THE BUDGET WHICH TRANSFERS WEALTH FROM THE PRIVATE TO THE PUBLIC SECTOR
The long-awaited—and, for many, dreaded—Autumn Budget has arrived. Prime Minister Keir Starmer warned us in advance to “face the harsh reality of fiscal matters,” while newspapers kept the suspense going with bold headlines on tax and pension changes. Now that Chancellor Rachel Reeves has delivered her address and the details are public, what does it all mean? What’s actually changing, and how might it affect you? We’ve rounded up the key points so you can understand how this Budget impacts your finances and if any action is needed.
Let’s take a closer look.
Income Tax
The anticipated two-year extension to frozen income tax thresholds won’t extend beyond 2028, meaning thresholds will begin to rise with inflation starting in April 2028.
The Starting Rate for Savings will stay at £5,000 for 2025-26, allowing individuals with less than £17,570 in earned and/or pension income to receive up to £5,000 in savings income tax-free.
Capital Gains Tax (CGT)
The main CGT rates will increase immediately to 18% and 24% for disposals made on or after 30 October 2024, aligning with the rates for residential property, which remain unchanged. The £3,000 Annual Exempt Amount also remains steady. Trustees and personal representatives will pay the 24% rate.
Two reliefs still provide access to lower CGT rates: Business Asset Disposal Relief (BADR) and Investors’ Relief (IR). The rate for these will increase to 14% from 6 April 2025 and then to 18% from 6 April 2026. The lifetime limit for Investors’ Relief will be reduced to £1 million, matching BADR’s limit. No changes were made to the CGT uplift on death.
Inheritance Tax
Inheritance tax thresholds are now frozen until April 2030, keeping the nil rate band at £325,000 and the residence nil rate band at £175,000 for another five years. Qualifying estates can still transfer unused nil rate bands to spouses, allowing for up to £1 million in wealth transfer without an inheritance tax liability.
Reforms to agricultural and business property relief will start in April 2026. Although 100% relief on qualifying assets will continue, it will only apply to the first £1 million in combined assets; above this, agricultural and business assets will get 50% relief, facing a 20% inheritance tax rate. Unlisted shares will also be subject to a reduced relief rate of 50%.
From 2027-28, the inheritance tax service will be digitalized to streamline tax returns and payments.
Non-Domicile Status Abolished
The government will replace domicile status with a residence-based regime from 6 April 2025, ending offshore trusts’ use to avoid inheritance tax. The remittance basis of taxation will be replaced with a simplified, globally competitive residence-based system. New residents opting in to this regime won’t pay UK tax on foreign income and gains for their first four years in the UK. Rebasing of foreign assets for CGT will also be available under certain conditions. Overseas Workday Relief will extend to a four-year period without needing income to be kept offshore. Temporary Repatriation Facility will also extend to three years with simpler mixed fund rules.
National Insurance (NI)
While individual NI rates remain unchanged, employers’ NICs will increase from 13.8% to 15% from 6 April 2025. The threshold for employer NICs on employee earnings will decrease from £9,100 to £5,000 annually until 2028, after which it will adjust with CPI. The Employment Allowance will also rise from £5,000 to £10,500, with the eligibility threshold of £100,000 removed.
Individual Savings Account (ISA)
Annual subscription limits will remain at £20,000 for ISAs, £4,000 for Lifetime ISAs, and £9,000 for Junior ISAs and Child Trust Funds until 5 April 2030. The British ISA will not proceed.
Pensions
Speculation around reduced tax-free cash for pensions was unfounded. However, starting from 6 April 2027, unused pension funds and death benefits will be included in a person’s estate for IHT purposes, with pension schemes required to report and pay IHT due.
VAT on Private School Fees
From 1 January 2025, private school fees will be subject to VAT at the standard 20% rate, also covering boarding fees. Local authorities funding pupils with special needs will be compensated for the VAT charged.
Stamp Duty
Higher rates of Stamp Duty Land Tax on additional dwellings will rise from 3% to 5% from 31 October 2024. Contracts exchanged before this date won’t be affected by the increase.
Furnished Holiday Lets
From April 2025, furnished holiday let landlords will lose beneficial tax treatment, with restrictions on finance costs, capital allowances, relief on trading business assets, and relevant UK earnings for pension relief.
High Income Child Benefit Charge (HICBC)
No changes to the HICBC structure based on household incomes. Starting in 2025, individuals can pay HICBC via their tax code, and Self-Assessment tax returns will include pre-populated Child Benefit data for non-tax code users.
Corporation Tax
The government has committed to capping the Corporation Tax Rate at 25%, while maintaining the Small Profits Rate and marginal relief at current levels and thresholds.
If you would like to discuss the budget and the impact of it on your personal circumstances please contact us in the usual way.
