Our initial thoughts on the important things to note from Wednesday’s Budget
Takeaways for today
- Capital Gains tax rates have increased as of today to 18% and 24% on all assets. This brings the tax rate on assets such as shares, land and Crypto to the prevailing rates that applied to residential property sales since April.
- Stamp Duty Surcharge increases by 2% for “second homes”, investment properties and properties purchased by companies, making the Stamp Duty charge that applies to residential property purchases costing more than £40,000 5% above the standard rates, where contracts are exchanged after 30 October 2024.
- Investors Relief is capped at £1 Million lifetime allowance.
What’s coming in April?
- Employers will pay a higher rate of National Insurance on wages, and the charge starts at a lower level than this tax year.
- Business Asset Disposal Relief (you probably know that as Entrepreneurs’ Relief) will remain for gains realised on disposal of qualifying assets up to £1 Million, but the tax rate increases to 14% from April and aligns with the lower CGT rate at 18% from April 2026.
- If you are late in paying tax the interest rate HMRC will apply increases by 1.5%.
- The non-domiciled tax regime will cease in its current form.
- Married Couples Allowance increases by 1.7%.
- Van Benefit rates and company car fuel charges increase by CPI.
- Double Cab Pickups will be treated as cars for new purchases.
- Voluntary National Insurance contributions increase by 1.7%
Looking Further ahead
- Company car tax rates increase from April 2028, including a 2% hike in electric vehicle rates in both 2028-29 and 2029-30. That would bring the benefit in kind charge up to a maximum of 9% of the list price of the vehicle at April 2029. This compares to 18% and 19% for hybrids.
- Non-electric cars will see a 1% increase in the benefit rate from April 2028.
- Tax thresholds that have been frozen for a number of years will increase in line with inflation from April 2028.
- Inherited pension funds will be subject to IHT from April 2027.
We had been promised for weeks that this Budget would be painful, and weighing in at a WHOPPING £40 bn in tax charges (how many 0’s is that exactly?). That might be the impression given but, looking at the detail, we are sitting here scratching our heads to work out exactly what all the fuss was about.
The speech was heavy on spending proposals and gave minimal detail on the tax changes, so there were a few surprises hidden in the Treasury Budget report, but still no apparent sting to it.
National Insurance Contributions
The bulk of the burden seems to have landed on employers, which was pretty much as expected from the pre-event chatter. However, the headline increase in employer NIC was less than most had predicted and, for smaller businesses, will be largely negated by more than doubling Employer Allowance.
Minimum Wage
Minimum Wage is set to increase but again, that sees an annual uplift, so perhaps it should not be unexpected. Large employers will shoulder the bulk of this burden, which could impact wage levels and prices – the money has to come from somewhere of course.
Many High Street businesses were facing a four-fold increase in their business rates from April when the Covid Relief measure, which reduced business rates by 75% for the retail, hospitality and leisure sectors, was due to end.
However, the impact has been softened by a 40% reduction in rates for those sectors from April 2025, with a commitment to reform to a fairer system from April 2026.
Capital Gains Tax
Capital Gains Tax has been touted as ripe for reform for some years, and perhaps being seen as only affecting the wealthy, would be an easy target for this government. It was, therefore, no surprise that the tax rates increased and increased immediately.
That the rates are merely aligned with the residential property rates is in itself surprising, considering that there was no differential between Income Tax and Capital Gains Tax rates under the last Labour government. CGT rates, therefore, remain relatively low.
Business Asset Disposal Relief
This did make Business Asset Disposal Relief (most people still call this one Entrepreneurs’ Relief) an awkward fit, being set at 10% under current rules. The phasing in of the increase to 18% for this relief gives 18 months to those who are considering retiring or selling their business to potentially make the most of the 10% rate, or benefit from paying only 14% before 2026, if they are not in a position to make the move right now.
In the run-up to Budget Day, we had a number of enquiries about wrapping up businesses to avoid an anticipated 40% tax charge, but in most cases, there was simply not enough time to take sensible action. Today I don’t think an additional 8% tax charge will be good enough reason to offload your business if you aren’t already considering it for non-tax reasons.
Pension savings
Pension savings were another target that had been expected to take a hit for some time now. High earners get full tax relief on eligible contributions to schemes, albeit the amount that can be paid is restricted. Yet again, speculation about limiting tax relief to a flat rate that either did not affect or benefitted lower-income savers didn’t come to anything, and the relief itself has been left unchanged.
However, what is going to happen from 2027 is that any balance of funds in your pension pot that can be passed onto your heirs will be subject to Inheritance Tax. Planning advice has been to use your directly owned assets before your pension pot, which was outside of the Inheritance Tax net, but that approach becomes redundant going forward.
Potential for pension pots to be double taxed has been highlighted by a number of commenters. Under current rules, where the pensioner lives past 75, heirs will be taxed at income tax rates on any funds drawn from the pension fund they inherit. It seems inequitable that this rule would remain once Inheritance Tax is applied and it may be that the income tax charge will be abolished, but as always, the devil is in the detail.
Inheritance Tax
Inheritance Tax was a popular target in the Budget, with the highly valuable Agricultural Property and Business Property Reliefs being restricted to the first £1 Million of value in your estate from April 2026. These reliefs gave 100% exemption to qualifying assets, without limit. Successful Entrepreneurs concerned about the impact of the changes on their legacy will need to look at lifetime planning to reduce the value of businesses in their estates.
Child Benefits
The claw back of Child Benefit has been a nightmare from the time it was introduced. The Spring Budget had promised an overhaul of the system in order to address a perceived unfairness. The idea was to increase the threshold to £100k or more, based on total household income, before restricting the benefit.
However, buried in these notes is a statement that the Spring proposals are not going to be followed up. We will be wrestling with this painful process for some time, but on a brighter note, there is a proposal to include Child Benefit figures in pre-populated tax returns. This will save both us and the clients the annual headache of trying to work out who received it and how much it was.
Administration
As a tax nerd I am always looking out for the non glamorous snippets that slide by in the notes. There are a few administrative changes that I like. The HMRC department dealing with Inheritance Tax has been underfunded for decades, to the extent that I believe that all their calculations are still processed manually.
Tucked away within the notes is a proposal to digitalise IHT reporting. I am assuming that will mean that the horrible forms that can only be half completed on the screen will become properly linked up at some point. I live in hope!
In summary
All in all, there is little impact on the average person from this Budget. Income tax is unchanged, personal National Insurance is unchanged. It is only if you are considering selling assets, your Inheritance Tax position or want to buy a property that you may find that there is additional tax to pay.
Most of these things are generally within your control, so there is a degree of autonomy over whether you pay the tax or not. Business owners are not going to have as much control over the additional taxes.
Over the course of the next few weeks more details will emerge and more detailed guidance will be published. Keep an eye out for updates on matters that affect you, and of course if you want to chat through the impact of the announcements on your position, we would love to speak to you. Get in touch with our accountants today.
