In a historical first budget delivered by a female chancellor, there was very little mention of anything directly related to the charity sector.
Despite much speculation ahead of this Budget, the chancellor committed to their manifesto promises not to increase taxes on working people – instead targeting tax rises towards businesses and business owners, creating revenue required for providing funding and investment in the country.
Whilst there is no direct change to charity taxes, there may be an indirect impact of other measures announced. Funding opportunities were announced for charities operating within the education and healthcare sectors, as well as those who receive funding from local councils as government spending is increasing in these areas.
The main announces impacting the sector are as follows:
Employment taxes
- There will be an increase to employer’s national insurance, with contributions increasing to 15% from 6 April 2025. Further, the secondary threshold above which employer contributions are paid for an employee, has been reduced from £9,100 to £5,000 – again from 6 April 2025.
- From 6 April 2025, the National Living Wage will increase by 6.7% to £12.21 for adults aged over 21. The National Minimum wage for 18-20 year olds is rising to £10.00 per hour, which is an increase of 16.3%. This is a step towards conformity of a single National Living Wage for all adults over time.
Both of these measures will impact employing charities’ cost bases, impacting the available funds to be spent on Charity Objects and the beneficiaries.
- There is however an increase in the Employment Allowance from £5,000 to £10,500 for all employers – with the £100,000 limit above which the Employment Allowance would no longer be available for an employer being removed. This may bring the smallest employers out of the requirement to pay National Insurance at all, despite the increases above.
Capital gains and Inheritance taxes
- There were a number of measures which were announced today affecting individual’s assets and wealth, most notably the bringing of inherited pensions into the inheritance tax estate on death from 6 April 2027, and the restriction of Business Property Relief and Agricultural Property Relief to 100% relief on the first combined £1million of assets, reducing to 50% thereafter, from 6 April 2026. Further, all shares other than those which qualify as being “listed” shall only qualify for Business Property Relief at 50%, also from 6 April 2026.
- There were also increases to the lower and main rates of capital gains tax – with the lower rate rising from 10% to 18% and the higher rate from 20% to 24% from today. These rates will align with the residential property capital gains rates, which are unchanged.
- One big change announced was the steady increase of Capital Gains Tax rate which shall be payable on shares which qualify for either Business Asset Disposal Relief or Investors Relief. This is currently set at 10% but shall rise to 14% from 6 April 2025 and then to 18% from 6 April 2026. Whilst this means qualifying shareholders shall benefit from the lower CGT rates, this increases taxes for those holding shares.
The impact of these changes may in return provide an opportunity for Charities as wealthy individuals may choose to increase charitable gifting of assets as opposed to paying taxes on these assets at a higher rate. The reduced inheritance tax rate of 36% on estates which leave at least 10% to charity within their will (after other reliefs and exemptions) remains, and so again may provide an alternative option for estate planning which is preferred by wealthy individuals.
Funding
Much of the budget focused on investment being made in core public sector services. Specific funding which may be relevant and welcome news to operators in the third sector are as follows:
- Department for Education’s funding shall increase by £11.2billion from 2023/24 levels by 2025/26. There will be an additional £2.3billion increase to the core schools budget, £1billion towards supporting the special educational needs and disability system and £6.7 billion of capital funding, including £1.4billion towards the school re-building programme.
- £30million of funding is being allocated to provide further rollout of free breakfast clubs for primary schools.
- £1.8 billion of funding is being allocated to continue the expansion of government funded childcare.
- £1.3billion of additional grant funding being provided in 2025/26 through local authorities, including £600million at least for social care.
- £233million of additional spending in 2025-26 being provided through local authorities to tackle homelessness, taking the total to £1billion.
Private schools
- Whilst it was not a shock announcement, the chancellor confirmed that VAT will be added to private school fees and boarding services at 20% from 1 January 2025.
- Charitable business rates relief is also being removed for private schools from 6 April 2025.
- Within the detail, the government has confirmed that it will refund the VAT paid on fees for pupils with Special Educational Needs who are funded by local authorities and devolved governments and who require to attend a private school.
Other points to be aware of:
- The government has confirmed the mandatory payrolling of benefits (other than loans or accommodation which are optional) from 6 April 2026, removing the requirement to prepare form P11D’s.
- From 1 April 2025, the rates of Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibitions Tax Relief have been confirmed as being 40% for non touring productions and 45% for touring productions.
- Within the detailed notes to the budget the government have announced they shall support charitable giving by legislating to prevent abuse of the charity tax rules to ensure only the intended tax relief can be given to charities. The detail on exactly what is meant by this shall hopefully be provided on legislation day, at which point we can provide further comment.
- Fuel duty has been frozen, including the 5p reduced rate.
Overall today’s Budget has not made operating in the charitable sector any easier and trustees will need to continue to find ways to operate efficiently in a difficult economic climate.
If you would like to discuss any of the changes, and how they impact you as a Charity, and employer or as an individual, please get in contact with your usual BHP client contact or contact the tax team on: 0333 123 7171.
Read more about the Autumn Budget 2024 here
