to be satisfied that the price paid is justifiable.
Tom Haywood said: “CGT has a huge impact on shareholders in private company’s decision to sell and at what price. The increase may lead to further consideration of sales to employee ownership trusts – traditionally tax advantaged – or exits sooner in order to benefit from the relief.
“We can advise shareholders of companies of all kinds about their exit options”
Corporation Tax
Reeves confirmed the Government’s commitment to cap the rate of corporation tax at 25% for the duration of this Parliament.
Inheritance tax (IHT)
IHT, which is currently 40%, is usually paid on the value of a deceased person's assets above a threshold of £325,000.
The Chancellor confirmed a freeze on inheritance tax thresholds will be extended until 2030.
This 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 £1million when a tax free allowance is passed to a surviving spouse or civil partner.
However, the Chancellor also confirmed she will close a loophole created by the previous government by bringing pensions into inheritance tax from April 2027.
The Chancellor announced a reform to Agricultural and Business Property Relief. There is now a cap of £1,000,000 on those reliefs, and a lower tax amount of 20% on assets above the cap.
Fuel duty
Fuel duty has not risen in more than a decade. It was frozen between 2012 and 2022, and cut by 5p in March 2022 when pump prices surged following Russia's invasion of Ukraine. The Chancellor announced that the freeze on fuel duty will be retained.
Non-dom tax status
Non-dom describes a UK resident whose permanent home - or domicile - for tax purposes is outside the UK. They do not pay UK tax on money they make elsewhere.
In the March Budget, the then-Chancellor Jeremy Hunt said non-dom tax status would be abolished, although there were some concessions.
The government has abolished the status, and instead introduced a “residence” based scheme.
National Insurance contributions by employers
Speculation was rife about whether the Chancellor would increase National Insurance (NI) rates for employers.
NI is paid by both workers and companies. Employers pay NI on their workers' earnings at a rate of 13.8%.
The government opted not to go for applying NI to pension contributions but instead increased the rate and lowered the per employee threshold.
The Chancellor increased employers’ National Insurance contributions (NICs) from 13.8% to 15% and reduced the per-employee threshold at which employers become liable to pay National Insurance (the Secondary Threshold) to £5,000. Both charges apply from April 2025.
Despite the increase of employee allowance, this could have a serious impact on businesses’ ability to hire and retain staff, especially taking into account the governments proposed changes to employment law.
Stamp duty Land Tax
Although the main rates remain the same, stamp duty land tax second homes rises immediately to 5% from 3%.
National Minimum Wage
The National Minimum Wage has increased across the board, again increasing the burden on employers.
The increase in the rate for 18 to 20-year-olds is the largest increase on record, and has narrowed the gap between the national minimum wage (for 18 to 20-year-olds) and the national living wage (for those aged 21 years and over). The significant increase to the rate for 18 to 20 year-olds change is in anticipation of the government removing the “discriminatory age bands“, meaning that all adults, from the age of 18, may be entitled to the same minimum wage in years to come.
What happens now?
The Treasury, which is in charge of the economy and public spending, publishes a report alongside the Budget speech, giving more details about the measures announced and what they will cost.
The independent Office for Budget Responsibility (OBR), which monitors government spending, also produces an independent assessment of the health of the UK economy.
After the statement, MPs will now spend several days debating the plans. They are then asked to approve the proposals and the government introduces a Finance Bill to turn the Budget announcements into law.
Tax changes already agreed
Winter fuel payments - future payments will only be made to those getting pension credit or other means-tested help.
State pension - this is set to rise by 4% in April 2025.
VAT on private schools - VAT will be added to private school fees from 1 January. Some private schools will lose business rates relief.
Energy windfall tax – Increase in the windfall tax on the profits oil and gas firms make in the UK. The energy profits levy is due to rise to 38% from 35% on 1 November and will remain in place until 31 March 2030.
For further information on:
Company commercial legal matters - contact Tom Haywood at Wake Smith Solicitors on 0114 224 2033 or email [email protected]
Employment law matters - contact Harriet Gardner at Wake Smith Solicitors on 0114 223 2726 or email [email protected]
IHT and Private Client matters - contact Sherelle O’Brien at Wake Smith Solicitors on 0114 224 2070 or email S[email protected]
