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As the Labour government prepares to deliver its first post-election budget, SMEs and individuals alike are eyeing the news with a measure of trepidation. After all, this budget is being framed as one of the most consequential in recent history, with Rachel Reeves, the new Chancellor, carrying the weight of Labour’s pre-power promises, as well as the need to make hard decisions . The government’s task is indeed significant—closing a so-called fiscal "black hole" while attempting to revive the economy.
It’s little wonder, therefore, that the new government has delayed this budget more than any new regime in the last five decades. This long wait, which included an audit of the financial inheritance left by the previous Conservative government, has heightened both public and political expectations for Labour’s course for the next few years.
To get an insight into what may be coming down the pipeline, we turned to our Haines Watts experts, including Graeme C. Miller, Shazin Tayub, Nici Goldsmith, Laura Cheeseman, and Martin Gurney for their opinions.
"A Free Hit for the New Government"
Graeme C. Miller, Managing Director, Haines Watts Scotland
As we approach the Budget, the government is already testing the waters by leaking some headline changes. This isn’t unusual; we've seen it before, as it's a tried and tested method for gauging public and business reactions. But despite the inevitable surprises, there are a few key areas I believe should stay untouched and others that are likely to see shifts.
Firstly, I’m hopeful that we’ll see continued support for entrepreneurs. Business Asset Disposal Relief (BADR), which rewards risk-takers and hard workers, should remain as it is. However, changes to Capital Gains Tax (CGT) have been widely mooted. I suspect these changes will zero in on property transactions, particularly where no Principal Private Residence (PPR) relief is available—like second home sales. We may also see CGT on investment assets nudged closer to income tax rates, a shift that could increase the tax burden on higher earners.
Another area ripe for adjustment is the 100% relief on plant and machinery. Reducing this relief limit to around £200,000 annually could help the government collect more Corporation Tax (CT) while better aligning depreciation allowances with the actual lifespan of assets.
We’ve all seen how frequently pension legislation changes, and I wouldn’t be surprised if this government tinkers with it too, which was only recently increased to £60,000 (we have already been told that she won’t cap the lifetime allowance. The incoming government is keen to address the ‘black hole’ they claim to have inherited, though filling it won’t happen overnight. Expect the first steps to be taken next month, though I imagine they’ll be gentle—they’ve got time before they face the voters again.
"A Painful Budget on the Horizon"
Shazin Tayub, Director, Haines Watts Leicester
With the Labour government now firmly in control, it’s clear that the upcoming Budget will bring changes. The Prime Minister’s comments about it being a ‘painful’ affair strongly hint at tax increases, though not all areas will be affected.
On the Income Tax and National Insurance (NI) front, the government has pledged not to raise taxes on ‘working people,’ so no immediate changes are expected here. However, for those earning over £125,140, there’s talk of increasing the higher rate of income tax. There’s also speculation that pension tax relief—currently at 40%—could be slashed to 30%, affecting those who’ve been relying on this relief for long-term savings.
On Corporation Tax Labour appears aligned with the previous administration, supporting the 25% rate cap. But one area set for more dramatic change is Capital Gains Tax (CGT). There’s widespread speculation that CGT rates will be aligned with Income Tax, which could see rates on investments jump from the current 20% to as much as 40% or even 45%. This would impact property transactions, especially in line with what Graeme predicted.
Furthermore, CGT reliefs such as BADR may come under review, a move that could restrict benefits for business owners. Similarly, annual CGT exemptions—which are already set to drop to £3,000 in 2024/25—could be further reduced or abolished.
On Inheritance Tax (IHT), the government is likely to look for revenue streams, meaning pensions, currently exempt from IHT, might soon face review. There’s also talk of charging CGT on death and extending the rules on Potentially Exempt Transfers (PETs).
"The Devil’s in the Details"
Nici Goldsmith, Director, Haines Watts Tax Advisory
Rachel Reeves has warned of tough choices ahead, and like Shazin and Graeme, I believe many of these decisions will be telegraphed in advance. One area that’s been full of speculation is National Insurance Contributions (NICs). While Labour has promised not to raise Income Tax or VAT, there are rumours about employer NICs rising, making hiring more expensive. We might also see the Employment Allowance—currently allowing employers to reduce their NIC liability by £5,000 annually—scrapped, though there’s little concrete news or even rumours on that front.
I agree with Graeme that fiscal drag will be a key tool in the government’s arsenal. While the government might not increase tax rates directly, keeping allowances and bands frozen until 2030 will see more people pushed into higher tax brackets. The freeze on personal allowances and tax bands until 2028, as Shazin mentioned, may even be extended to 2030, pulling more people into the higher rate tax net without a single rate change.
On IHT, I expect the freeze on the Nil Rate Band (NRB) and Main Residence NRB to continue until 2030. This freeze has been in place for over a decade, and if the NRB had kept up with inflation, it would now stand at £503,878 instead of £325,000. The same inflationary creep applies to property prices, with an average house worth £325,000 in 2009 now fetching £562,473 according to Nationwide’s index.
Non-dom tax will be a big area of concern for many, as this looks like it may spill over into more general inheritance tax changes, such as extending the gifting period to 10 years from the current seven. Also, will it mean fewer people coming to the UK for a shorter time, because they will be exposed to more tax? This also affects people who bring overseas income and gains into the UK to invest, as this currently isn’t taxable in the UK in certain circumstances, but does bring investment and jobs into the UK.
"What Lies Ahead"
Laura Cheeseman, Tax Advisor, Haines Watts Nottingham
This budget marks a crunch point for Labour, where rhetoric meets reality. Like Shazin, I don’t foresee a rise in Income Tax, though fiscal drag will remain an issue, pushing taxpayers into higher brackets as earnings rise without corresponding changes to thresholds.
National Insurance (NI) is also a potential area for reform, and though increases may not directly affect individual taxpayers, employers could bear the brunt. This would, in turn, put pressure on wages—a point Graeme and Nici both touched upon when considering the knock-on effects of higher employer costs.
Capital Gains Tax (CGT) continues to dominate discussions. I also believe we’ll see increases here, though whether CGT aligns with Income Tax remains to be seen. Whatever the outcome, these changes will have ripple effects across the housing and investment markets.
IHT reform is also on the horizon, and it’s here that Nici’s insights about the Nil Rate Band freeze are particularly relevant. We’re expecting the government to look for ways to draw more estates into the tax net, though the abolition of pension exemptions could be a step too far for a ‘painful’ but still strategically cautious Budget.
"A Cautious Outlook for Entrepreneurs"
Martin Gurney, Owner, Haines Watts Swindon
Looking at the astute predictions of my colleagues, I can't help but reflect on the concerning undertone of this upcoming budget. The last one felt beige—bland and uninspired. As for this one? I find myself wondering what colour can represent the kaleidoscope of uncertainty that we’ve gone through, and the great questions that remain ahead of us.
There’s a genuine fear among SME owners like myself that entrepreneurial activity will be stifled if the government begins to dismantle the reliefs and benefits that encourage people to take the risks of running their own businesses. The current political narrative seems to skew the definition of ‘wealthy’ to the point of breaking, lumping in hard-working business owners with high-income elites. Any growth plan needs to make a meaningful allowance for – and protect – the enterprises that drive the success of our country, rather than applying a broad brush of paint that could smother our recovery.
What does this mean for businesses?
The Labour government’s challenge is to strike a balance between fiscal discipline and economic energisation—one that will have major implications for SMEs.
With potential reforms to Corporation Tax, Capital Gains Tax, and relief schemes, SME owners will see changes not only to their immediate tax burden but also the future climate for investment and innovation. Success will hinge not only on the economic measures announced but also on the market and the public's response to the government's vision. For Labour, this budget may not be about winning affection—but securing respect from the business community, especially SMEs, could be enough to provide the time to try to make good on the long list of promises that carried them into office.
If you're needing advice on how the budget will affect you or your business, get in touch with our experts today.
