This was a once in a generation budget, especially in relation to Inheritance Tax, Capital Gains Tax and Employers’ National Insurance, with businesses and business owners bearing the brunt of the £40bn tax hike.
Much had already been leaked ahead of today with the expected rise in National Insurance for employers predicted to hit many businesses, as will the 6.7% increase in National Living Wage. It is worth noting that the increase in the Employment Allowance from £5,000 to £10,500 will be of benefit to many smaller employers. Although good for people already employed, it may have an impact on future job creation in our local communities. Tax efficient salary sacrifice options may well be worth exploring for many businesses that don’t already do this.
The increase in Capital Gains Tax was not unexpected (though not as high as some predicted) and will impact people’s decisions to sell assets, as the new lower rate of 18% and higher rate of 24% will apply from today. There had been a flurry of activity in the market to ensure disposals completed ahead of Budget Day, and the changes may well alter investment strategies of many individuals going forward.
The introduction of a cap of £1million on 100% Agricultural and Business Property Reliefs will mean many people will now need to re-visit their succession plans. This, alongside bringing unspent pension pots into the scope of Inheritance Tax, are some of the biggest changes we have seen within the Inheritance Tax system for quite some years.
While some thought that Business Asset Disposal Relief to be scrapped, there was some positive news that it will be retained. However, the 10% rate on qualifying disposals will increase to 14% from April 2025 and to 18% the following year in line with the new lower rate of Capital Gains Tax. The £1million lifetime limit is set to remain as well.
Key Highlights of the budget:
- Employers’ National insurance will increase to 15% (from 13.8%) from April 2025 and the secondary threshold will reduce from £9,100 to £5,000 per annum.
- Employment Allowance will increase from £5,000 to £10,500.
- As expected, there will be no increases in Income Tax, Employee National Insurance and VAT.
- The Capital Gains Tax lower rate will increase from 10% to 18% and the higher rate from 20% to 24%.
- Business Asset Disposal Relief will remain, but the rate will be gradually increased from 10% to 18% by April 2026.
- The above rates will also apply to Investors Relief and the lifetime limit for this will be reduced to £1million.
- The Inheritance Tax thresholds (also referred to as nil rate bands) will be frozen until 2030.
- Unspent pensions will also be brought into the scope of Inheritance Tax, these were previously not counted as part of your Estate. This will apply from 2027.
- Agricultural Property Relief and Business Property relief will be reformed so that 100% relief will only apply to the first £1million of combined agricultural and business assets, and the relief will be 50% thereafter.
- Agricultural Property Relief will be extended to include land managed under an environmental agreement.
- AIM shares and other shares ‘not-listed’ on a recognised stock exchange will only qualify for 50% relief in all circumstances.
- The concept of domicile will be removed from the tax system from 2025. Replaced with a residency-based regime.
- Carried interest rules will be reformed, but ahead of that Capital Gains Tax on this will increase from 28% to 32%.
- The SDLT surcharge that is applicable on second properties will increase by 2% from tomorrow.
- Business Rates relief will be introduced for retail, hospitality and leisure business of 40% for 2025/26. This will be capped at £110,000 per business.
- As already known, VAT will apply on Private School Fees and Business Rates Relief will be removed from 2025.
- Interest Rates that apply on unpaid debts due to HMRC will be increased.
- There will be no extension to the freeze on personal tax thresholds, and this will be uprated in line with inflation from 2028/29.
- Company Car Tax Rates will continue to incentivise using electric vehicles whilst rates for hybrid vehicles will increase to align more closely with petrol/diesel vehicles.
- Double Cap Pick Ups will be treated as cars for capital allowances, benefits in kind and for income tax from 6 April 2025 and from 1 April 2025 for corporation tax.
If you have any questions about how the Autumn Budget affects you, please get in touch with us.
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