Chancellor Rachel Reeves has delivered her first Budget and as predicted, the largest tax raising Budget since Norman Lamont in 1993, with around £40bn being raised in total.
The good
For most investors and savers, the measures were less bad than feared:
- Capital gains tax ‘CGT’ rates were increased but way short of the ‘income tax normalisation’ that had been rumoured. Meanwhile the £1m lifetime limit for Business Asset Disposal Relief was maintained (allows individuals to pay a reduced capital gains tax rate on disposals of business assets),
- ISA allowances remain frozen until 2030,
- There were no changes to tax relief on personal pension contributions; no employer national insurance due on employer contributions; and no cuts to pension tax-free cash entitlement (the main source of concern among our clients ahead of the budget),
- Inheritance tax bands remain frozen until 2030. This means that in certain instances, a married couple will still be able to pass on up to £1m of assets tax-free.
The bad
However, the burden of tax rises will mostly fall on employers, property investors, and the dead…
- Employer national insurance contributions ‘NICs’ are set to increase by 1.2% to 15% from April 2025, and the threshold at which NIC becomes payable will fall sharply from £9,100 to £5,000. And the National Living Wage is set to increase by 6.7%to £12.21 from April 2025,
- The Stamp Duty surcharge on second homes will increase by 2% to 5% as of tomorrow,
- Whilst inheritance tax ‘IHT’ thresholds remain frozen, there were sweeping changes elsewhere: i) Business Relief and Agricultural Relief were maintained but will be less generous in the future. From April 2026, the first £1m of combined business and agricultural assets will continue to attract no IHT at all, but in excess of this amount, IHT will apply at 50% the standard rate; ii) as had been rumoured, from April 2027, inherited pension shall be included in one’s estate for IHT (we await more detail on this); and iii) IHT on most AIM-listed shares will now be set at 50%the standard rate (rather than 0% previously).
The ugly
‘Ugly’ might be an overstatement, but it was disappointing not to see any obvious changes to some of the ludicrous marginal tax rates embedded in the current income tax system.
For example, on earnings between £60-80k, when Child Benefit entitlement is tapered; or where earnings creep above £100k, resulting in an effective 60% marginal tax rate on income, but also the potential loss of entitlement to free childcare hours and tax-free childcare.
Summary of policy changes
Below is a summary of the key announcements on taxes and reliefs:
Income tax
The freeze on income and NI thresholds (the ‘stealth’ tax) will not be extended beyond 2028, at which point thresholds will once again rise with inflation.
State Pension
Entitlement will increase by up to £470 pp from April 2025, in line with the triple lock.
National Insurance
No change to employee NI.
1.2% increase in Employers’ National Insurance from 13.8% to 15%.
Capital Gains Tax
From today (30th October), the lower rate of capital gains tax will rise from 10% to 18% and the higher rate from 20% to 24%, no change for residential property.
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which provides a reduced CGT rate of 10% on qualifying business disposals up to a lifetime limit of £1m, remains. The applicable CGT rate will climb to 14% from April 2025, then 18% the following year.
ISAs
Allowances remain in place until 2030. Confirmation that the British ISA has been ditched.
VAT
As was widely expected, from 1st January 2025, 20% VAT will apply to private school fees.
Stamp Duty Land Tax
From tomorrow, the Stamp Duty surcharge on second homes shall increase by 2% to 5%.
Inheritance Tax
From April 2027, pensions will be brought into the scope of IHT – we await more detail on this, e.g. will there be a spousal exemption, if the policyholder dies after age 75, will the inherited pension still attract income tax (on top of IHT) resulting in a potential ‘double death tax’, etc.
Reform of Agricultural and Business Relief from April 2026.
50% IHT relief (down from 100%) to apply to AIM shares.
Corporation Tax
Freezing of these rates.
Fuel Duty
Frozen again in 2025.
Growth & innovation
EIS & VCT schemes maintained.
National Living Minimum Wage
Increasing to £12.21 from April 2025.
Non-Dom regime
Removed entirely from 2025 and creating a residence-based regime.
Disclaimer: The Financial Conduct Authority does not regulate tax advice. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts and their value depends on the individual circumstances of each investor.
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