Rachel Reeves, the first woman chancellor in parliament's 800-year history, delivered her first Budget today. The Labour election campaign headlined its manifesto as “Making Work Pay” to kickstart growth and promised new protections and no tax rises for the working population. Despite weeks of doom and gloom from Labour about the dire financial straits of the country and warnings of a difficult budget, Ms Reeves has delivered a more positive message of investment, more disposable income and a reliable NHS service.
Inheritance Tax
There were fundamental changes to IHT, which will have a major impact on more families and estates here, as they will now fall liable to the charge on death.
Agricultural and Business Reliefs which have been unlimited will be capped from April 2026, meaning family farms and owner managed trading businesses will be exposed to inheritance tax if the combined value exceeds £1million. Above this allowance, IHT will effectively be payable at 20% on assets which to date would have been exempt from IHT.
There have also been anti-avoidance rules applicable to trusts which benefit from these reliefs and come into effect immediately.
Pension pots which have been inherited will form part of the IHT estate from April 2027, combined with the continued freeze on the nil rate band, this could see the number of individuals paying IHT significantly increase.
Capital Gains Tax
As expected, there were significant change to the Capital Gains Tax (CGT) regime.
The CGT rates applying to shares and non-residential property assets will be aligned with the Residential CGT rates – effective from today, 30th October – unifying the CGT rates on all Asset Disposals to 18% and 24%.
CGT Reliefs such as incorporation relief and gift hold-over relief have not been impacted by the changes. However, Entrepreneurs’ Relief, as we all commonly call it (or Business Asset Disposal Relief, to give its proper title) will remain at 10% until the end of the current tax year, being 5 April 2024. This rate will then gradually align with the lower CGT of 18% from April 2026, with an incremental increase to 14% from 6 April 2025. The lifetime allowance will remain available but is unchanged at £1m of qualifying gains.
CGT is very much a transactional tax – driven usually by the seller, it remains to be seen if these tax hikes will create a flurry of activity before the tax year end or deter sellers from the market.
Non-domiciled Regime
Despite rumours that Labour were softening their stance on the remittance basis rules in place for non-UK domiciled individuals, the Chancellor announced today that the non-domicile regime is being replaced by a new residency based system from the 6 April 2025.
Previously, non-domiciled individuals were only subject to tax in the UK on the income and gains which they remitted to the UK. However, under the new system, all UK residents, regardless of their domicile status, will be subject to tax on their worldwide income and gains.
There will be transitionary measures in place regarding these changes.
The Temporary Repatriation Facility will be introduced, meaning that new arrivals to the UK will still have a four-year window on their arrival where they will not be subject to tax in the UK on their foreign income and gains. For individuals who have previously claimed the remittance basis, the Facility will charge a reduced rate of tax for a period of three years.
Moreover, for capital gains tax purposes, current and past users of the remittance basis will also be able to rebase any foreign assets held to their value at 5 April 2017.
Employment Taxes
Labour's commitment not to increase taxes for workers was clear with the changes to employment taxes, but is now providing a triple whammy for employers who need to find additional cash to fund them. The existing freezes on personal allowances and income tax bands will end in 2027/28, and from 2028/29 these will increase in line with inflation.
Speculation that employer’s National Insurance Contributions NIC would be increased was confirmed with the rates moving from 13.8% to a round 15%, and also reducing the threshold from which they are due from £9,100 to £5,000 until April 2028. The reduction of this threshold alone, costs employers £615 per person. Both these changes are a significant increase in employer costs, with an extra £1,100 due for an employee being paid £50k.
There is some slight relief for employers by increasing the Employment Allowance against the NIC bill, from £5k to £10k and removing the £100k threshold for eligibility.
The national minimum wage will increase from £11.44 to £12.21 from April 2025, a 6.7% hike from its previous rate. Plans to bring younger workers pay in line with the standard rate have also been rolled out with 18-20 year-old’s benefitting from a rise from £8.60 to £10, an increase of 16.3%. Apprentice rates will increase from £6.40 to £7.55.
Employers operating share plans will also have to consider how increases in the capital gains tax rates will impact the effectiveness of these plans. Currently gains made on the sale of shares acquired via an employee share plan are taxed at rates of either 10% or 20%. However, for shares that do not qualify for business asset disposal relief or where gains are above the £1m lifetime allowances, these rates are increasing to 18% and 24% respectively. Shares acquired through HMRC approved plans such as EMI, automatically qualify for reduced rates, depending on the year of disposal this could range from 10% to 18%.
Company Car Tax rates are being set to 2029/30 with appropriate percentages rising by 2% in both 2028/29 and 2029/30 to 9% for zero emission and electric vehicles. Other vehicle rates will increase by 1% each year to a high of 39% in 2029/30. As with capital allowances, the double cab pick-ups, will be taxed as a company car from April 2025.
Confirmation that the mandatory payroll reporting of benefit in kind (BiK) from April 2026 today provided further details on the main changes along with the announcement of an End of Year process that will be introduced to reflect certain corrections. In addition, they have confirmed that more data is going to have to be reported to reflect the introduction of Class 1A NICs on BiKs in the payroll system.
Corporation Tax
Unlike many other areas of the UK tax system, no significant changes were announced by the chancellor in relation to UK corporation tax.
The chancellor confirmed the government’s commitment to the headline CT rate of 25% throughout the current parliament and also announced there would be no changes to the small profit rate of 19% and the marginal relief system, which apply to companies with lower profit levels.
In terms of capital allowances, the Annual Investment Allowance (AIA) is to remain at the current entitlement of £1m per year and will be available alongside full expensing which can be claimed on qualifying purchases of new plant and machinery assets. The government will also continue to explore the possibility of extending the full expensing provisions to include assets which are acquired for leasing or onward hire. There was clarification on ‘double cab pick-ups’, which will be treated as cars for capital allowances purposes, restricting the annual tax deduction to 6%.
There were limited changes announced to Research and Development (R&D) relief, with both the new merged R&D scheme and the Enhanced Support for R&D intensive companies will change the cap for Northern Ireland company claims. However, HMRC are considering further measures which could be implemented to help improve the administration of the UK R&D regime.
As with many recent Budgets, there are a number of consultations planned, which are in relation to international corporate tax issues and we expect updates on transfer pricing (extension of the requirement for transfer pricing to SMEs, removing UK to UK policies), permanent establishments (simplifying definitions) and diverted profits tax.
Additionally, the Government has published a Corporation Tax Roadmap which outlines its intentions for corporation tax throughout the current parliament and also a commitment to make the UK corporation tax system as efficient and effective as possible. Companies have been provided with a degree of certainty as many of the key features of the corporation tax system are to be maintained moving forward.
Stamp Duty Land Tax (SDLT)
The changes on SDLT focuses on additional residential properties, with the surcharge rate changing from 3% to 5% for buy-to-let investors, second-home buyers and no-resident individuals, making it more costly to acquire additional properties. Although there were no direct changes to SDLT reliefs for first-time buyers, the higher rates on additional properties indirectly support first-time buyers by discouraging investor purchasing in lower value properties, ideally freeing up more homes for owner-occupiers.
For corporate entities, who acquire residential properties from today, the rate has increased by 2%, from 15% to 17% for properties over £500k.
If you would like to discuss how these changes will impact you or your business, please contact our tax specialists for more information or advice.