
By Kel Nwanuforo
This was a big Budget – on multiple fronts.
The first from a Labour government since 2010. The first delivered by a female Chancellor of the Exchequer. Surely one of the longest speeches ever delivered at the despatch box.
Most would agree, the most anticipated, the most speculated-about, perhaps the most feared Budget statement in modern history.
As a piece of political and economic box office, it did not disappoint.
The headline, stated surprisingly baldly by Rachel Reeves herself, is that the Budget raises taxes by an eye-opening £40 billion. That’s not far off 2% of the UK’s entire annual output.
Although as promised by Reeves ahead of time, there is nothing in the way of direct increases to the ‘big three’ taxes – income tax, employee National Insurance (NI) and VAT – there is plenty elsewhere which may have an effect on your financial planning.
These are the key revenue-raising measures:
- Employer’s NI will rise from the current rate of 13.8% to 15.0% from April 2025. Additionally, the earnings threshold above which employers have to pay NI will be cut from £9,100 to £5,000
- However, the Employment Allowance will rise from £5,000 to £10,500 at the same time, with the £100,000 eligibility threshold removed
- The lower rate of Capital Gains Tax (CGT) has increased, with immediate effect, from 10% to 18%. The higher rate has increased from 20% to 24%. These new rates match those already in place for residential property other than main homes
- CGT for Business Asset Disposal will rise from 10% currently to 14% from April 2025, then again to match the main lower rate of 18% from April 2026
- The additional rate of Stamp Duty charged on second homes will rise by 2 percentage points, to 5%, from tomorrow
- Inheritance tax (IHT) will be levied on unspent pension funds and death benefits payable from a pension from April 2027. Additionally, the freeze on IHT thresholds has been extended from 2028 to 2030
- Agricultural property relief and business property relief for IHT will be cut back from April 2026. 100% relief will remain only on the first combined £1m of assets, with 50% relief applying thereafter
- IHT relief for shares held on the Alternative Investment Market (AIM) will be cut to 50%
- VAT will be levied on private schools from January, with the business rates relief enjoyed by the sector also set to be removed from April. It is highly likely that these moves will translate into sharp increases in school fees
Other important changes, outside of tax increases, include:
- The state pension will rise by 4.1% – in line with average earnings – from April next year. This means an annual increase of £470 on this year’s level
- The National Minimum Wage will rise by 6.7% from April 2025 to reach £12.21 per hour. For a full-time worker, this will amount to a gain of around £1,400 each year
- The freeze on Fuel Duty, in place since 2011, has been extended for another year
- Permanently lower business rates multipliers for retail, hospitality and leisure properties will be introduced from fiscal year 2026-27, with 40% relief granted as an interim measure in 2025-26
The effects on the broader economy and the attractiveness of the UK as an investment destination are likely to be mixed, with the negative impact of substantially higher wage bills for business offset by the benefits of considerably more public investment. (For more on this, read the view of our sister company Asset Intelligence on the Budget.)
Of course, the precise implications for your own financial planning will depend on your personal circumstances. Please do get in touch with your financial adviser if you have any immediate concerns.
In general terms however, our advice remains the same as ever: make the most of tax-advantaged accounts and allowances, such as pensions and ISAs, as best you can. This is particularly the case now that the attractiveness of a second property for investment purposes has been further reduced.
Overall, it is clear that – as the government itself had briefed in advance – some measures in the Budget are likely to cause discomfort, concern or outright unhappiness.
However, from our perspective, things could have been much worse. For example, despite much speculation in the run-up, no changes were made to pension tax relief, the pension tax-free lump sum or NI on pension contributions. The increases in CGT were smaller than had been rumoured. Most of the regime around IHT, including the ability to reduce liabilities by gifting, has been left untouched, as have the attractive Enterprise Investment Scheme and Venture Capital Trust regimes.
(On the one area where this has changed, around the 2027 changes to the tax status of pensions for IHT purposes, the advice team here will be studying the detail closely as more information emerges. We will keep you informed on this.)
And while there are no cast-iron promises in politics – and no defence against further unforeseen crises like pandemics or wars – the pre-briefing around the Budget has very much been that it is a case of getting the pain out now; that the government does not want to be seen ‘coming back for more’ each time.
Further, the wave of public investment in areas such as green technology and infrastructure could even unleash attractive opportunities for funds to co-invest on some projects. Asset Intelligence will be keeping a watching brief on this.
Lastly, one of the key reasons for optimism in the wake of the Budget is a very simple one: it is now, finally, behind us. The very uncertainty around what was coming had been damaging business and consumer confidence in the lead-up to today. Now we know – everyone knows – and can begin to adapt and plan accordingly.