James Pinchbeck, Marketing Partner, Streets Chartered Accountants
Yesterday Rachel Reeves, our first female Chancellor, delivered a Labour government’s first Budget in 14 years. The day before Halloween it certainly seemed to come with its own tricks and treats, but perhaps not the ones you might expect.
For a start, it would seem an incoming government chose to blame the previous one for the mess and the financial situation they have inherited. The first 20 minutes of her speech focused on, from her perspective, their predecessors’ failings in terms of delivering on promises and ‘tricks’ to disguise the £22bn black hole.
A Budget with a £40bn price tag
Against this background she then set out how she and the government were going to ‘rebuild Britain once again’ and restore economic stability. Who might have thought that would come with a £40bn price tag or in this case tax rises.
Whilst much of what is said to be raised following the Budget will seek to fill the ‘black hole’, some £20bn should also form part of proposed or rather committed investment in public spending including health, housing, infrastructure, defence and education. All of which, perhaps with the exception of defence spending, should help to improve our lives and economic prosperity.
The million-dollar question is who is going to pay for all this?
Sticking to their electoral pledge it is not ‘working people’ through changes to income tax, VAT nor employee’s national insurance.
No, the biggest contributor looks likely to be businesses, with the proposed increase in employers’ national insurance contributions by 1.2% to 15% and with the earnings threshold reduced from £9,100 to £5,000 from next April, set to raise £25bn a year by the end of this parliament. The Employment Allowance, which allows those with NICs bills of £100,000 or less to deduct £5,000 from their employer NIC bill, will be increased to £10,000.
More modest in the tax it will generate, with only £2.5bn forecast to be raised, is the announced increases in Capital Gains Tax (CGT), with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%. It was also announced that the rate of CGT on assets qualifying for Business Asset Disposal Relief and Investors’ Relief will rise gradually to 14% from 6th April 2025 and to 18% from 6th April 2026.
Whilst perhaps changes to inheritance tax were not as wide ranging as we thought they might be, changes to Agricultural Property Relief and Business Property will be more impacting. From April 2026, reforms include the first £1million of combined eligible agricultural and business assets for 100% relief, with excess assets at 50%. Also, from next April the government will introduce a new residence-based system for IHT, ending the use of offshore trusts to shelter assets from IHT.
Other tax rises include the increase in Stamp Duty Land Tax for the purchases of additional dwellings, changes to company car tax and the charging of VAT on public school fees. These are along with other measures to address tax avoidance, late payment of tax due and the abolishment of the non-domicile regime.
What were the treats?
Perhaps the treats, for some, may be the announcements were not as wide ranging or hard hitting as might have been expected. Certainly, the continued freeze on fuel duty will be welcome, for lovers of beer so too might be the penny off a pint.
For those serving a pint and those in retail, hospitality and leisure it must be good news that for 2025/26 eligible properties will receive 40% relief on their business rates liability, with the small business multiplier to be frozen for 2025/26.
For those on the ‘national living wage’ so too will be the increase in rate by 6.7% to £12.21 an hour.
What challenges does it present?
This Budget raises challenges and potential issues for those looking at inter-generational wealth planning and the handing of assets from one generation to the next, both from a business and personal perspective, but especially for farmers.
Also, is the consideration around the timing of the sale and disposal of assets, businesses and property that is subject to CGT and Business Assets Relief, formally Entrepreneurs Relief.
The other key area is around absorbing or managing increased staffing costs through the increase in national insurance and the national living wage. It certainly seems more and more challenging to pass on increased costs without affecting revenue, therefore profitability could be at risk.
With this Budget setting the scene or tax landscape for the term of this government and with the announcement that we will only have one Budget a year, we should all be better placed to consider effective tax and financial advice to manage our affairs and the challenges and opportunities we face. Often uncertainty is used to defer or put off planning, perhaps for once this Budget provides, whether we like it or not, the certainty we need.
