What we can take from Labour’s first Budget in 14 years?

Yesterday, Chancellor Rachel Reeves, delivered Labour’s first budget in the House of Commons since 2010. Before the announcement, a lot of rumours were circulating with some describing this budget as ‘the most important fiscal event 15 years’ . Below is a summary of what has been implemented and how it could affect you:

Inheritance Tax (IHT)

The current inheritance tax thresholds (£325,000 nil rate band and £175,000 residence nil rate band) will remain frozen for a further two years until April 2030, rather than April 2028.

The chancellor has unveiled that shares held on the Alternative Investment Market (AIM) and other similar markets will now only have relief of 50% towards IHT rather than the full 100% that was in place (after being held for two years). This new policy sees the ‘effective rate of tax’ for AIM shares at 20%.

Agricultural property relief and business property relief will both be reformed from April 2026 in that the first £1million of assets will continue to receive 100% rate of relief, with the relief reducing to 50% on assets thereafter.

Capital Gains Tax (CGT)

The chancellor has hiked CGT for both basic rate and higher rate taxpayers; with the lower rate increasing from 10% to 18% and the higher rate of capital gains tax increasing from 20% to 24%. The rate of CGT for property sales will also remain at 18% and 24% respectively.  The chancellor reiterated that the UK will still have the lowest CGT of any G7 economy. 

CGT on business assets will rise from 10% this tax year to 14% in 2025-2026 and then 18% in 2026-2027. The lifetime limit for business asset disposal relief will remain at £1million.

Income Tax, National Insurance Contributions (NICs) and the National Minimum Wage

The chancellor stuck with her promise of not increasing taxes or NICs for employees, however, employer NICs will increase by 1.2% from 13.8% to 15%, and the secondary threshold when employers start paying NICs will drop from £9,100 to £5,000. The current freeze on income tax and national insurance thresholds, which currently ends in 2028-2029, will not be extended further.

In terms of the National Living Wage, this will increase from £11.44 to £12.21 an hour from April 2025 and the National Minimum Wage for 18 to 20-year-olds will also rise by £1.40 per hour from £8.60 to £10.00 per hour.

Pensions and taxation on pensions

From 6th April 2027, when a pension scheme member dies with unused funds or without having accessed all of their pension entitlement, those unused funds and death benefits will be treated as being part of that person’s estate and maybe liable to IHT. This will apply to all pension schemes and will apply equally to UK registered schemes and Qualifying Non-UK Pension Schemes. Brining in this ruling ensures that most pension benefits are treated for Inheritance Tax purposes consistently

All of the above is subject to a 12-week consultation that will run for 12 weeks between 30th October 2024 and 22nd January 2025.

State Pension and triple lock

The government ensured that they will not touch the State Pension Triple Lock. For 2025-2026 the basic and new State Pension will increase by 4.1%, in line with earnings growth, meaning over 12 million pensioners will receive a further £470 per year.

Savings

In terms of savings allowances, nothing is to change. The ISA allowance is to remain at £20,000 and the subscription for Junior ISAs will continue to be £9,000 until 5th April 2030.

For lower earners, the starting rate will remain at £5,000 for the 2025-2026 tax year. This allows individuals who earn less than £17,570 to receive up to £5,000 of savings free of income tax.

The Chancellor has confirmed that the British ISA that was launched in the Spring Budget by the previous government, will be scrapped.

An increase to Stamp Duty Land Tax on second homes

From 31st October 2024, anybody buying additional properties in the UK will see an increase in their Stamp Duty Surcharge, as this increases by 2%, from 3% to 5%. The higher rates apply to purchases on second houses, buy-to-let residential properties and companies purchasing residential property.  However, if you exchanged contracts prior to 31st October 2024, you will not be affected by the increase.

From 1st April 2025 the threshold when Stamp Duty Land Tax is payable will reduce to £125,000.

Should you wish to discuss the budget further and the implications this could have on you and your future, please feel free to contact us.