The long awaited, much anticipated and dreaded first Budget of the new Labour government was delivered to Parliament yesterday – 30 October 2024 – by the Chancellor, Rachel Reeves.
We now know where the funds will come from to finance investment and growth, and the vaunted tax increases are no longer speculative, we have the detail.
The impact of the proposed £40bn of tax increases are summarised below.
What we knew before the Budget announcements
The following announcements were made before the Budget:
National Living Wage (NLW):
The NLW, which applies to workers aged 21 and over, is set to increase to £12.21 per hour from April 2025, marking a rise from its current rate of £11.44.
National Minimum Wage (NMW):
Rates for 18 to 20 year olds will increase from £8.60 to £10 per hour. The increase in the 18-20 year old rate narrows the gap between that and the NLW, in anticipation of the adult rate being extended to 18 - 20 year olds in future years.
Non-Dom Tax Rules:
New restrictions on non-domiciled tax statuses are set to tighten. These changes, taking effect in April 2025, will limit non-domiciled tax benefits to an initial four years of UK residency for those previously non-resident, potentially broadening the tax base.
From 6 April 2025, the government will introduce a new residence-based system for Inheritance Tax and scrap the planned 50% reduction in foreign income subject to tax in the first year of the new regime.
For Capital Gains Tax purposes, current and past remittance basis users will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met. Overseas Workday Relief will be retained and reformed, extending to a 4 year period and removing the need to keep the income offshore.
The amount claimed annually will be limited to the lower of £300,000 or 30% of the employee’s net employment income.
The government is extending the Temporary Repatriation Facility to 3 years, expanding the scope to offshore structures, and simplifying the mixed fund rules to encourage individuals to spend and invest their FIG in the UK.
VAT on Private School Fees:
Starting January 2025, private school fees will be subject to 20% VAT. Alongside the removal of charitable rates relief on private schools, these moves will increase operational costs for these institutions.
Abolition of Furnished Holiday Lettings Tax Regime:
From April 2025, the tax benefits associated with Furnished Holiday Lettings (FHL) will end, potentially affecting property owners reliant on this tax relief.
Income and gains from a FHL will form part of the person’s UK or overseas property business. These changes will take effect on or after 6 April 2025 for Income Tax and Capital Gains Tax and from 1 April 2025 for Corporation Tax and for Corporation Tax on chargeable gains.
Other Budget Personal finance changes
Income Tax
There are no changes in the rates of Income Tax and the thresholds at which the higher (40%) and additional (45%) rates apply. As we have commented before, the freezing of the thresholds means that increases in earnings to compensate for inflation will “drag” individuals into tax or the higher rates of tax.
As an acknowledgement of this fiscal-drag effect, The Chancellor has committed to restoring the inflation-proofing of the Income Tax thresholds from April 2028.
High Income Child Benefit Charge
The government will not proceed with the reform to base the High Income Child Benefit Charge (HICBC) on household incomes. To make it easier for all taxpayers to get their HICBC right, the government will allow employed individuals to report Child Benefit payments through their tax code from 2025 and pre-prepopulate self-assessment tax returns with Child Benefit data for those not using this service.
Starting rate for savings
The government will introduce legislation in Finance Bill 2024-25 to retain the 0% band for the starting rate for savings income at its current value of £5,000 for tax year 2025 to 2026. This measure will apply to the whole of the UK.
National Insurance rates and thresholds
The September Consumer Prices Index (CPI) figure of 1.7% will be used as the basis for uprating the Class 2 and Class 3 National Insurance contributions for the tax year 2025-26. The Class 1 Lower Earnings Limit and Class 2 Small Profits Threshold will also be uprated by September CPI for the 2025-26 tax year.
Inheritance Tax
The Inheritance Tax nil-rate bands are already set at current levels until 5 April 2028, and the government will introduce legislation in Finance Bill 2024-25 to fix these levels for a further 2 years until 5 April 2030.
The:
- nil-rate band will continue at £325,000
- residence nil-rate band will continue at £175,000
- residence nil-rate band taper will continue to start at £2 million
Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.
Unused pension funds and death benefits payable from a pension will be brought into a person’s estate for Inheritance Tax purposes from 6 April 2027.
Agricultural Property Relief and Business Property Relief
The government will reform these reliefs from 6 April 2026. The existing 100% rates of relief will continue for the first £1 million of combined agricultural and business property.
The rate of relief will be 50% thereafter, and in all circumstances for shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM.
Capital Gains Tax (CGT)
It was speculated that CGT gains would be taxed at Income Tax Rates, thankfully, that did not come to pass.
But there are increases, and they will apply to gains on disposals of chargeable assets made on or after 30 October 2024 (Budget Day). The main rates of CGT will change from the previous 10% and 20%, to 18% and 24%, respectively.
The 18% rate will apply to gains that fall to be taxed in the Income Tax basic rate band the 24% rate to gains that fall to be taxed in the higher rate bands.
The rate of CGT for Business Asset Disposal Relief (BADR) and Investors’ Relief is increasing to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. The £1m limit for BADR remains unchanged.
The Investors’ Relief lifetime limit will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024.
No changes will be made to the 18% and 24% rates of Capital Gains Tax that apply to residential property gains.
Making Tax Digital for Income Tax and Self-Assessment
Making Tax Digital (MTD) for Income Tax will be extended to sole traders and landlords with income over £20,000 by the end of this Parliament. The precise timing of this will be set out at a future fiscal event. This expands the rollout of MTD for Income Tax, which will begin from:
- April 2026 for sole traders and landlords with income over £50,000
- April 2027 for those with income over £30,000
Help to Save Scheme
The scheme will be extended for two years from April 2025. Accordingly, the last date a scheme can be opened is 5 April 2027.
From 6 April 2025, the eligibility of the scheme will be extended to all individuals in receipt of Universal Credit earning £1 or more.
ISA, Junior ISA, Lifetime ISA and Child Trust Funds
The annual subscription limits are unchanged at:
- ISAs will remain unchanged at £20,000 until April 2030
- Junior ISAs will remain unchanged at £9,000 until April 2030
- Lifetime ISAs will remain unchanged at £4,000 until April 2030
- Child Trust Funds will remain unchanged at £9,000 until April 2030
These measures will apply to the whole of the UK.
Carried Interest
Carried interest is typically paid to fund managers when an investment fund’s returns exceed a specified threshold, often after the fund liquidates assets and distributes returns to investors. Payment occurs after investors recover their initial investment and a preferred return, aligning the manager’s compensation with the fund's performance.
From April 2026, the tax regime for carried interest will be within the Income Tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought into charge. As an interim step, the government will introduce legislation in Finance Bill 2024-25 to increase the 2 Capital Gains Tax rates for carried interest to 32% from 6 April 2025.
Stamp Duty Land Tax
The government will introduce legislation in the Finance Bill 2024-25 to increase the higher rates of Stamp Duty Land Tax (SDLT), payable by purchasers of additional dwellings and by companies, from 3% to 5% above the standard residential rates. The government will also increase the single rate of SDLT payable by companies and non-natural persons acquiring dwellings for more than £500,000, from 15% to 17%.
The changes will apply to transactions with an effective date on or after 31 October 2024.
Fuel Duty rates
The 5 pence cut in the rates of Fuel Duty, first introduced at Spring Statement 2022, will be extended to 22 March 2026. This will maintain the cut for a further 12 months in the rates for heavy oil (diesel and kerosene), unleaded petrol, and light oil by 5 pence per litre, and the proportionate percentage cut (equivalent to 5 pence per litre from the main Fuel Duty rate of 57.95 pence per litre) in other lower rates and the rates for rebated fuels, where practical.
Air Passenger Duty (APD) rates for 2025-26 and 2026-27
The reduced rates for economy passengers will increase in line with RPI, rounded to the nearest pound. This means that domestic and international short-haul economy rates will remain unchanged from 2024-25. The standard and higher rates will be further increased to help account for recent high inflation.
For 2026-27, all rates will be increased by 13%, rounded to the nearest pound, to account in part for previous high inflation and to help maintain the value of APD rates in real terms. The higher rates that apply to larger private jets will increase by a further 50%. The new rates will apply from 1 April 2026.
Tobacco Duty rates
The duty rates for all tobacco products will increase by the tobacco duty escalator of 2% above inflation (based on the Retail Price Index (RPI)).
The rate for hand-rolling tobacco will increase by an additional 10% above the escalator, to 12% above RPI.
The changes took effect at 6pm on 30 October 2024.
Alongside the introduction of a vaping products duty (see below) there will be an equivalent increase in tobacco duties. The government will make a one-off tobacco duty increase of £2.20 per 100 cigarettes or 50 grams of tobacco, effective from 1 October 2026.
Vaping products duty (VPD)
The government will introduce legislation in a future Finance Bill for a single duty rate of £2.20 per 10ml of vaping liquid. The measure will take effect from 1 October 2026, with businesses able to apply for approval from 1 April 2026.
Alcohol Duty Uprating
In a welcome move, the alcohol duty rate on draught products is to be reduced. It is expected that this will reduce the price of an average strength pint by 1p per pint.
The government will also increase the discount provided to small producers for non-draught products and maintain the cash discount provided to small producers for draught products, increasing the relative value of Small Producer Relief.
Alcohol duty rates on non-draught products will increase in line with RPI inflation from 1 February 2025.
Budget impact on UK businesses
Corporation Tax charge and rate
There are no proposed changes to Corporation Tax rates, a welcome announcement for SMEs.
The government will introduce legislation in Finance Bill 2024-25 to set the charge for Corporation Tax and thereby maintain the main rate at 25% and the small profits rate at 19%.
Employers’ National Insurance Contributions
One of the predicted tax increases was to Employers’ National Insurance. These are termed secondary contributions in the legislation. The prediction has proved to be correct.
From 6 April 2025 until 5 April 2028, the threshold at which Employers’ contributions will apply is being reduced from £9,100 to £5,000. In future years, this threshold will increase in line with the Consumer Price Index.
The main rate of employer’s secondary rate (Class 1) NIC will increase by 1.2% from 13.8% to 15%. Class 1A contributions (that apply to benefits in kind) and Class 1B contributions will increase by the same amount.
Thankfully, the government has listened to the various business lobby groups on behalf of smaller businesses and will also introduce legislation to increase the Employment Allowance from £5,000 to £10,500 and remove the restriction that currently applies to the Employment Allowance, where only employers who have incurred a secondary Class 1 National Insurance contributions liability of less than £100,000 in the tax year prior are able to claim.
This will take effect from April 2025 and will mean eligible employers will be able to reduce their National Insurance contributions liabilities by up to £10,500 per year.
Tax treatment of double cab pick-up vehicles
The government will not introduce legislation to maintain the treatment of double cab pick-up vehicles with a payload of one tonne or more as goods vehicles.
HMRC is in the process of updating its guidance to clarify the position in respect of such vehicles which will be treated as cars for capital allowances, for benefits in kind and for some deductions from business profits. Transitional arrangements will also apply.
Energy Profits Levy (EPL) reform 2024
As announced at the July Statement 2024, the government will introduce legislation in Finance Bill 2024-25 to provide for changes to the Energy Profits Levy (EPL). The legislation will increase the rate of the levy by 3% to 38% and the sunset clause will be extended to 31 March 2030. The legislation will remove the 29% investment allowance, and the rate of the decarbonisation allowance will be set at 66% to broadly maintain the cumulative value of relief for decarbonisation expenditure. These changes will take effect from 1 November 2024.
Taxation of employee ownership
The taxation of Employee Ownership Trusts and Employee Benefit Trusts is to be reformed. These reforms will ensure that the regimes remain focused on encouraging employee ownership and rewarding employees, and to prevent opportunities for abuse. The changes will take effect from 30 October 2024.
Close company shareholders — anti avoidance measure
The government will introduce new legislation to prevent avoidance of the section 455 Corporation Tax Act 2010 (Loans to Participators) charge, by ensuring that the Targeted Anti-Avoidance Rule (TAAR) remains robust and effective.
The change repeals the relief for return payments where the TAAR has applied and moves the related legislation together for clarity.
The changes will take effect from 30 October 2024 and specifically will apply to return payments made on or after that date.
Capital allowances for zero emission cars and electric vehicle charging points
The 100% first-year allowances for zero-emission cars and electric vehicle charge-points is extended until 31 March 2026 for Corporation Tax, and to 5 April 2026 for Income Tax.
Additional tax relief for visual effects (VFX)
Film and high-end TV companies will be able to claim an enhanced 39% rate of Audio-Visual Expenditure Credit (AVEC) on their UK visual effects (VFX) costs. UK VFX costs will be exempt from the AVEC’s 80% cap on qualifying expenditure.
The changes will take effect from 1 April 2025, for expenditure incurred on or after 1 January 2025.
Taxation of company cars
The appropriate percentages for zero emission and electric vehicles will increase by 2% per year in 2028-29 and 2029-30, rising to an appropriate percentage of 9% in tax year 2029-30.
Appropriate percentages for all cars with emissions of 1 to 50g of CO2 per kilometre, including hybrid vehicles, will rise to 18% in tax year 2028-29 and 19% in tax year 2029-30.
Appropriate percentages for all other vehicle bands will increase by 1% per year in tax years 2028-29 and 2029-30. This will be to a maximum appropriate percentage of 38% for tax year 2028-29 and 39% for tax year 2029-30.
Annual uprating of the van benefit charge and the car and van fuel benefit charges 2025-26
These rates will be increasing using the September 2024 Consumer Prices Index (CPI).
The following new rates will come into effect from 6 April 2025:
- the van benefit charge will be £4,020 in tax year 2025-26
- the van fuel benefit charge will be £769 in tax year 2025-26
- the car fuel benefit charge multiplier will be £28,200 in tax year 2025-26
The government will introduce legislation by statutory instrument in December 2024 to ensure the changes are reflected in tax codes for tax year 2025-26.
Reporting Benefits in kind by payroll software
A technical note has been published which provides further clarification on plans for mandatory payroll reporting. The technical note confirms that, from April 2026, it will be mandatory to payroll all benefits in kind, except for employment related loans and accommodation. Payrolling for these two benefits will be introduced on a voluntary basis from April 2026 and the government will set out the next steps on when they will be mandated in due course.
OUR SUMMARY
Although some of the expected dire increases in tax proposed in the media since the general election, have not come to pass, there is still a lot to be considered.
If you have concerns about any of the points summarised above, please call. In particular, do not act based on this update without first consulting with your professional advisors.
