On October 30, 2024, Chancellor Rachel Reeves introduced her inaugural budget, focusing on economic stability and sustainable growth. This budget outlines new tax policies, reliefs, and obligations impacting both individuals and businesses. Here’s a closer look at the main points and their potential implications.

1. Income Tax Rates and Allowances

  • For the tax year 2025/26, personal income tax rates and thresholds remain unchanged from 2024/25.
  • Personal allowances stay at £12,570, and thresholds for higher earners are unaltered.
  • Scotland and Wales will set their own rates in their upcoming budgets, expected in December.

2. Capital Gains Tax (CGT) Adjustments

  • CGT on qualifying business disposals is set to rise: the current 10% rate increases to 14% in April 2025 and 18% in April 2026, applying to the first £1 million in gains.
  • Higher rates on residential property and business asset disposals signal a need for early strategic planning by property owners and entrepreneurs.

3. Increased National Living Wage and Employment Costs

  • Effective April 2025, the National Living Wage will increase to £12.21 for those aged 21 and over, with significant raises for younger workers as well.
  • Employers face an increase in National Insurance contributions (NIC) from 13.8% to 15% in April 2025, impacting headcount planning.

4. Changes in Corporate Taxes

  • Corporation tax rates remain stable, with a main rate of 25% and a small profits rate of 19%.
  • For those utilising R&D tax reliefs, the current rates are retained, while HMRC pledges continued compliance enforcement to prevent non-compliance in claims.

5. National Insurance for the Self-Employed

  • Self-employed individuals’ NIC thresholds largely stay the same, though Class 2 NICs will be effectively abolished for profits above the small profits threshold (SPT).

6. Pensions and Inheritance Tax (IHT)

  • While there are no immediate pension tax reforms, from April 2027, undrawn pension funds will become subject to IHT, which could impact estate planning.
  • Changes to IHT for agricultural and business property relief are slated for April 2026. Relief will be capped at 100% for the first £1 million of qualifying assets and then drop to 50%.

7. Stamp Duty Increases

  • Effective October 2024, additional property purchases face a rise in Stamp Duty Land Tax (SDLT) from 3% to 5% over the standard rates, affecting second home buyers and landlords.
  • From April 2025, thresholds for first-time buyers and other residential properties will be reduced, likely leading to higher upfront costs for property acquisitions.

8. Changes in Residency and Domicile Rules

  • Starting April 2025, UK residency rules will eliminate the “domicile” concept. All UK residents will pay tax on worldwide income, with relief available only during the initial four years of UK tax residency.
  • IHT will also extend to UK residents’ worldwide assets after ten years of UK residence, affecting estate planning for non-domiciled individuals.

9. VAT and Furnished Holiday Lets (FHLs)

  • Private school fees will now incur VAT at 20% starting January 2025.
  • The government has repealed special tax rules for FHLs, meaning these properties will be taxed like other rentals from April 2025 onward.

What’s Next?

With these new regulations, businesses and individuals alike will need to adjust their financial strategies to manage increased tax liabilities and compliance needs. To help you navigate these changes, our team at Nephos Group offers expert guidance and bespoke planning. Reach out to us today for personalised advice on maximising tax efficiency and securing financial health amidst these changes.