Engage budget update…

The much awaited and eagerly anticipated Budget (Autumn Statement) was delivered yesterday (30th October) – the date just avoiding more Halloween related jibes from Labour’s opposition.

There was a lot of speculation before the Budget and this overview is to help highlight the impact of the budget for investments and financial planning. From a financial planning perspective, there isn’t a need to make knee jerk reactions immediately and an adviser can work with you to navigate the tax changes.

Rachel Reeves presented her maiden budget and announced tax rises worth a total of £40 billion.

The vast bulk of the rise will come from an increase in the headline rate of employers’ national insurance and the earnings threshold at which employers start making national insurance contributions.

The increased tax rises are summarised here:

Personal Taxes and the Budget

Capital Gains Tax (CGT)

·        CGT rates have been brought in line with current residential property:

This increases basic rate from 10 to 18% and higher rate from 20 to 24%

·        Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes have been extended to 2035.

Inheritance Tax (IHT)

·        The Inheritance Tax (IHT) nil rate band remains frozen at £325,000 for individuals until 2030.

·        The residence nil rate band (RNRB) remains at £175,000 for estates under £2 million.

·        Starting April 2026, business and agricultural assets relief capped at £1m, then limited to 50% of inheritance tax rate i.e. 20%.

·        AIM shares business relief limited to 50% of tax rate i.e. 20%. This is a reduction from 100% relief after 2 years.

·        From 2027, pensions will be included as part of your estate for inheritance tax (pensions had been excluded since 2015).

Tax on Pensions

·        Starting in 2027, pensions will be subject to Inheritance Tax (IHT), meaning they will form part of the deceased's estate, and will be tested against the £2m RNRB.

Stamp Duty Land Tax (SDLT)

·        The current Stamp Duty Land Tax (SDLT) relief threshold of £425,000 for first-time buyers has been removed from 1st April 2025.

·        From 1st April 2025, first-time buyers purchasing a property will not pay SDLT up to £300,000 and pay 5% on the property value between £300,000 and £500,000.

For first-time buyers purchasing a property priced above £500,000, the standard SDLT rates for 2025 will apply, and no discount (relief) will apply.

·        SDLT surcharge has increased for second and additional properties from 3% to 5%, effective from 31st October 2024.

·        SDLT on the first £250,000 will change from 1st April 2025 – zero on 1st £125,000 and 2% on the next £125,000 (compared to zero on the first £250,000).

VAT on Private School Fees

·        Labour has followed through on its pledge to remove VAT and business rates exemptions from private schools, effective January 2025.

Non-Domiciled Status

·        Labour will abolish the non-domiciled tax system from April 2025.

·        This will remove the option for non-domiciles to move funds offshore ahead of the full change in April 2025.

Business Taxes and the Budget

Business Rates 

·        Business Asset Disposal Relief remains at £1m, but at the new 18% lower rate (previously 10%).

·        Headline rates of corporation tax will be capped at 25% for the duration of this Parliament.

Employer NICs

·        Employers' NICs will increase from the previous rate of 13.8% to 15% starting in April 2025.

·        The secondary threshold at which employers must pay NICs will be reduced to £5,000 from £9,100.

·        The Employment Allowance has been increased to £10,500.

CGT is perhaps better than many had speculated, although this is an 80% rise for basic rate taxpayers.

Pension LTA and lump sums were not touched, as some had expected, but it will be interesting to see how they plan to tax IHT on pensions – the detail will follow after the ‘consultation’ and this is due in April 2025, before implementation in April 2027.

There will be mixed reaction; some will feel like it could have been worse for investors in their lifetime, whilst others will be materially impacted with business and agricultural assets, and the pensions being included for IHT.

The dust is settling, and we are here to help with all of the above and produce the most favourable outcomes possible.

If there is anything you’d like to discuss in more detail, please get in touch.