Hello,
Finally, after plenty of leaks and speculation we had the first budget of the new Labour government which set out their plan to ‘restore stability’ to the economy. The Chancellor had promised to stick to the manifesto pledge of not raising taxes on ‘working people’, although the definition of this has not been particularly clear – according to Keir Starmer this applies to those with only a small amount of savings. There has also been a freeze on fuel duty and a reduction in alcohol duty, meaning people’s net pay goes further.
The most significant tax announcements impact the employer, a move which is likely to lead to reduced levels of recruitment and smaller pay increases for those in employment. It will be down to each employer to assess how the increase in cost will impact their business and whether any actions need to be taken to balance this out.
Employer National Insurance Contributions
Probably the most talked about measure, Employer National Insurance Contributions will increase from 13.8% to 15% from April 2025. There is also the added impact of reducing the threshold at which employers start to pay the contributions per employee, from £9,100 to £5,000.
Offsetting these increases is the rise in the Employment Allowance, from £5,000 to £10,500. This provides an exemption from the first £10,500 of employer’s NI for the smallest of businesses.
Minimum Wage Increase
The wage bill of a business will also be hit by the increase in the National Living Wage by 6.7% to £12.21 per hour from April 2025.
There are also increases for people aged between 18 and 20, from £8.60 to £10 and for apprentices, getting an increase from £6.40 to £7.55.
Tax and National Insurance Thresholds
In a surprise move, the current thresholds are not being frozen beyond 2028 – it was expected that Labour would freeze them for at least another year. This is part of the plan to reduce the burden on ‘working people’.
Capital Gains Tax did not escape the Budget, although the changes were not as far reaching as perhaps expected. The lower rate of Capital Gains Tax on all assets, including shares, will rise from 10% to 18%, and the higher rate from 20% to 24%. This brings the rates in line with those for residential property.
The rate of Business Asset Disposal Relief (Entrepreneurs Relief) on the first £1m will increase from 10% to 14% and 18% from April 2025 and 2026 respectively.
There is an immediate increase in Stamp Duty for second homes, from 3% to 5%, so although existing landlords have not been hit by an increase in Capital Gains Tax rates on residential property, it is more expensive to acquire a second property.
Inheritance Tax threshold freeze has been extended by a further two years, meaning the £325,000 nil rate band and £175,000 residential nil rate band remain unchanged until 2030. However, inherited pension pots will become part of the estate and subject to Inheritance Tax from 2027.
Also affecting Inheritance Tax are the announced reforms from April 2026 affecting Business Property Relief and Agricultural Relief. Currently 100% relief is available on qualifying business and agricultural assets with no upper limit; this will continue for the first £1m of assets and the relief thereafter will be reduced to 50%. The rate of business property relief available on shares not listed on recognised stock exchanges, such as AIM, will be reduced from 100% to 50%. For example, if on death your trading business is worth £2m, the first £1m is exempt from Inheritance Tax and 50% of the rest will be taxed at the usual 40% rate, giving an overall Inheritance Tax bill of £200k on the £2m value.
For those lucky enough to be saving, the ISA limits are going to be frozen until April 2030, remaining at £20,000 for a full ISA and £9,000 for Junior ISAs – good news in light of the speculation that the ISA limit could be lowered or a lifetime cap could introduced.
So what will all this additional tax revenue from tax go towards? The Chancellor has pledged additional funding of £22.6bn into the NHS budget and £5bn in house building. The state pension triple lock remains unaffected and pension payments will go up by 4.1% next year. Big spending to match the big taxes, but we wait to see whether people feel that their quality of life is getting better?
We hope the above will allow you to continue to work on your 2025 plans and projections with more clarity and well needed certainty. And there’s always the ‘penny off a pint at the pub’ if you feel like drowning your sorrows!
Please get in touch if you have any questions.
Avencia