Yesterday, Rachel Reeves, the new Chancellor of the Exchequer, delivered the Labour Government’s first Budget in 14 years, aimed at “fixing the foundations and delivering change” through a strong focus on investment. With an ambitious plan to generate an additional £40 billion in taxes, the Budget covers a broad spectrum of changes for both individuals and businesses. Here’s a breakdown of what these changes mean and the potential impact they may have on your finances and plans.
Key Changes for Individuals
- Capital Gains Tax: The capital gains tax rate on the sale of most assets, excluding residential property, has been increased. This is a significant change for investors and property holders.
- Inheritance Tax (IHT): From April 2026, certain inheritance tax reliefs will be restricted. Additionally, starting in April 2027, pension values will be included in a deceased person’s estate when calculating their inheritance tax, impacting long-term estate planning.
Key Changes for Businesses
- Employer’s National Insurance: Employers will see an increase in national insurance contributions from 13.8% to 15%, with the threshold reduced from £9,100 to £5,000. This adjustment may influence hiring decisions and payroll budgets.
- VAT on Private School Fees: VAT will now be applied to private school fees, affecting families relying on private education options.
- National Minimum Wage: There will be an increase in the national minimum wage, aiming to support low-income workers but potentially raising payroll expenses for businesses.
Budget Summary So Far
The Budget wasn’t as aggressive as some anticipated, and the initial financial response has been steady. The GBP remains relatively stable, with housebuilder stocks seeing an impressive 3.6% rise.
Inflation and Economic Growth Forecasts
- Inflation: Inflation is forecasted at 2.5% for this year, with a gradual reduction towards the 2% target by 2029. Although inflation is expected to remain higher than previously anticipated, it is projected to stabilise over the long term.
- Growth: The economic growth forecast remains weak overall, with a short-term rise followed by slower growth in the coming years.
Tax Increases and Revenue Generation
The Budget outlines measures aimed at raising £40 billion in tax revenue:
- Capital Gains Tax: Rates will rise from 10% to 18% (lower rate) and from 20% to 24% (higher rate), affecting the returns on capital investments.
- Carried Interest and Air Passenger Duty: The tax rate on carried interest will increase to 32%, with air passenger duty also rising.
- VAT on Private Schools: The introduction of VAT on private school fees has been confirmed.
National Insurance and Income Tax
- Income Tax Thresholds: While income tax, VAT, and national insurance rates remain unchanged, income tax thresholds are frozen until 2028-29, after which they will align with inflation.
- Employer NICs: Employer national insurance contributions are set to increase by 1.2%, reaching 15%, with the threshold reduced to £5,000.
Inheritance Tax Overhaul
Changes to inheritance tax aim to generate revenue and redistribute wealth:
- Inheritance Tax Threshold: The freeze on the inheritance tax threshold continues.
- Tax on Inherited Pensions: Starting in 2027, inherited pensions will be subject to taxation.
- New Inheritance Tax Rate on AIM Shares: Relief on AIM shares will be eliminated, with a new 20% rate introduced.
Wages and Employment
The national minimum wage will rise by 6.7%, providing additional support for lower-income workers but potentially increasing wage costs for businesses.
Duties on Tobacco, Vaping, and Fuel
- Tobacco Duty: Tobacco duty will continue to increase, rising by retail inflation plus 2%.
- Vaping Products: A flat-rate duty on vaping liquids will be implemented starting in 2026.
- Fuel Duty: Fuel duty will stay frozen for another year, offering some relief at the pumps.
Electric Vehicle (EV) Incentives
Company car tax incentives for electric vehicles will continue, with expanded benefits for fully electric vehicles from 2028 to promote eco-friendly choices.
Defence Spending
An additional £2.9 billion will be directed to defence spending, supporting national security priorities.
Retail, Hospitality & Leisure Sector Support
The 40% relief on business rates for the retail, hospitality, and leisure sectors will continue into 2025/26, capped at £110,000 per business. Additionally, the duty on draft drinks will decrease by 1.7%.
Housing and Infrastructure Investment
A £5 billion budget has been allocated to housebuilding initiatives for the coming year, addressing the housing shortage and supporting the construction industry.
The new Budget brings both opportunities and challenges for individuals, businesses, and families alike. If you’re unsure about how these changes may affect you or your business, don’t hesitate to reach out to our team. At Vales Accounting, we’re here to help you navigate the changes and make the most of the opportunities ahead.
Disclaimer:
While we have made every effort to ensure that the information on this website is accurate and up-to-date, tax laws and regulations are subject to change and may vary based on individual circumstances. The content on this website is provided for general informational purposes only and does not constitute professional advice.
The information contained on this website should not be relied upon as a substitute for specific, tailored advice from a qualified professional. We strongly recommend that individuals and businesses seek professional consultation before making any decisions or taking any actions based on the information provided here. We do not accept any liability for any loss or damage, direct or indirect, arising from reliance on the information on this website. Use of this website and the information contained within is at your own risk, and no responsibility will be taken for actions taken or not taken based on the content of this website.
