Last month, Rachel Reeves announced an extra £44 billion in taxation revenues taking the UK’s total tax burden to the highest level on record. Overall, the Chancellor unveiled 70 different tax measures in her first Budget. Most notable among them was the headline-grabbing hike in Employers’ National Insurance contributions (NICs) which will increase by 1.2% to 15% from next April, raising an estimated £25 billion by the end of this parliament. In addition, the threshold at which NI applies will fall from £9,100 to £5,000.
The combined effect of these NI changes will be significant for many SMEs (small and medium-sized enterprises) which invariably form the backbone of future growth in our economy. And for the entrepreneurs who run them, taking financial risks and often putting their personal assets on the line, there was further bad news.
Inheritance Tax (IHT) was first in the firing line. The government announced that the thresholds freeze – £325,000 for the nil-rate band and £175,000 for the residence nil-rate band – will be extended by two years from 2028 until 2030, dragging thousands more estates above the IHT thresholds over time. The Chancellor also imposed a 20% IHT on farmers’ assets worth more than £1 million. In a dramatic move, rebel farmers are threatening to blockade ports in protest and starve supermarkets of food.
Perhaps even more important for some, the IHT exemption for pensions is going to be removed. Unspent inherited pensions will become subject to IHT from April 2027, which marks a dramatic departure from the current rules where pension money is usually ring-fenced so that it can be passed on free of IHT.
Despite expectations that it would be abolished, business asset disposal relief (BADR, formerly entrepreneurs’ relief) remains in place, albeit with the applied CGT rate rising from 10% to 14% in April 2025, and then to 18% for disposals made after April 2026. The rate of Investors’ Relief (IR) – a tax break for AIM market investors and business angels – will increase in line with BADR.
Meanwhile, the lifetime allowance for IR will fall from £10 million to £1 million for disposals from 30 October 2024, also aligning IR with BADR, which has had a lifetime limit of £1 million since March 2020. Following rumours that BADR would be abolished completely, maintaining the £1 million lifetime limit on gains is a better outcome than some anticipated.
Nevertheless, entrepreneurs are still going to be penalised at both ends: not only are the costs of employing their workforce being increased, but when they want to reap their reward and sell their businesses, they will now have to pay more tax under the BADR changes.
Much-anticipated increases to capital gains tax (CGT) were not as severe as expected. An alignment of rates with income tax did not materialise, with more modest rate increases being chosen instead: the lower rate has increased from 10% to 18%, while the higher rate has risen from 20% to 24%, aligning with the rate of capital gains tax on investment properties owned by individuals.
Of course, individual landlords are already under financial pressure because of the reduced interest deductions on mortgages. In addition, investment properties also face higher taxes on the buy side: the Stamp Duty Land Tax (SDLT) surcharge for second homes, buy-to-let, and company purchases have also risen from 3% to 5%.
For many landlords, this could be the last straw. The impact for new acquisitions will be immediate, encouraging large numbers to leave the rental business altogether. The effect on the rental market is self-evident: the volume of properties available for rent will reduce leading to a further spike in the cost of rent for non-homeowners.
Most entrepreneurs will not be able to take action to try and alter the course of the budget. Instead, they will have live with the consequences and plan accordingly.
For further advice on changes to tax rules following the Autumn Budget or if you need other tax advice, please contact one of our business tax or personal tax solicitors by email or call on 03333 231580.
