Post-Budget Commentary : What does it mean for you?

Following their election win this Spring, the new government delivered their eagerly anticipated Budget – the first Labour Budget for almost 15 years!

Our Tax Advisor; Laura Cheeseman provides a summary of some of the key points announced today, and their potential impact on taxpayers and employers. If you have any questions or need further clarification, don’t hesitate to reach out to us.

Income Tax and National Insurance to remain the same, whilst Capital Gains Tax is set to increase

The current freeze on Income Tax and National Insurance thresholds will end in 2028 according to the Chancellor today.

Also announced was the increase in Capital Gains Tax rates for disposals from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher and additional rate taxpayers. This is in line with the current CGT rates for the sale of residential properties (that are not your main residence).

There is going to be a gradual reduction in the benefit of claiming Business Asset Disposal Relief (formerly Entrepreneurs Relief) with CGT set to increase from 10% to 24% by April 2026. The current lifetime allowance of £1 million remains unchanged.

It is encouraging that tax brackets have not increased this year (and credit is due to Labour for sticking to their Manifesto Pledge on this one!) however we were optimistically hoping for at least an increase in the personal allowance which has been set at £12,570 since 2021. Given the ongoing rise in the cost of living, an increase in net pay for taxpayers would have been welcomed. A promise to increase this in 4 years time seems rather pointless.

Reform of Capital Gains Tax rates was expected – however the new rates are far lower than the rumours bringing relief for taxpayers who anticipated paying up to 40% on their Capital Gains. Whilst we acknowledge increases were inevitable, we think the Chancellor should have increased the annual exemption back to £12,300 as it was previously. Currently set at a mere £3,000, more taxpayers are paying CGT where they wouldn’t have had to years before. This coupled with the 60-day reporting requirement for the disposal of residential properties is making it less attractive for taxpayers to invest.

Inheritance Tax thresholds to remain in place until 2030, with pension pots set to fall within the IHT regime from April 2027

The current Nil Rate Bands will not be increased, meaning estates valued at £500,000 and include a taxpayer’s residence that will be inherited by a lineal descendant will not be subject to IHT.

From April 2027, a taxpayer’s pension pot will form part of their estate when calculating any IHT payable.

Although pleased the Chancellor did not reform the current tax relief provisions for pension contributions, we are really disappointed that these will now form part of your estate for IHT. This is going to bring more taxpayers within the IHT regime where they wouldn’t before and I don’t think it has ever been the intention that Inheritance Tax will affect the ‘general taxpayer’.

We also think the Nil Rate Bands should have been increased, the current rate of £325,000 has been in place since 2011.

Increased Stamp Duty Land Tax rates on the purchase of second properties will come into effect the day after the Budget 31 October!

Taxpayers purchasing a buy-to-let property, or second home will be charged an additional 2% across each Stamp Duty threshold from 31 October 2024.

This hasn’t come as much of a surprise although we think it could have waited until the start of the next tax year to allow current sales to progress, and the imminent change will result in a lot of sales falling through. We do wonder how late conveyancers might have had to work on Budget Day.

Employers’ National Insurance is set to increase by 1.2%, with the Secondary Threshold set to reduce to £5,000

Employer’s National Insurance will rise to 15% and the amount on which National Insurance is payable will be reduced from £9,100 to £5,000. Employees should expect a 1.2% increase on their current National Insurance bill, as well as an additional cost of £615 for each employee earning over £9,100 per year, as a result in the threshold reduction.

Moving forward, an employee will be able to earn £416 per month before an employer will be required to pay National Insurance.

It is hard to keep track of the ever-fluctuating National Insurance rates and we hoped we wouldn’t see yet another change so quickly. The reduction in the threshold in which Employers’ National Insurance is payable came as a shock and is an additional cost most employers wouldn’t have budgeted for. It seems short-sighted; employers will need to delve into their staffing budgets to pay for this increase, which will disadvantage the taxpayer in the long-run.

Employment Allowance is set to rise from £5,000 to £10,500

Employers with a National Insurance bill of less than £100,000 per annum can currently benefit from the Employment Allowance – offsetting £5,000 from their Employers’ National Insurance liability. The Chancellor announced an increase in the Allowance today, of more than double, to £10,500.

Finally a positive announcement! Hopefully many small and medium sized employers will be able to offset the majority of the increased costs incurred with the increase in Employers’ National Insurance. However, there has been no increase to the £100,000 threshold within which a claim can be made, which has remained the same for a number of years. An increase in this threshold would have made the increase in Employers’ National Insurance more palatable.

Increase in the National Minimum Wage across the board with the National Living Wage increasing £12.21 per hour

An employee working 40 hours per week at the National Living Wage should expect to receive a gross annual salary of just under £25,500 per annum.

An increase to the Minimum Wage is always a positive for those on the lowest salaries and this is much needed for taxpayers especially with the rise in the cost of living. However, this is going to result in an additional cost to the employer, which again we believe will disadvantage taxpayers in the long-run.

To put it in perspective, the Employers’ National Insurance on a £25,500 per annum salary is currently around £2,263, which will rise to £3,075 (costing employers an additional £812 on top of funding the wage increase).

Contact Haines Watts Nottingham for advice on how to cope with the Budget changes. We’re here to help. Please get in touch with our team who are on hand to answer your questions and help you navigate the changes with confidence.