After all the pre-Budget briefings and speculation, there was little announced today by Britain’s first female Chancellor that came as a surprise. Taxes would inevitably need to rise to fix the struggling economy and fund the Government’s spending plans. Our experts outline the key tax measures affecting our clients and their businesses.
Introduction
“Fixing the foundations of the economy” – this was the message that Chancellor Rachel Reeves wished to convey with today’s Budget, as she reiterated the £22bn “black hole” left behind by the previous Government. In order to re-balance the country’s finances and fund the Government’s ambitious plans to fix the NHS; improve public services; protect working people, and continue investment in capital projects and in science, innovation and the creative industries, taxes would need to rise by some £40bn. As anticipated, the main targets for those rises were employers with a large workforce, wealthy people and anyone involved in aggressive tax planning.
Capital Gains Tax (CGT)
Increases in the main CGT rates
Perhaps the most anticipated tax announcement has been the increase in CGT rates. Although there were reports of Treasury officials modelling potential rises of up to 39%, today the Chancellor announced that:
- the lower rate of CGT will increase from 10% to 18%; and
- the higher rate of CGT will increase from 20% to 24%,
on disposals made from today. This aligns with the CGT rates payable by individuals disposing of residential property.
Business Asset Disposal Relief and Investors’ Relief
The rate for Business Asset Disposal Relief (BADR) and Investors’ Relief will increase from 10% to 14% from 6 April 2025 and then again to 18% from 6 April 2026, when they will match the new lower main rate of CGT.
The lifetime limit for Investors’ Relief will be reduced from £10m to £1m for all qualifying disposals made from today. This aligns the lifetime limit for Investors’ Relief with the maintained £1m lifetime limit for BADR.
Fund management industry – carried interest
CGT for carried interest gains will be raised from 28% to 32% from 6 April 2025. The carried interest taxation regime will then be incorporated into the Income Tax framework from 6 April 2026 onwards.
Corporate & business taxes
The Corporate Tax Roadmap, published today, makes the following commitments:
| Corporation tax rate | Headline rate capped at 25% for the duration of this Parliament. |
| Capital allowances | Core features of the UK’s capital allowances regime will be maintained, including the £1m Annual Investment Allowance and the general first year allowances. |
| R&D reliefs and the Patent box | Good news for the life sciences industry as the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs will be maintained. The Patent Box regime will also remain unchanged. |
| Transfer pricing and other international corporation tax issues | There may be future reform to the rules on transfer pricing, potentially resulting in the removal of UK-to-UK transfer pricing. The Government is exploring additional changes including lowering the thresholds for exemption and introducing reporting requirements on multinationals in relation to cross-border related transactions. The Government is consulting on reforms to the rules on permanent establishments and Diverted Profits tax. |
| Creative industries reliefs | The creative industries will be pleased to see that the Audio-Visual Expenditure Credit (which will be increased from 34% to 39% from April 2025) and the Video Game Expenditure Credit (which will replace the Video Games Tax Relief regime in April 2025) are being maintained. |
Personal & employment taxes
Employer National Insurance Contributions (NICs) and National Minimum Wage
The Chancellor announced a 1.2% increase in employer NICs from 13.8% to 15%, to be implemented in April 2025. Additionally, Reeves has cut the Secondary Threshold (the level of salary at which employers start to pay NICs) from £9,100 to £5,000 from April 2025 until April 2028. Thereafter, it will be increased in line with the Consumer Price Index (CPI).
This comes alongside the announcement that the National Minimum Wage for over 21-year-olds is increasing by 6.7% from £11.44 to £12.21 per hour, in line with the Government’s commitment to a “genuine living wage”. Additionally, increases were announced for 18-20-year-olds and apprentices, taking steps towards a single flat adult rate.
Reeves recognised that small businesses will be concerned by these changes. To alleviate these pressures, from April 2025 the maximum Employment Allowance (which allows eligible employers to reduce their annual National Insurance liability) will be increased from £5,000 to £10,500, with the £100,000 eligibility threshold being removed.
Despite it being heavily predicted, the Chancellor did not announce the implementation of NICs on employer pension contributions.
Income tax and employee NICs
In line with Labour’s promise not to increase taxes on working people, neither income tax nor employee NIC rates were increased.
It was announced that the freeze on income tax and employee NIC thresholds (which was introduced by the Conservative Government in 2021 and extended thereafter) will not be extended past April 2028. From then, the thresholds will be changed to reflect CPI rates.
Impact of CGT changes on employee share schemes
The Chancellor did not announce carve-outs to the increases to the BADR rate for Enterprise Management Incentives (EMI) or other tax-advantaged employee share schemes. This means that EMI option holders qualifying for BADR can expect to pay 14% CGT for any shares disposed of after 5 April 2025 and 18% for disposals after 5 April 2026.
Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes
The Chancellor noted that the EIS and VCT have already been extended until 5 April 2035.
Inheritance Tax (IHT)
The Chancellor announced that the threshold for an estate to be subject to IHT will remain at £325,000 until 2030. The residence nil-rate band and the residence nil-rate band taper will be maintained at their current levels until 2030.
The Chancellor also announced that from 6 April 2027, any unused pension funds and death benefits payable from a person’s pension will be included in their estate for IHT purposes.
Within the IHT reforms, from 6 April 2026, although the current 100% rate of relief will remain on the first £1m of combined agricultural and business property, the value of property exceeding £1m will only benefit from 50% relief. The rate of relief on shares listed on AIM will also be reduced to 50%.
Non-domiciled individuals tax regime
The Chancellor set out the details for the replacement of the current non-domicile regime with a residence-based regime from 6 April 2025, in line with the announcements by Jeremy Hunt in the Spring Budget 2024.
Real estate taxes
Business rates
Pursuant to Labour’s pledge to replace the existing business rates system, a Business Rates Reform Paper was published today setting out the Government’s priorities for transforming business rates and inviting industries to comment.
In a move to boost the retail, hospitality and leisure (RHL) industries, various measures were introduced including, for 2025-26, 40% relief on the business rates payable in relation to eligible RHL properties (up to a cash cap of £110,000 per business).
In accordance with its longstanding position on private schools, from April 2025, private schools will no longer be able to benefit from charitable relief from business rates.
As business rates are devolved, this announcement only impacts England.
Stamp Duty Land Tax (SDLT)
The Chancellor announced that the higher rates for additional dwellings surcharge will increase from 3% to 5%, effective from 31 October 2024. This surcharge is also paid by non-UK residents purchasing additional property.
The single rate SDLT charged on the purchase of dwellings costing more than £500,000 by corporate bodies will also increase by 2% to 17%.
Other notable announcements
The Chancellor trailed a number of measures designed to close loopholes in the tax system and strengthen HMRC’s ability to tackle non-compliance.
The Chancellor announced various changes impacting transport, including a further 12-month extension to the freeze on fuel duty; the maintenance of electric vehicle incentives; a year-long extension on 100% first year allowances for zero emission cars and vehicle charge points; and a 50% increase on air passenger duty for private jets.
As part of a range of measures designed to improve public health and support the NHS, Reeves introduced a flat rate duty on vaping products and increased tobacco duty and the soft drinks industry levy.
As announced in July of this year, the Chancellor confirmed that VAT will be payable on private school fees from 1 January 2025.
If you would like further information in relation to any of these measures, please contact a member of our tax team.
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