A new Government, a new Chancellor and a new approach to the UK’s fiscal policies.

Rachel Reeves started her first Budget with a message that her measures would lead to “an economy that is growing, creating wealth and opportunity for all”.

To achieve this, she made it clear that the “only way to drive economic growth is to invest, invest, invest”.

She pulled no punches about the state of public finances and the impact that it would have on her plans as she set out to raise taxes by £40 billion.

She launched into a speech containing a series of policies that would not seek shortcuts but would, instead, focus on generating economic stability in the long term.

Labour promised a “painful” Budget and the measures confirmed will certainly be challenging for many.

Economic Outlook

While tax rises would be required to bring stability to the public finances, the economic outlook for the UK looks more positive.

The Chancellor said that the Government aimed to build on this to bring “balance and stability” to economic growth, with a focus on long-term goals.

Looking at the OBR’s forecast, real GDP growth is predicted to be:

  • 1.1 per cent in 2024
  • 2.0 per cent in 2025
  • 1.8 per cent in 2026
  • 1.5 per cent in 2027
  • 1.5 per cent in 2028
  • 1.6 per cent in 2029

To ensure this economic stability is reflected in the nation’s finances, Rachel Reeves has committed the Government to a new set of financial rules.

Under this new approach to fiscal policy, the Government will not borrow to fund current spending and will instead rely on higher taxes to ensure an end to austerity.

Borrowing will be reserved for investment that benefits Britain’s future.

Employment Taxes

Before the Budget, the Chancellor and Prime Minister reaffirmed their commitment not to increase Income Tax, VAT and National Insurance for ‘working people’.

The rumoured extension to the tax thresholds freeze beyond 2028 will not go ahead, with personal tax bands in 2028-29 rising in line with inflation.

Instead, Ms Reeves set out changes to employers’ National Insurance Contributions (NICs) that will raise an additional £25 billion. The rate of employer NICs will increase by 1.2 percentage points from 13.8 per cent to 15 per cent from 6 April 2025.

The threshold (per employee) at which employers begin paying NICs will decrease from £9,100 to £5,000 per year. The Employment Allowance will increase from £5,000 to £10,500, removing the existing £100,000 cap which restricts the allowance to only the smallest employers.

The National Living Wage (NLW) will rise by 6.7 per cent to £12.21 per hour from April 2025 – adding £1,400 to the annual earnings of a full-time worker on the NLW.

The National Minimum Wage (NMW) for 18-20-year-olds will also increase by 16.3 per cent to £10.00 per hour – the largest rise ever in both cash and percentage terms.

The Government is also working towards a unified adult wage rate and has tasked the Low Pay Commission (LPC) with recommending a minimum wage for 18-20-year-olds that will gradually bridge the gap with the main NLW rate.

Capital Gains Tax

As expected, there were immediate and substantial changes in the Budget to the Capital Gains Tax (CGT) regime.

From 30 October 2024, the main rates of CGT will change as follows:

  • Lower rate – increases from 10 per cent to 18 per cent
  • Higher rate – increases from 20 per cent to 24 per cent

The separate CGT rates for residential property disposals will remain unchanged.

Despite predictions that the Business Asset Disposal Relief (BADR) would be abolished it will be retained, though there will be increases to the CGT rate on qualifying disposals. The CGT rates for BADR and Investors’ Relief will increase from 10 per cent to 14 per cent from 6 April 2025 and then to 18 per cent from 6 April 2026.

The lifetime limit for Investors’ Relief will be reduced to £1 million for all qualifying disposals made on or after 30 October 2024, aligning it with the existing lifetime limit for BADR.

As announced in the Government’s election manifesto there will be increases to the rate of CGT on ‘carried interest’, with the rate rising from 28 per cent to 32 per cent from April 2025 and a new regime from April 2026.

Inheritance Tax

There were a number of significant changes announced in relation to Inheritance Tax (IHT).

The Government is tightening the IHT system by imposing the tax on unspent pension pots from April 2027. This follows the abolition of the lifetime allowance by the previous Government.

There will also be limits to the benefit of agricultural property relief and business property relief from April 2026. The existing 100 per cent relief will only apply to the first £1 million of combined agricultural and business assets, dropping to 50 per cent above that level.

The Government resisted calls to remove entirely the beneficial treatment of certain shares for IHT purposes. The plans will reduce business property relief to 50 per cent for quoted shares which are “not listed” on recognised stock exchanges, which will include shares on the UK’s AIM market. The £1 million limit for other business property will not apply for these shares. This change means an effective rate of IHT of 20 per cent, up from nil.

Also, while the tax thresholds on Income Tax will be unfrozen from April 2028, for IHT the nil-rate bands will remain unchanged until April 2030.

Residence and Domicile

As planned, the Labour Party will abolish the current non-dom tax regime from 6 April 2025. They will implement many of the changes announced by the previous Government though there will be some significant variations to the previous plans.

There will be a new residence-based regime. Individuals opting into the regime will get a short-term break, exempting from UK tax foreign income and gains for the first four years of tax residence in the UK.

Overseas Workday Relief will remain and be extended to four years (to tie in with the new foreign income and gains regime) but there will be a new limit to the maximum level of relief.

The 50 per cent reduction in tax on foreign income in the first year, previously proposed by the last Government, will not be implemented.

In addition, the Temporary Repatriation Facility will be extended to three years with expanded scope to offshore structures and changes to the existing mixed fund rules.

A residence-based system will be introduced for Inheritance Tax. The plans go further than the previous Government’s, as certain offshore trusts will be brought into the scope of IHT, rather than remaining excluded as proposed by the previous Government. There are, however, transitional rules for some trusts settled before 30 October 2024.

For Capital Gains Tax, some current and previous remittance basis users will be able to rebase foreign assets to their 5 April 2017 values when disposing of them after 5 April 2025.

Business Tax

To provide certainty to businesses looking to invest in the UK, the Chancellor left the existing Corporate Tax rates and reliefs relatively untouched.

In its Corporate Tax Roadmap, the Government has confirmed that it will retain the cap on the rate of Corporation Tax at 25 per cent for the length of the current parliament.

It also reiterated that it remained committed to maintaining the UK’s generous R&D tax reliefs and world-leading capital allowance offer. Full Expensing, the Annual Investment Allowance, and the Patent Box scheme will all stay the same.

Businesses will also be able to benefit from an extension to the 100 per cent first-year allowances for zero-emission cars and electric vehicle charge-points to 31 March 2026 for Corporation Tax and 5 April 2026 for Income Tax.

Invest, Invest, Invest

The key message of the Chancellor’s speech was the promise to invest for long-term growth.

To achieve this, capital investment will be boosted by more than £100 billion over the next five years, with a focus on transport, housing and R&D.

Alongside this investment, the Government has reiterated its commitment to the National Wealth Fund, which will bring together private and public sector funding to encourage more than £70 billion of private investment.

The Government has also introduced plans for a forward-looking Industrial Strategy to boost investment in key growth sectors and initiated a pensions review aimed at unlocking more investment in UK growth assets.

Other Matters

The Budget documents also confirmed the introduction of VAT on supplies by private schools from 1 January 2025 and the removal of business rates charitable rate relief for charitable schools from April 2025.

There will be no rises to fuel duty for 2025 and a small cut in duty on some draught alcohol.

The Stamp Duty Land Tax (SDLT) surcharge for additional properties increases from 3 per cent to 5 per cent from 31 October 2024.

Final Thoughts

This Budget announced large changes to the UK’s fiscal landscape. It included Phase 1 of its Spending Review with Phase 2 to follow in Spring 2025.

While the large increases in employers’ National Insurance Contributions do not directly affect the pay of ‘working people’ the expectation is that most of the increase will be borne by individuals in the form of reduced wage growth and increased prices.

The Government hopes that the package as a whole will provide the support the UK’s economy needs for the future and that this will be the only significant tax-raising Budget in the parliament.

If you have any questions about the Budget measures, then do please get in contact with us.

To read the full Autumn Budget document, please click here.