This is a Budget which will likely be remembered for a very long time. The first Budget to ever be presented by a female Chancellor; the first Budget to be presented by a Labour Chancellor in over 14 years; and a Budget full of tax changes.
Here we provide a summary of some of biggest changes:
Increase in the rates of capital gains tax (CGT)
- The standard rates of 10% for basic-rate taxpayers and 20% for higher-rate taxpayers have been immediately uplifted to 18% and 24% respectively. This brings the rates inline with residential property gains, which were already taxed at 18% and 24%.
- Business Asset Disposal Relief will be gradually increased from its current rate of 10%. From 6 April 2025 it will be 14%, and then from 6 April 2026 it will be 18%.
Reduction in inheritance tax (IHT) reliefs and taxation of pensions
- From 6 April 2026, a £1million allowance will be introduced for claims regarding 100% agricultural property relief (APR) and/or 100% business property relief (BPR). The allowance will apply on death and to certain lifetime transfers. Once the allowance is utilised, any further claim for APR or BPR will only be provided at 50% relief (leaving the remaining 50% of value as being liable to IHT).
- For example, if a farmer dies in December 2027 with farmland worth £4million, the first £1million would qualify for 100% relief but the remaining £3million would only be covered by 50% relief – thereby leaving £1.5million of value as being liable to IHT. At present rates this could lead to a tax liability of £600,000. This assumes that the farmer did not utilise any of his £1million allowance during his life.
- Also from 6 April 2026, shares on the AIM market (amongst others) will no longer qualify for 100% BPR from IHT (where the relevant conditions are met). Only 50% relief will be available on their value.
- Unspent pension pots will come within the scope of IHT from 6 April 2027.
National insurance changes for employers
- The rate at which employers pay national insurance on the earnings of their employees will increase from 13.8% to 15% from 6 April 2025.
- Furthermore, the threshold at which employers begin to pay national insurance will be reduced from £9,100 to £5,000 for each employee.
- But on the flip side, the annual Employment Allowance, which certain employers can offset against their national insurance bill, will be increased from £5,000 to £10,500 from 6 April 2025, and more employers will be entitled to claim it.
- The overall impact of these changes will vary between employers. Many will pay more national insurance each year, but some very small employers will pay less.
Stamp duty land tax (SDLT) increase for additional purchases
- The existing 3% surcharge for individuals purchasing additional properties (or purchases by certain trusts and companies) has been immediately increased to 5%. However, it will not apply where a property purchase exchanged before 31 October 2024 but is yet to complete.
The restriction on APR and BPR is likely to have a very big impact on farmers and business owners who will exceed the £1million allowance. The need to pay IHT on the excess value (even at a reduced rate) in the future will require access to potentially a substantial amount of liquid assets – and in some cases the only way to raise such cash will be to sell some or all of the land/business.
The freezing of the thresholds above which an estate is liable to pay inheritance tax, coupled with the anticipated increase in property prices, is also likely to result in significantly increased tax receipts for the Treasury.
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