Analysis by James Clark – Tax partner at WR Partners
In the lead-up to her first Budget speech, Chancellor Rachel Reeves cautioned that it would be a painful Budget, with those bearing the broadest shoulders shouldering the greatest burden. It seems businesses and business owners will feel the impact most.
Whilst some of the tax increases announced today were expected, the severity of them were perhaps not.
Employer National Insurance
As rumoured before the Budget, there will be an increase in the rate of National Insurance paid by employers, rising from 13.8% to 15% from April 2025. To make matters worse, the threshold at which employers pay the tax will reduce from £9,100 to £5,000.
There was some good news for small employers though, with the announcement that the Employment Allowance (the 0% band) will increase from £5,000 to £10,500. This, the Government say, will allow small businesses to employ four workers on minimum wage without an increase to their national insurance bill.
The National Minimum Wage will be increased to £12.12 for employees aged 21 and over, and to £10.00 for under 21’s.
Inheritance Tax
It was anticipated that the rates, allowances or thresholds of inheritance tax would change, but the Chancellor kept the rate at 40% and kept the tax free amount at £325,000. She even kept the £175,000 residence allowance in place that was brought in by the previous Government.
Now for the difficult news: Until now, business owners and farmers have been shielded from inheritance tax on their business and agricultural assets. However, starting in April 2026, this protection will change. From that point forward, only the first £1 million in combined business and agricultural assets will be exempt from IHT, while the remaining value will receive just 50% relief—effectively taxing these assets at 20%. This marks the end of passing on a business or agricultural interest to the next generation without potential tax implications.
The Government will, however, introduce legislation to extend the scope of Agricultural Relief to environmental land management from 6 April 2025.
In a more worrying announcement, the Chancellor announced there will be a consultation to bring unused pension pots into the scope of inheritance tax from April 2027.
There was also an announcement that 100% IHT relief for shares on the AIM and similar markets would reduce to 50%.
Capital Gains Tax
Probably the least best kept secret was the increase to capital gains tax rates, but the increase was not quite as bad as feared. The rates for residential property sales were maintained at 18% (for basic rate taxpayers) & 24% (for higher rate taxpayers), and now all other asset classes will rise to the same levels effective from 30 October 2024. Most people expected CGT rates to increase in line with income tax rates, so this announcement was a bit of an anti-climax.
The CGT rates for entrepreneurs will increase from their current flat rate of 10%, rising to 14% from April 2025 and then up to 18% from 2026. These rates apply to the lifetime limit of qualifying gains which was kept at £1million.
Stamp Duty
Whilst the CGT rates on sales of residential property were not increased, the rates of stamp duty when buying a second home or investment property are being increased by 2% with immediate effect.
Income Tax & NI
In the Labour Government manifesto they promised not to increase income tax and national insurance, which they duly kept to, however they went one step further and announced that they will not extend the freeze to thresholds beyond 2028. Therefore allowances and thresholds will rise with inflation from that point.
Company Car Tax
To give taxpayers more certainty, the Government has announced the company car tax rates for 2028/29 and 2029/30. These show that electric vehicles will see a 2% per year increase in the benefit in kind rate, rising to 9% by 2029/30. Considering only a few years ago the rate was 0%, this represents a large increase for those driving zero emission vehicles.
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