There was a great deal of hype surrounding the delivery by Hon Rachel Reeves MP of the first Labour budget since 2010 and the first ever in UK history to be delivered by a woman.
Amid the usual politicking came significant plans to raise taxes by £40 billion. She citied the projections from the Office for Budget Responsibility and claimed that Britain’s economy is forecasted to grow by 2% next year.
Ms Reeves’ approach claims to ‘fix the foundations’ by focusing on economic stability, infrastructure and addressing the cost-of-living crisis, with significant investment in healthcare, education and clean energy. Her intention is to bring the current budget into balance by the 2029/30 financial year.
But what are the shorter-term implications for local businesses and individuals?
Individuals
Anyone buying a second property will find themselves paying 5% instead of 2% Stamp Duty Land Tax (SDLT), effective immediately.
Arguably the most significant change for individual investors was on Capital Gains Tax (CGT) which rises to 18% from 10% on the lower rate and 24% from 20% for higher earners. The rate payable on property remained at 18% and 24% respectively and thus the changes to CGT brought the rate for assets in line with the rate payable on property.
If this seems steep to some, Ms Reeves reminded us that the UK ‘will still have the lowest CGT rate of any European G7 economy’. CGT is paid on profits of more than £3,000 made when an asset is sold, the rates applicable depend on how much you usually pay in Income Tax.
It had been widely speculated that Inheritance Tax (IHT) would be affected in the budget. Ms Reeves stated that currently only 6% of estates will pay IHT this year and that she understands the desire to pass down savings to children and grandchildren. The freeze on IHT was extended until 2030, meaning that the first £325,000 of any estate is free of IHT, rising to £500,000 if the estate includes a residence that is passed to direct descendants, and £1,000,000 when the recipient is a surviving spouse or civil partner.
There was also closure of the rules allowing wealthy, often foreign, residents to avoid tax on overseas income.
Businesses
Employers will be required to pay 15% in National Insurance Contributions (NICs) from April 2025, up 1.2%. The threshold at which they start making the contributions falls from £9,100 to £5,000. This comes on top of the rise in minimum wage rates, also from April 2025.
The retail, hospitality and leisure industry will however benefit from an extension to the Business Rates Relief scheme that was introduced during the COVID pandemic. It will be extended to provide 40% relief during 2025/26, up to a cap of £110,000. East Anglian based pub groups are among those who have endorsed the extension.
Changes to the Agricultural Property Relief regime will be of particular interest to many in our region. Agricultural Property Relief and Business Property Relief will soon be subject to a £1m combined cap of 100% relief. Values more than the £1m cap will only benefit from a 50% relief from April 2026.The effect of the changes to the relief is that a £1m cap is unlikely to help even the smallest of farms, which will mean most if not all farmers can now expect to be subject to IHT.
Farmers may be able to set up trusts or make gifts to legitimately avoid the IHT increase, however such planning is not an option for those farmers who depend financially on their assets. For gifts to be effective, the donor can no longer benefit from them. In the worst-case scenarios, the tax implications could mean that farms are broken up on death so that families can afford the IHT.
Schools in the private sector were already expecting the news that they would need to charge VAT on school fees from January 2025 and this was confirmed.
Meanwhile, enhanced worker protections are being introduced in relation to unfair dismissal, something with which all businesses will need to familiarise themselves.
General Measures
Ms Reeves confirmed that there would be no increase on Income Tax, VAT or National Insurance. She has also chosen not to extend the freeze introduced by the previous government on income tax, meaning that the tax threshold will rise in line with inflation from 2028.
Furthermore, Ms Reeves announced that there would be no increase to fuel duty. A welcome relief for all motorists.
Other Key Points
What Next?
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