The Tax-Raising Budget: What Does It Mean for You and Your Business?

Understanding the Impact: Tax Increases, Policy Changes, and Wage Adjustments

The first Labour budget was finally delivered on 30 October 2024. As anticipated, it offered little positive news, with the Government outlining plans to raise taxes to fund increased public spending and address the purported “black hole” in the Treasury’s finances.

We have summarised the main changes made to enable you to assess the impact this will have on you and your business.

Capital Gains Tax

The rates of Capital Gains Tax (CGT) are set to increase for disposals occurring on or after 30 October 2024. The primary CGT rates applicable to assets other than residential property and carried interest will rise from 10% to 18% for basic rate Income Tax payers, and from 20% to 24% for higher rate Income Tax payers.

The rate of CGT that applies to trustees and personal representatives also increases from 20% to 24% for disposals made on or after 30 October 2024. The rates of CGT that apply to residential property disposals (18% and 24%) remain unchanged.

The Capital Gains Tax (CGT) rates for Business Asset Disposal Relief and Investors’ Relief will rise from 10% to 14% for disposals made on or after 6 April 2025. This will then increase further from 14% to 18% for disposals made on or after 6 April 2026. No changes were announced to the lifetime limit for Business Asset Disposal Relief, which remains at £1 million. However, the lifetime limit for Investors’ Relief has been reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. This may accelerate exit plans for business owners.

It was further announced that the normal and higher rates of CGT on carried interest (currently 18% and 28% respectively) will increase to a single unified rate of 32% from 6 April 2025. From April 2026, carried interest will be subject to a wider package of policy changes that will be announced at a later date.

Inheritance Tax

There were several changes to Inheritance Tax (IHT) announced, but these do not come into effect until April 2026 at the earliest.

Business/Agricultural Property Relief

The existing IHT Business Property Relief and IHT Agricultural Property Relief offer a significant tax benefit for estates with qualifying business and agricultural assets. Under these reliefs, a benefit of either 50% or 100% relief is available from IHT with no cap.

From April 2026, qualifying estates with agricultural or business assets will only be able to claim 100% tax relief on the first £1 million of assets. Any value over £1 million will see tax relief restricted to 50%. It is expected that there will be a consultation next year with further details of the intended changes. As we have seen, these proposals have angered the farming community in particular.

Inherited Pensions

Most undrawn private pensions are currently excluded from IHT on death, but this will change from 6 April 2027 when the value of unused pension funds and death benefits payable will be included in IHT calculations.

So, the value of the pension pot on death will be added to other assets to be included in the value of a person’s estate and therefore potentially chargeable to IHT.

A consultation on the proposed changes has been launched. Under these proposals, pension scheme administrators will be responsible for reporting and paying any Inheritance Tax (IHT) due on unused pension funds and death benefits.

Previously individuals were using the opportunity to generate unused pension pots in order to remove assets from their estate – such strategies will need to be revisited as a result of these measures.

IHT Nil-Rate Bands

The Inheritance Tax (IHT) nil-rate bands have been frozen for several years and were previously set to remain at their current levels until 5 April 2028. The Chancellor has now announced that this freeze will be extended by a further two years, until 5 April 2030.

This means that:

• The nil-rate band will continue at £325,000.
• The residence nil-rate band will continue at £175,000.
• The residence nil-rate band taper will continue to start at £2 million.

Changes to National Insurance

As had been widely predicted, the Chancellor announced increases to the rate of National Insurance contributions (NICs) that are paid by employers. The main rate of secondary Class 1 National Insurance Contributions (NICs) will rise by 1.2%, from 13.8% to 15%, with effect from 6 April 2025. The employer rates for Class 1A and Class 1B NICs will also increase in line with this change.

What was less expected was that the Class 1 NICs secondary threshold, the level at which employers start to pay NICs, will also be reduced to £5,000 (from £9,100) per year. This change will take effect from 6 April 2025 and remain in place until 5 April 2028. From then on, the secondary Class 1 NICs threshold will be adjusted annually in line with the Consumer Price Index (CPI).

To help small businesses with these changes, the Employment Allowance will increase from £5,000 to £10,500. Currently, the allowance is only available to employers that have employer NIC liabilities of under £100,000, but this threshold will be removed, and all eligible small businesses will benefit from the increased rate. These changes will take effect from April 2025.

The changes mean that the employment cost of a full-time employee earning minimum wage will increase by around £800 before considering the impact of the increased minimum wage in April 2025.

Minimum Wage Increases

Significant increases to the Minimum Wage rates from 1 April 2025 were announced on the eve of the Budget.

The National Living Wage (NLW) rate will rise from £11.44 to £12.21 on 1 April 2025, marking an increase of 77p, or 6.7%. The NLW is the minimum hourly rate that must be paid to workers aged 21 and over. The increase represents a pay rise of over £1,400 a year for someone working full-time and earning the NLW.

In addition, the National Minimum Wage (for 18–20-year-olds) will increase from £8.60 to £10.00 an hour. This is the largest increase ever in the NMW (16.3% increase) that will see younger workers having their pay boosted by up to £2,500 next year. This increase is part of a move to narrow the gap in wage rates for 18-20 years-olds and the NLW and ultimately create a single adult wage rate for all those aged 18 and over.

The NMW rates for 16–17-year-olds will increase from £6.40 to £7.55 – an increase of £1.15 or 18% per hour – from next April. The Apprentice Rate will mirror this increase.

Reviewing the Impact of These Measures

The Budget announcements encompass a range of tax changes that will affect both individuals and businesses. This is an opportune moment to reflect on their implications and explore any potential strategies for mitigation.

Whether you wish to assess the impact of National Insurance and National Minimum Wage increases on your business, review your inheritance tax position, or refine your asset or business disposal strategy in light of these changes, the good news is that our expert team at TAG Accountants Group is here to assist.

TAG Accountants Group – Your Local Tax Advisors

As always, if you would like to discuss how these changes could affect you or your business, the TAG Accountants Group team is here to provide you with comprehensive support. Take a moment to visit our testimonials page HERE to see what our clients say about our exceptional service.

Then to get started, simply call us on 01902 783172 to learn more about how our specialist tax experts can assist you or your business. Alternatively, click HERE to email us via our website, and we will contact you to arrange a convenient time for a confidential, no-obligation consultation.

We look forward to working with you.