ESDG Accountancy comment:
The first Labour budget for almost 15 years was published today after an exhausting period of speculation about its contents. In our view, some of the most feared tax changes have not come to full fruition and the impact is much more limited than first thought.
For individuals:
Capital gains tax has increased but not to the 30-40% levels feared, however pensions will now form part of your estate for IHT purposes from 2027. Tax effective options like ISAs and relief on pension contributions have not been tampered with and EIS / VCT schemes have been extended to 2035. The budget has certainly put a focus on getting organised when it comes to Tax and Estate Planning.
For small business owners:
increases to Employers’ National Insurance and Minimum Wage may present challenges, however the very smallest of employers may find relief through the increase in Employment Allowance. Existing landlords have escaped largely unaffected however the 2% stamp duty rise will significantly add to future transaction costs. It looks like we have certainty that there will be no further increases to the main rate of corporation tax for the foreseeable.
Minimum Wage Increase
- National Living Wage will increase by 6.7% to £12.21 per hour starting next April.
- Minimum wage for 18-20-year-olds will rise by 16.3% to £10 per hour.
Pensions
- Labour has maintained the triple lock system on the state pension.
- No return of the £1m lifetime allowance.
- Starting in 2027, Labour will introduce Inheritance Tax (IHT) on pensions, meaning they will form part of the deceased’s estate.
Business and Corporation Tax
- The current 75% discount on business rates, set to expire in April 2025, will be replaced by a 40% discount, capped at a maximum of £110,000.
- Main rate of corporation tax (25%) will be capped for duration of the parliament.
Employer’s National Insurance Increase
- Employers’ NICs will increase from the previous rate of 13.8% to 15% starting in April 2025. The secondary threshold at which employers must pay NICs will also be reduced to £5,000 from £9,100.
- The Employment Allowance has been increased to £10,500; giving the very smallest of employers a net benefit in combination with the above.
Capital Gains Tax
- Capital Gains Tax (CGT) rates have increased to 18% for basic rate taxpayers and 24% for higher rate taxpayers. The change will take effect for disposals made on or after 30 October 2024.
- BADR (formerly known as entrepreneurs relief – tax when a business is sold or liquidated) will remain at 10% this year, before rising to 14% in April 2025 and 18% from 2026-27.
- CGT on carried interest will rise to 32% from 2025, specifically targeting the fund management industry.
- Primary residences will continue to be exempt from CGT.
Increase in Stamp Duty Land Tax for Second Properties
- Labour has increased the SDLT surcharge for second and additional properties from 3% to 5%, effective from 31st October 2024.
- Labour has not maintained the current Stamp Duty Land Tax (SDLT) relief threshold of £425,000 for first-time buyers. As a result, first-time buyers purchasing a property will now pay SDLT at the 2025 rate of 5% on properties priced above £300,000 and below £500,000.
Get in touch by replying to this email or via your usual contact to discuss how the budget could affect you or your business.
