Rachel Reeves has delivered her first budget as Chancellor, the first Labour budget since 2010. We will be circulating a more detailed breakdown to clients later this week, but below are some of the key takeaways, changes and impressions that we have.

In a nutshell

• Personal tax rates and allowances on income will be frozen at the current levels until at least 2028/29
• No changes to income tax reliefs on pension schemes
• Substantial increases to Employers National Insurance (NI) contributions from April 2025
• Increase in Capital Gains Tax (CGT) rates from 30 October 2024
• Stamp Duty Land Tax surcharge on “second homes” increased from 31 October 2024
• Confirmation that VAT will apply to private school fees from January 2025
• Major changes to the taxation of “non-doms” from April 2025
• Agricultural and business property reliefs to Interitance Tax (IHT) restricted from April 2026

Personal Tax

Rates & Allowances – While a freeze is better than a rise, in practice a lot of people will move into higher rate bands through the freeze period, because of natural increases in pay.

High Income Chile Benefit Charge (HICBC) – This will continue to apply at the current rates (progressive clawback for earnings between £60k-80k), the previously announced plans to change this to reflect the joint income of a couple have been scrapped, so the charge will remain dependent on the income of the higher earner of the couple.

Dividend Income – No changes were made to the dividend allowance, which will remain at £500, or rates, which remain at 8.75% / 33.75% / 39.35% for basic / higher / additional rate taxpayers respectively.

Savings Income – No changes were made to the savings allowance or other current arrangements.

Foreign Domiciled Individuals

A raft of changes were announced for “non-doms” including the abolition of the remittance basis, a new “foreign income and gains” regime, changes to CGT rebasing, and changes around IHT.

Employees

Company Cars – The previous rates set to 2027/28 will be honoured, and rates for two further years have been added. The rates continue to provide a strong incentive to use electric vehicles, with rates for hybrid vehicles being brought closer to those for internal combustion engine ones. Base figures for calculating the personal benefit of business fuel use will increase with inflation.

Double Cab Pickups – For vehicles purchased on or after 1 April 2025, double cab pickups will be treated as cars for the purposes of benefit in kind (BIK) tax, and capital allowances. Existing rules will apply for each business until the earliest of; disposal, lease expiry, or 5 April 2029.

National Insurance Contributions

Thresholds and rates – From 6 April 2025, the rate of Employers NI will rise from 13.8% to 15%. At the same time, the threshold for paying this will be reduced from the current £9,100 to £5,000. Naturally this will have a significant impact on employers.

Employment Allowance – Currently, businesses with an Employers NI bill of under £100,000 can deduct £5,000 from this (as long as more than one employee is earning over the threshold). From 6 April 2025, this amount is increased to £10,500 and the £100,000 cap is removed.

Class 2 NICs – These apply to the self-employed. From 6 April 2024 these are no longer required to secure benefits for anyone earning above the small profits threshold, which will rise in 2025/26 from £6,725 to £6,845. Anyone earning less that that can still pay Class 2 NI voluntarily (£182 in 2025/26) in order to maintain a full contribution record.

Savings & Pensions

Individual Savings Accounts (ISAs) – Investment limits for ISAs are unchanged, £20,000 for an adult (of which £4,000 can be in a Lifetime ISA), and £9,000 for a Junior ISA or Child Trust Fund. These will now remain fixed until April 2030.

Pension Contributions – The only changes were around the movement of a UK pension fund overseas from 30 October 2024, and the inclusion of unused funds and death benefits in the IHT estate of the deceased for deaths from 6 April 2027. More details in the IHT section.

Capital Gains Tax (CGT)

Rates and annual exemption amount – While there were major changes, these didn’t go quite as far as some rumours predicted. From 30 October 2024, the main CGT rate for all assets is 24% (except for carried interest which remains at 28%). This 24% rate was previously only applied to residential property not subject to principal private residence (PPR) relief. Where a gain can be matched against a taxpayer’s basic rate band, that rate is now 18% for all assets. Previously it was 10% except for residential property and the receipt of carried interest.

Also from 30 October 2024, the rate payable by trusts and personal representatives increased from 20% to 24% (again except for carried interest which remains at 28%).

From 2025/26 the rate on carried interest will be increased to 32% for individuals, estates and trusts. From 2026/27, carried interest will be brought within income tax.

The CGT annual exempt amount remains at £3,000 for individuals and estates, and £1,500 for most trusts.

Business Asset Disposal Relief (BADR) – The lifetime limit for qualifying gains remains at £1 million, however the rate will rise from the current 10% to 14% in 2025/26 and 18% in 2026/27.

Investors relief (which gives a 10% rate to qualifying investors in a business in which they do not work) has had the lifetime limit cut from £10 million to £1 million with effect from 30 October 2024, and the rates will rise in line with the BADR rates above.

Inheritance Tax (IHT)

Rates – The IHT nil band has been fixed at £325,000 since 6 April 2009. This freeze has been extended until at least 2029/30, bringing a larger number of estates into the scope of IHT. Where applicable, the £175,000 “residential nil rate band enhancement” will still apply.

While it can be possible for parents to leave a £1 million estate to a their direct descendants, IHT free, the nil rate band fix, and other complications make IHT planning more critical then ever. Please speak to your financial adviser about this, or get in touch with us for a recommendation if required.

Reliefs – This is where some of the biggest changes are being made:

Agricultural Property Relief and Business Property Relief currently provide up to 100% relief. From April 2026 this is capped at £1 million, above which the relief is limited to 50%.

Shares quoted on certain markets of certain exchanges (such as AIM), have qualifies for 100% relief if owned for 2 years, again this is restricted to 50% from April 2026.

Pension Savings – As mentioned above, the widely rumoured change, bringing pensions under IHT, will come into effect from 6 April 2027, returning to the position before the 2015 pension reforms.

Business Tax

Business Rates – During the covid-19 pandemic, a temporary business rate relief for the retail, hospitality and leisure sector (RHL) was introduced. Having been extended several times, the current 75% relief is due to end 31 March 2025. Plans were hinted at to permanently lower RHY rate multipliers for properties with a rateable value below £500,000 from 2026/27, but the key announcement was that rate relief will be extended from April 2025, but reduced to 40% and capped up £110,000 per business. The small business multiplier is frozen for 2025/26 at 49.9p while the standard multiplier will rise by inflation to 55.5p.

Private Schools – Private schools face a double blow, with both the introduction of VAT on fees, and the loss of their charitable rate relief. The only exception is schools wholly or mainly concerned with providing full time education to pupils with an Education, Health and Care Plan.

Umbrella Companies – From 6 April 2026, employment agencies (or the end-client business where no agency is used) will be responsible for accounting for PAYE on payments made to workers supplied via umbrella companies. This is to combat perceived tax avoidance and fraud in the sector.

Furnished Holiday Lets (FHLs) – The tax advantageous treatment of FHLs will be abolished from 6 April 2025. Anyone who has not yet taken advice about the impact of this change, should do so as soon as possible. We would be happy to oblige.

Corporation Tax

The government published a roadmap in which it commits to capping the main rate of Corporation Tax at 25%, as well (crucially for many) as maintaining the small profits rate (currently 19%) and thresholds. The roadmap also commits to maintaining full expensing, the Annual Investment Allowance (AIA), Research & Development reliefs, and the Patent Box. This appears to be a commitment for the whole of this parliament.

The 100% first year allowance for zero-emission cars, and plant and machinery for electric vehicle charge points will be extended to the end of the 2025/26 tax year.

Value Added Tax (VAT)

Thresholds – The registration & deregistration thresholds were increased in a previous budget to £90,000 and £88,000 respectively, with effect from 1 April 2024, and frozen for an unspecified period. No further update on this was given in the October 2024 budget.

Private School Fees – The introduction of VAT on private school fees was a Labour manifesto pledge. It was expected prior to the election that this would take effect from September 2025, however the budget confirmed the previous announcement that this will take effect from January 2025. There is wide criticism of this move from finance and education professionals alike, who both (correctly) argue that this gives very little time for a (usually glacial in pace) HMRC to provide adequate guidance, and for this to be implemented. There is further argument from the education sector that this will also lead to an unsustainable level of mid-year transfer of pupils from private schools, to state ones, giving rise to fears that some will be left with no option but to home school for two terms of the academic year.

Schools should take advice on this at the earliest opportunity, particularly around what input VAT may be recoverable, and when to register (although given HMRC’s current waiting times, we fear that many schools may not receive their registration in time for the January deadline).

Private Hire Vehicles – Not from the budget directly, but there have been several contradictory court rulings on the VAT treatment of private hire vehicles. Many more cases are due to be heard by tax tribunals. Anyone running a taxi firm should pay close attention to the outcome of these cases, or seek professional advice.

Property Tax

Higher Rates on Additional Dwellings (HRAD) – HRAD is a surcharge on the normal rate of Stamp Duty Land Tax (SDLT) that applies to the purchase of residential property for over £40,000 by someone who already owns an interest in such a property, unless they are replacing their main residence. From 31 October 2024, the surcharge increases from 3% to 5%. If someone buys a new home before selling their existing residence (for instance to complete works before moving in), it is possible to reclaim the surcharge within 3 years of completion, as long as this leaves the individual with only one dwelling.

Rate of Stamp Duty Land Tax (SDLT) – A temporary reduction in the normal rate of SDLT expires on 31 March 2025. Up to that date, the first £250,000 is charged at £0, from 1 April 2025, the band from £125,001 to £250,000 will once again be charged at 2%. There is also a reduction in the thresholds for first time buyer relief, from 1 April 2026, the nil rate will apply to the first £300,000 of a property costing up to £500,000, down from the first £425,000 of a property costing up to £625,000. The higher rate of SDLT that applies to the company purchase of certain residential property costing over £500,000 increases from 15% to 17% from 31 October 2024.

Annual Tax on Enveloped Dwellings (ATED) – ATED applies to residential property worth more than £500,000 which is owned through companies or other corporate structures, unless the situation qualifies for a relief. The rates increase automatically with inflation, and will rise by 1.7% from 1 April 2025, in line with the September 2024 Consumer Price Index.

Other Measures

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) – The requirement for filing tax returns using MTD is due to come into force from 6 April 2026. With the initial rollout catching those with income over £50,000. This drops to £30,000 from 6 April 2027, and the budget committed to a rollout to those with income over £20,000 “by the end of this parliament”. If this will affect you, please speak to your accountant early, rather than leaving it to the last minute, or if you don’t currently use an accountant, consider approaching one, as the ability to submit yourself will become both more onerous and costly.

Compliance and Debt Management – The budget included spending for an additional 5,000 HMRC compliance staff, and 1,800 debt management staff. This was described as making sure people pay the tax they owe, but in real terms, we can probably expect to see more investigations, VAT checks etc. If we were in HMRC’s shoes, we’d be targeting those who “self-submit” rather than using an accountant, so this may be the time to consider taking advice if you currently complete your own accounts and/or VAT returns.

Fuel Duty – The last Conservative budget assumed that the 5p cut in fuel duty and a three year freeze in duty rates would end in March 2025. The October budget has maintained the freeze for another year, and retained the 5p cut until 22 March 2026.

National Living Wage (NLW) – From 1 April 2025, the NLW which applies to those aged 21 and over will rise from £11.44 per hour to £21.21, while the rates that apply from 18-21 year olds, and those under 18 (and apprentices) rise to £10 and £7.55 respectively.

Interest on Late Paid Tax – HMRC currently charge 7.5% on tax that is paid late, this is set to rise to 9% from 6 April 2025.

Our Opinions

Rumours abounded about the possible outcomes of last week’s budget, and it did not disappoint. Sweeping changes, higher tax, and more complexity. However, while there was a lot for business owners to ponder, not all of the news was bad.

The increase in NLW and Employers NI (both rate and reduced limit) will drive staff costs up for all but the smallest businesses, even for the smallest, there will be supply chain knock ons. When asked by a friend “what it meant” putting it in terms for a non business person, I said that it would likely mean 5% plus on the cost of taking his better half out for dinner. That’s probably not a bad baseline.

For business owners, we should expect to see costs rise across the board, that’s the kicker. On the other hand, the smallest businesses can at least expect some mitigation. They are largely cushioned from the increase in Employers NI, with the increase to the employment allowance. While it’s not good news on Corporation Tax, neither is it bad news. We have a freeze, and despite rumours that the small profits rate may be at risk it’s been protected. Dividends are still “a thing” but not as tax efficient as they used to be.

The budget was a momentous event, with a lot of giving with one hand and taking with the other. Most businesses will be worse off from it, but the outlook is not entirely bleak. Now everyone has had a chance to start reading the fine print, opportunities remain, and that makes this a good time to book a meeting with your accountant, and have a more detailed discussion about what the changes will mean for you and your business.