In a historical first budget delivered by a female chancellor, there was very little mention of anything directly related to the charity sector.
Whilst there was no direct change to charity taxes, there is an indirect impact on the sector of other measures announced, most notably the increases to national minimum/living wage and employer’s national insurance – which is a key concern for the sector given the charity and Not For Profit sector employs over one million people. Many of these employers are now considering how these additional costs will be funded.
There was good news for certain charities and not-for-profit organisations as funding opportunities were announced within the education and healthcare sectors and those who receive funding from local councils, as government spending is also increasing.
A summary of the main announcements 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 from 6 April 2025.
- From 6 April 2025, the National Living Wage will increase by 6.7% to £12.21 for adults over 21. The National Minimum wage for 18–20-year-olds is rising to £10.00 per hour, an increase of 16.3%. This is a step towards conformity of a single National Living Wage for all adults over time.
Both 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 despite the above increases.
Funding
Much of the budget focused on investment in core public sector services. The announcements should see a real increase in local government funding which should see greater support for voluntary organisations via local government grants and contracts and a shift in government’s approach to funding local public services.
Specific funding announced as part of the budget, which may be relevant and welcome news to operators in the third sector, are as follows:
- Department for Education’s funding shall increase by £ 11.2 billion 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.
- £ 1.3 billion of additional grant funding will be provided in 2025/26 through local authorities, including £ 600 million 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 are required to attend a private school.
Capital gains and Inheritance taxes
- There were several measures which were announced in the Budget 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 that qualify as “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% immediately. These rates will align with the residential property capital gains rates, which are unchanged.
- One big change announced was the steady increase of the 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 leaves 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.
Other announcements 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 has announced that it 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, which shall take effect from April 2026.
- Fuel duty has been frozen, including the 5p reduced rate.
As a result of the Budget announcements we expect that many trustees will be focusing on sustainably meeting their beneficiaries’ needs whilst focusing on operating efficiently in a difficult economic climate.
Income generation may be a hot topic for trustees to consider – however, it will be key to ensure any new proposals are in line with your charity’s governing document.
If you would like to discuss any of the changes and how they impact you as a Charity, please get in contact with your usual BHP client contact or contact the tax team here.
*This blog has been updated for January 2025, the original blog can be found here*
