Following the recent budget, delivered by Rachel Reeves and Labour’s first since 2010, we have been reviewing the headline changes as well as delving into the finer details.
Labour promised not to raise various taxes, including Income Tax, National Insurance, Corporation Tax and VAT.
It was inevitable then, that everything else was fair game and the end result did not disappoint.
The message was very much one of putting money into the pockets of working people.
What is clear is that the Government deem those who receive a monthly pay cheque as working people and that’s about it.
Small business owners who pay taxes and employ others were dealt several blows as were individuals who have saved, made sacrifices and built up assets.
Let’s not forget it was only in April this year that the Pensions lifetime limit was abolished and the annual allowance increased from £40,000 to £60,000. For all those who have been making pension contributions to maximise their hard earned savings, the rug has well and truly been pulled with the introduction that pension funds will now form part of an estate for Inheritance Tax purposes.
Before we explore the changes, here is what has stayed the same:
- Income tax rates and thresholds
- National Insurance contributions for individuals
- VAT will remain at 20%
- Corporation Tax rates will remain at 25% (and 19% for profits up to £50,000)
How does the budget affect me?
Capital Gains Tax
The main rates of CGT have increased from 10% and 20% (depending on what type of asset is sold) to 18% and 24% with immediate effect.
The CGT rates on residential property will stay the same at 18% and 24%.
The CGT tax free annual allowance is unchanged at £3,000 for the current 2024/25 tax year.
Business Asset Disposal Relief (BADR) is a relief that reduces the rate of tax on the first £1m of a business sale. There was speculation that this may be abolished but I am pleased to say that it has not been.
The limit of £1m is also unchanged, although the current 10% tax rate will increase.
From April 2025 the rate will be 14%, rising to 18% from April 2026.
Inheritance Tax
The current Inheritance Tax nil rate threshold is £325,000 along with a residence nil rate band of £175,000. This was set to be frozen until 2028. This rate freeze has been extended until 2030.
At present, pension pots that are unspent are not subject to Inheritance Tax.
The Chancellor has confirmed that from April 2027 any remaining pensions will form part of a person’s estate are subject to IHT.
Business property relief
For a long time now, shares in trading businesses such as a Limited Company have been protected from 40% Inheritance Tax due to 100% Business Property Relief (BPR).
From April 2026 the relief only applies to the first £1m of value and 50% relief thereafter, which put in other terms means a rate of 20% IHT on business property.
The most common forms of business property are shares held in a privately company or an interest in a partnership or sole trader.
Unfortunately, shares in a company are not a liquid asset and unless there is available cash elsewhere to cover the IHT bill, the shares, or other assets may have to be sold.
Agricultural Property Relief (APR)
Inheritance Tax reliefs such as APR reduce the amount of tax farmers and landowners have to pay when farmland is passed to the next generation.
Much as there are additional restrictions to business property relief, the Government has announced that it will also change IHT rules on farmland.
This means an effective rate of 20% on agricultural assets valued over £1m and could lead to farmers being forced to sell their family farms or part thereof to pay the Inheritance Tax bill, even if they have worked on the family farm for many years.
VAT
It was widely publicised before the election that the Government planned to charge VAT on private school fees. This will now come into force from 1st January 2025.
Benefit in Kind
Should you work in the construction industry, you may be aware that under current rules that a Double Cab Pick Up truck is classed as a commercial vehicle and attracts the flat rate of £3,960. For a 40% taxpayer this would mean an annual BiK tax of £1,584.
If ordered after April 2025 as a company car, that same vehicle (with a P11d value of £47k) would mean the 40% taxpayer now has an annual BiK tax bill of £7,036.
How does the budget affect my business?
Employers National Insurance
Employers currently pay a National Insurance contribution of 13.8% on staff wages over £9,100 and this is set to increase to 15%.
Not only will the tax rate increase, but the wages threshold on which it is calculated will reduce from £9,100 to £5,000. This means that employers are being asked to pay an additional £900 for each employee on median average earnings.
It was not all doom and gloom though, businesses with an employer NI bill of £100,000 or less are eligible for an Employment Allowance of £5,000 towards their Employers NI bill. From April 2025 this allowance will increase to £10,000 to protect smaller employers from the NI increase.
Benefit in Kind reporting
Not a tax change this one but important nonetheless. From April 2026 the requirement to report benefits on P11d forms will be scrapped. In its place, employers will need to use HMRC approved software to submit any staff benefits through the monthly payroll.
This will mean employers need to ensure internal systems and processes are set up to accurately record any such benefits.
Making Tax Digital for Income Tax
On a final note and one that will affect many individuals with sole trade or rental income subject to Income Tax, HMRC have committed to delivering MTD for Income Tax from April 2026 onwards and will be introduced in two phases:
- From April 2026, for those with qualifying income over £50,000
- From April 2027, for those with qualifying income over £30,000
Under MTD, landlords and sole traders must use appropriate software to prepare their records and submit figures to HMRC on a quarterly basis.
For many who keep paper records and collate figures at the end of the year for their self assessment tax return, this will mean adopting entirely new systems and processes.
Kingscote have several years of experience using MTD ready software and are well placed to advise on best practice.
Contact us if you have any queries.
