Yesterday, we received the first Labour Budget in fourteen years, which was significant! It included substantial tax increases. There is a lot to consider, so we can begin by examining the details of the Budget.
However, before we jump to the nitty gritty, here’s a summary of how the Budget affects you depending on who you are.
- I am a working person
- The Chancellor stuck to the promise made in the party’s manifesto. You will not see a change in your payslip as the income tax and national insurance rates have not changed.
- If you are on the minimum wage, there will be an uplift by 6.7% next April.
- I am a business owner
- Significant changes to employer’s national insurance is likely to affect your wage bill.
- Also the sizeable increase in the minimum wage can affect your wage cost if you pay staff minimum wage.
- I am a Landlord
- There are no changes to Income Tax rates if you are operating as an individual.
- There are no changes to corporation tax rates if you are operating via a limited company.
- There are no changes to Capital Gains Tax rates if you are thinking of selling.
- If you are considering buying, from midnight last night, there is an extra 2% surcharge for second properties. This is both for individuals and limited companies.
- I am a Saver
-
- Income Tax rates on savings remain the same.
- There are no changes to Individual Savings Account (ISA) limits.
As you know, navigating taxes is never simple. Let’s, therefore, explore each announcement a bit further to make it helpful.
Income Tax
There are no changes announced. What’s more, there is no change in the personal allowance which is still frozen at £12,570. Ms Reeves expects this to be lifted in line with inflation from 2028.
Same for the basic, higher and additional rate bands and tax rates. These are frozen, too.
The savings rates and tax on dividends have not changed either. Many people were expecting changes to the ISA limits but there were none.
Finally, the High-Income Child Benefit Charge (HICBC) will start once one parent or carer earns at least £60,000. There will be no entitlement to the benefit after income gets to £80,000. If one of you earns more than £60,000, you will need to pay back the tax commonly referred to as HICBC.
The new government will not proceed with previous plans to explore a household income basis for calculating the HICBC.
In the past, the primary method for addressing HICBC was through Self-Assessment. However, HM Revenue & Customs (HMRC) is considering a more streamlined approach by adjusting your PAYE code to facilitate tax collection. This change could simplify the process and make it easier for taxpayers to manage their obligations.
National Insurance (NIC)
The Chancellor announced a package of changes to employers’ Class 1 NICs that will apply from 6 April 2025:
- An increase in the employers’ NICs rate, from 13.8% to 15%;
- A decrease to the threshold at which an employer starts to pay NICs on each employee’s salary (the ‘secondary threshold’) from £9,100 to £5,000;
- A widening of availability and an increase in the ‘employment allowance’ amount, which eligible employers can offset against their employers’ Class 1 NICs liability, from £5,000 to £10,500. In particular, the employment allowance has only been available to businesses with an employers’ Class 1 NICs liability of less than £100,000 in the previous tax year, but that restriction will be removed for 2025/26.
This increase in employer’s NIC presents a challenge for some businesses, which could also impact employees indirectly.
However, this change, alongside the rise in the National Minimum Wage (NMW) and potential adjustments in employment law, could encourage employers to find innovative ways to manage their wage budgets. Please let us know if you need any help with budgeting or forecasting.
Capital Gains Tax (CGT)
As expected, with immediate effect, the rates of CGT for all investments were harmonised, so there are effectively two rates now
- 18% if you are a basic-rate taxpayer
- 24% if you are a higher-rate taxpayer
Many of you as business owners will be pleased to learn that the Business Asset Disposal Relief (BADR) will continue but with a tweak. From April 2025, the rate of tax will increase from 10% to 14% and from April 2026 it will further increase to 18%. You may recall these rates apply to the first £1million of qualifying disposals.
Business Tax
The introduction of MTD is confirmed and will start in April 2026. This is where businesses and landlords paying income tax will need to file quarterly returns to HMRC.
- From April 2026 if your turnover is £50,000
- From April 2027 if your turnover is £30,000
- From April 2028 if your turnover is £20,000
We are already working on this and you will be contact shortly after the January deadlines to put a plan together.
Pensions
The scary rumours of reducing tax reliefs did not materialise.
One change that was however announced was to make an individual’s undrawn pension fund subject to inheritance tax. From 6 April 2027, it is proposed that most undrawn pension funds and death benefits be included within the value of a person’s estate for inheritance tax purposes and for pension scheme administrators to become liable for reporting and paying any inheritance tax due on pensions to HMRC.
Inheritance Tax (IHT)
The main rate of IHT remains at 40%, reduced to 36% for estates where 10% or more is left to charity.
The IHT nil rate band will continue to be frozen at £325,000 until 2030. The additional nil rate band for passing on the family home to direct descendants (residence nil rate band) will also remain at £175,000 until 2030. This means that married couples and civil partners will generally not pay inheritance tax where their combined estate is valued below £1 million. Note however that the residence nil rate band continues to be tapered where the value of the estate exceeds £2 million.
As mentioned above, it is proposed that, from April 2027, most undrawn pension funds and death benefits will be included within the value of a person’s estate for IHT purposes.
Farmers and business owners
The government is proposing to reform IHT agricultural property relief (APR) and business property relief (BPR) from 6 April 2026. Relief of up to 100% is currently available on qualifying business and agricultural assets with no financial limit.
From 6 April 2026, it is proposed that 100% relief will only apply to the first £1 million of combined agricultural and business property, with the relief reducing to 50% on the value that exceeds £1 million. This means the relief will be focused on small family farms and businesses.
In a further proposed change, the rate of BPR available for shares designated as “not listed” on the markets of recognised stock exchanges, such as AIM, will be reduced from 100% to 50%.
As an anti-forestalling measure, the new rules will apply to lifetime transfers made on or after 30 October 2024 if the donor dies on or after 6 April 2026.
UK Residency and Domicile
Important changes to tax regulations have been announced for non-domiciled individuals residing in the UK. This applies to individuals who spend the majority of their time in the UK but do not have permanent residency. The current concept of ‘domicile’ will be eliminated from the UK tax system and replaced with a system that focuses on the number of years a person has been a tax resident.
If you have not always resided in the UK, please reach out to us to discuss how the new rules may impact your situation. There may be exemptions or transitional reliefs available that could benefit you, such as a ‘temporary repatriation facility’ for any overseas funds you possess, as well as the option to ‘re-base’ any overseas assets to their April 2017 values. This could help reduce any UK capital gains tax liability starting from the 2025/26 tax year and beyond.
Stamp Duty
It has been confirmed that the 0% thresholds for Stamp Duty Land Tax (SDLT) will be reduced from 1 April 2025 as follows:
| From 1 April 2025 | 1 April 2024 to 31 March 2025 | |
| Main threshold | £125,000 | £250,000 |
| First-time buyers’ threshold | £300,000 | £425,000 |
- SDLT on additional dwellings such as second homes
For transactions with an effective date (generally the date of completion) on or after 31 October 2024, the higher rates of SDLT payable by purchasers of ‘additional dwellings’ (i.e. when they already own one dwelling), and by companies, increases from 3% to 5% above the standard residential rates. This measure is clearly targeted at buy-to-let landlords and those acquiring second homes.
The rate of SDLT payable by companies and non-natural persons (e.g. trusts) acquiring dwellings for more than £500,000 increases from 15% to 17% also from 31 October 2024.
VAT
From 1 April 2025, the VAT registration and deregistration thresholds will remain at £90,000 and £88,000 respectively. There have been no changes to the rates of VAT and the standard rate continues to be set at 20%.
In a key change to VAT, private school fees, which have been exempt from VAT, will be made subject to VAT at 20%. This will start from the school term beginning in January 2025.
Other Announcements in the Budget
Interest on unpaid tax liabilities
From 6 April 2025, the late payment interest rate charged by HMRC on unpaid tax liabilities will increase by 1.5 percentage points. For most taxes, this will set late payment interest at the Bank of England base rate plus 4%.
What do you need to do next?
There’s a lot to digest here and we have put out a lot of information. However, sometimes it is easier to discuss your concerns with an advisor.
If you are already working with us and have some questions, please get in touch with your regular Myers Clark contact. If you are not yet working with us, here’s how we work.