The Chancellor Rachel Reeves has delivered her first Budget speech to the House of Commons, in which she pledged to raise £40bn from a series of changes to the tax regime.
Here is a round-up of some of the biggest headline-grabbing changes with implications for your wealth.
Capital gains tax rates increased
The Chancellor announced an increase in capital gains tax (CGT) rates from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher- and additional-rate taxpayers. CGT rates on second properties remain unchanged. Capital gains tax (CGT) is paid when you sell an asset such as a second property, artwork or shares and make a profit on the sale. The annual CGT allowance has been steadily reducing in recent years and is currently £3,000 each tax year, unchanged at this Budget.
Stamp duty land tax on second properties increased
The extra stamp duty payable on the purchase of second properties will increase from 3% to 5%. The Chancellor has left little time for buyers to plan for this change as it will be introduced from 31 October.
Non-dom tax status abolished
In a move to close ‘tax loopholes’, the non-dom tax regime will be abolished and the concept of domicile replaced with a new focus on residency. More details on this will follow in due course.
Inheritance tax relief on unlisted shares reduced
The Chancellor opted not to scrap inheritance tax relief on unlisted shares, but to reduce the level of IHT relief from 100% to 50%. Under current rules, shares of small companies listed on markets of recognised stock exchanges such as the Alternative Investment Market (AIM) qualify for inheritance tax relief if held for at least two years.
Agriculture and business property relief capped
From April 2026, the first £1m of combined business and agricultural assets will be free of inheritance tax, as the Chancellor looked to protect small family farms. For assets worth more than £1m, inheritance tax will apply at 20%.
Pensions become subject to inheritance tax
From April 2027, defined contribution pension pots will be subject to inheritance tax at the death of the holder. Under current rules, pension funds are not counted as part of your estate for IHT purposes, so you could pay up to £1,073,100 to your beneficiaries as a lump sum tax free. Currently, only 6% of households pay IHT, but this rule change will increase that number.
The Chancellor also opted to freeze the nil-rate band at £325,000, which is the amount you can pass on before it becomes subject to IHT, and the residence nil-rate band at £175,000, which is the value of a property you can pass to your direct descendants without paying tax. Today’s Budget doesn’t change the spousal exemption from IHT, and spouses can still pass unused allowances to their partner, meaning a possible total of £1m can be passed on by a married couple tax-free.
There were a number of changes to pensions rumoured ahead of the Budget which didn’t happen, including a reduction (or scrappage) of the pension commencement lump sum, tax-free cash allowance or pension contribution relief.
Employers’ National Insurance Contributions raised
Employers’ National Insurance Contributions (NICs) will increase by 1.2 percentage points to 15% from April 2025. National Insurance will now be due on employees’ salaries from £5,000, where previously the threshold was £9,100. The Chancellor said this move will raise £25bn in tax revenues per year. She will also increase the employment allowance from £5,000 to £10,500 to take 865,000 small employers out of paying National Insurance.
This change could make salary sacrifice schemes more attractive to employers which might want to offer more benefits such as pension contributions rather than pay rises.
Business Asset Disposal Relief increased
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, enables small business owners to benefit from a 10% rate of CGT on the sale of business assets up to a max of £1m in their lifetime, giving a CGT saving of up to £100,000. This will rise to 14% on 6 April 2025.
State Pension increased
The Chancellor confirmed a 4.1% increase in the state pension as it rises in line with average earnings under the ‘triple lock’ policy (where pensions rise in line with the higher of inflation, earnings or 2.5%). This could equate to a gain of up to £480 a year for 12 million pensioners.
The full new state pension will increase by £9.10 per week to £230.30 per week (or £11,975 per year, an increase of around £480 per year). The old state pension will increase by £6.95 per week to £176.45 per week, (or £9,175 per year, an increase of around £368 per year).
VAT charged on private school fees
The Chancellor confirmed an already-announced plan to add VAT to private school fees from January 2025 and remove business rates relief for private schools from April 2025. We’ve previously written about this issue – read our analysis here.
Income tax thresholds frozen
Despite fears that income tax would increase following the Budget, the Chancellor opted to maintain the freeze on income tax thresholds until 2028/29 but then allow them to be uprated in line with inflation. This was in acknowledgement of the pressures on working people’s finances from the cost of living crisis, the Chancellor said.
None of the announcements Rachel Reeves made in parliament today are cause for panic. There is time to plan for the changes with the help of a qualified expert. Contact your financial planner or portfolio manager if you have any questions following this Budget speech.
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