Private Client
Labour’s first Budget in 14 years was always expected to increase taxes – throughout summer the headlines have been full of the £22 billion “black hole” in the public finances coupled with the need to increase public spending.
The £40 billion additional taxes announced in the Budget speech was however towards the top end of what had been expected. Whilst it was said that £25 billion of this additional revenue is expected to be raised by the changes announced for Employers’ National Insurance, the Budget also announced significant changes to Inheritance Tax, Capital Gains Tax and SDLT.
So what were the main changes that will affect individuals?
Inheritance Tax (IHT)
Whilst there was no change to the 40% rate or any reduction to the Nil Rate Bands as had been feared, the freezing of the bands at their current levels for a further two years, so now taking it through to 2030, will bring an increasing number of estates into paying IHT.
Probably of more immediate impact though is that, from April 2027, unspent pension funds and death benefits will be included in an individual’s estate for IHT purposes, unless left wholly to a spouse. Currently pension assets are outside of IHT, so this could significantly impact the expected IHT liability and the amount of pension pot left to beneficiaries.
Also with the potential to significantly increase the expected IHT liability is the restriction that was announced to the twin reliefs of Business Property Relief (BPR) and Agricultural Property Relief (APR), taking effect from 6 April 2026. Whilst there had been some speculation that these valuable reliefs would be lost entirely, they have been retained but from 2026 the 100% rate of relief will only apply for the first £1 million of combined agricultural and business property. For qualifying assets in excess of this, the relief will be restricted to 50%, giving an effective IHT rate of 20% on these assets. There is however to be an extension to APR from April 2025 to bring land managed under certain Environmental Land Management agreements within the scope of the relief.
The rate of BPR which applies to shares and securities not listed on a recognised stock exchange, such as those listed on AIM, will reduce from 100% to 50% from April 2026.
Capital Gains Tax
From Budget day, 30th October, the main rates of CGT that apply to assets other than residential property increase from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. This aligns the mains rates of CGT with those already payable on residential property, to which there was no change.
Whilst Business Asset Disposal Relief was retained with the current £1m lifetime limit, the 10% tax rate will only apply for the remainder of this tax year. The rate will then increase to 14% for disposals made on or after 6 April 2025, and to 18% for disposals made on or after 6 April 2026.
Income Tax
The freeze on income tax thresholds will end in April 2028, after which the thresholds will once again start to increase in line with inflation.
Stamp Duty Land Tax
From the 31st October, the day after Budget day, the additional SDLT payable when purchasing additional dwellings will increase from 3% to 5%, which will impact second homes, buy-to-let properties, and company residential property purchases.
Domicile
The “non-dom” status will be abolished from 6 April 2025, transitioning to a residence-based tax regime. This new system will require UK residents to pay taxes on worldwide income, removing the previous remittance basis of taxation. It will also mean that an individual’s obligation to pay IHT will be based on their tax residence as opposed to their domicile status (which is broadly determined by where they were born).
Enterprise Investment Schemes
The EIS and Venture Capital Trust schemes were extended until 2035.
VAT on Private School Fees
As expected, VAT will be charged on private school fees from January 2025.
The Budget is likely to have a wide-ranging impact on many individuals. If you would like to discuss further how the announcements may affect your personal finances, please get in touch with your usual BHP contact.
