Introduction
Significant changes to Employers’ National Insurance Contributions, Capital Gains Tax and Inheritance Tax were among the headline announcements in the Autumn Budget.
It was clear from early in the speech that the total rise in taxes would be very substantial, with Chancellor Rachel Reeves saying the amount would be around £40bn. This would make it the second highest increase in taxes announced in one Budget on record, according to some early analysis.
But Ms Reeves, who was making history as the first female Chancellor in UK history to deliver a Budget, said that without bringing in these tax rises the country would instead face more ‘austerity’.
Aside from the headlines mentioned above, some of the other most significant announcements included:
- No rises in Income Tax or VAT
- No rise in Employee National Insurance Contributions
- Corporation Tax to be capped
- Employment Allowance to increase
- Reforms to rules for Carried interest
- 5,000 extra HMRC compliance staff
- Stamp Duty to increase on second homes
- Non-Dom tax regime to be scrapped
- Increases to National Minimum Wage
Below, we delve into more details.
Inheritance Tax changes revealed
There had been speculation aplenty about changes to Inheritance Tax (IHT), with many expecting this to be among the core announcements in terms of tax rises.
Some of the rumours around aspects of the rules like gifting didn’t materialise. In fact, gifting was not mentioned at all.
One key announcement on IHT was that thresholds will remain frozen until 2030. That’s two years further than the previous Government had already planned. The consequence of this is that IHT will, in effect, rise during that time.
One of the key changes was that inherited pension pots will be counted within IHT from April 2027. The Treasury stated: “This removes a distortion which has led to pensions being used as a tax planning vehicle to transfer wealth rather than their original purpose to fund retirement.”
The Budget papers stated that the Government will “bring unused pension funds and death benefits payable from a pension into a person’s estate for inheritance tax purposes from 6 April 2027. This will restore the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance, as was the case prior to the 2015 pensions reforms.”
And, as had been rumoured in the media in recent weeks, Agricultural Property Relief and Business Property Relief will be cut from 6 April 2026. With what the Treasury called a new allowance, the first £1m of combined business and agricultural assets will continue to be free of IHT but for assets over that amount, it will apply with 50% relief.
The Treasury gave an example saying the allowance will cover a “combined £400,000 of agricultural property relief and £600,000 business property relief qualifying for 100% relief.
Ms Reeves also said the Government will apply a 50% relief, IHT for shares on the Alternative Investment Market (AIM) and other similar markets “in all circumstances”. She said this created an effective rate of tax of 20%.
However, some key elements of IHT will remain the same. The first £325,000 of any estate will still be tax-free – or £500,000 if the estate includes a residence passed to direct descendants. The inheritance tax nil-rate bands will stay fixed at these levels for a further two years until 5 April 2030.
The nil-rate band (currently £325,000) and the residence nil-rate band (£175,000) also remain the same. Furthermore, the residence nil-rate band taper will continue to start at £2 million. The “qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability,” the Budget papers also stated.
Only 6% of estates will pay IHT this year, Ms Reeves said during her speech. According to a Treasury press release, published after the Budget, more than 90% of estates each year will not pay IHT under the new rules.
Increases in Capital Gains Tax rates
One of the hot topics in the months leading up to the Budget was Capital Gains Tax. Many different ideas were proposed by commentators and tax analysts on how it might change to raise extra revenue.
The predictions were right in the sense that we got a rise in the rates. The changes announced were more straightforward than some had imagined.
The key changes are:
- The main rates of CGT will increase to 18% and 24% respectively
- The lower rate increases from 10% to 18%
- The higher rate increases from 20% to 24%
- The Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) rate rises to 14% from 6 April 2025 and to 18% from 6 April 2026
Residential property rates are not changing.
According to the official Budget papers, released after the speech, CGT is only paid by “fewer than 1% of adults each year.”
The Budget papers also explained: “Phasing in the BADR and IR rate increases demonstrates the government’s commitment to a predictable tax system.”
Ms Reeves said that the UK’s CGT rates would still be the lowest of any European G7 economy after her alterations. The OBR says the CGT changes will raise £2.5bn by the end of the forecast, she added.
NI Employer Contributions (NICs) to rise next year
Arguably one of the most contentious policy areas in the lead up to the Budget surrounded NI Employer Contributions. With Labour pledging no rise in NI during the General Election campaign, critics said it broke the promise. But Labour said its pledge related to employee contributions not rising.
Employer NICs will rise from 13.8%, as it stands now, to 15% from 6 April 2025.
Changes were also revealed for the Secondary Threshold – the point at which employers become liable to pay NICs on employees’ earnings. This will go down to £5,000 a year from 6 April 2025 until 6 April 2028, dropping from the current rate of £9,100 a year. From 2028, it will increase in line with the Consumer Price Index (CPI).
Employment Allowance more than doubles
Alongside the Employers’ NI announcement, Ms Reeves revealed she is increasing the Employment Allowance from £5,000 to £10,500. The desire to protect smaller businesses is the reason behind it, she told MPs. This means that 865,000 employers will not pay any NI at all. The Government is also scrapping the £100,000 threshold for eligibility, expanding it to all eligible employers with employer NICs bills from 6 April 2025.
Income Tax thresholds to rise again from 2028
Some commentators had expected an extension of Income Tax thresholds beyond 2028 – the date set by the previous Government. But Ms Reeves announced the freeze would not go on. From 2028, they will be uprated again, in line with inflation.
Extending the threshold freeze would “hurt working people”, she told Parliament, adding: “So there will be no extension of the freeze in Income Tax and National Insurance thresholds beyond the decisions of the previous government.”
Income Tax, VAT, and NI for employees remain the same
Ms Reeves confirmed that she would commit to the Labour manifesto commitments to avoid raising NI for employees, Income tax, and VAT. All remain at the existing levels.
Corporation Tax to be capped for Parliamentary term
The Chancellor committed to cap Corporation Tax at 25% for the duration of this Parliament. The small profits rate and marginal relief will also stay as they are. As will R&D reliefs.
The existing capital allowances system, including permanent full expensing and the £1 million annual investment allowance, will also remain unchanged.
After the speech was over, the Treasury published a document called the ‘Corporation Tax Roadmap’. In this, it stated: “There is a high appetite for policy stability on Corporation Tax following several years of significant change. The roadmap is designed to give businesses the certainty they need without compromising on competitiveness, maintaining the UK’s position as the most attractive major economy to invest in.”
This also stated plans to monitor ‘international developments’ to ensure the UK’s regime remains ‘competitive’.
The roadmap also pledged further work on: clarifying eligibility for different capital allowances; the ‘simplification’ of capital allowances law; and the tax treatment of ‘predevelopment costs’. Several consultations will be published in coming months.
National Minimum Wage to increase
A significant rise for the National Living Wage was announced. It will rise by 6.7% to £12.21. The current rate stands at £11.44. The National Minimum Wage for 18-20 year-olds will rise 16.3% to £10 an hour.
Reform to tax on Carried Interest
One area of potential tax reform that we had expected to hear more about surrounded the tax treatment of ‘carried interest’. This tax break enables private equity fund managers to pay a reduced rate of tax on their earnings.
The Chancellor Rachel Reeves has been quoted in the past as calling it ‘absurd’. In its General Election Manifesto, Labour claimed that it would raise £565million through closing this ‘loophole’.
Ms Reeves confirmed reforms in how carried interest is taxed. She said the Government will increase CGT rates for carried interest to 32% from April 2025, with further reform from April 2026 to make it ‘fairer’ and ‘better targeted’.
The Budget papers outlined the details, saying: “From April 2026, all carried interest will be taxed within the income tax framework, with a 72.5% multiplier applied to qualifying carried interest that is brought within charge. As an interim step, the two Capital Gains Tax rates for carried interest will both increase to 32% from 6 April 2025.”
Stamp Duty goes up for second homes
Stamp duty is to go up for second homes, with the new rules taking effect from 1 November. The Treasury will increase the Higher Additional rate to 5% for second homes. It was previously 3%.
It applies to anyone buying second homes, buy-to-let residential properties and companies purchasing residential property. Anyone who exchanged contracts prior to 31 October 2024 is not affected by the change.
VAT for Private Schools confirmed
One of Labour’s long-stated policies, going back into their time as the Opposition, was to remove the exemption on VAT for private schools. There had been calls to delay the introduction of the plans, which some had said would cause chaos ahead of a January implementation date. But the Chancellor confirmed that the 20% VAT on private school fees will go ahead from January 2025. This will apply to all training, boarding and education services provided by private schools, HM Treasury said.
Another move confirmed surrounded schools in England with charitable status. They will no longer get Business Rates Charitable Rate Relief from April 2025. The two combined policies will raise an estimated £1.8 billion a year by 2029/30, the Government claimed.
DWP counter-fraud team expanded
Reforms to the health and disability benefits system were announced, with an extra £110 million pledged for counter-fraud and error funding for 2025-26. That will include an extra 3,000 DWP fraud and error staff.
Ms Reeves spoke in Parliament of “a crackdown on fraud in our welfare system, often the work of criminal gangs”.
DWP will get new legislative powers to “recover debt alongside requiring banks and financial institutions to undertake checks to identify incorrect benefit payments.”
These changes will bring £4.3 billion in savings in 2029-30, according to the Budget documents.
Reforms to Business Rates
Immediately after the Budget, the Treasury released a ‘discussion paper’ called ‘Transforming business rates’. It will soon begin asking for views.
The paper stated: “Over the parliament, the government will create a fairer business rates system that protects the high-street, supports investment, and is fit for the 21st century.”
Ms Reeves announced an intention to introduce “permanently lower business rates for retail, hospitality and leisure properties from 2026-27 to level the playing field for the high-street.”
In further documents, the Government said it is providing £1.9 billion of support to small businesses and the high street in 2025-26 by “freezing the small business multiplier and providing 40% relief on bills for RHL properties, up to a £110,000 cash cap”.
More compliance officers for HMRC
HMRC will get the resources to hire 5,000 extra compliance officers, update their IT systems and enhance their app, “improving the user experience for millions of taxpayers”, HMRC said.
The Budget papers also referenced the Government’s commitment to “taking stronger action on the most egregious tax fraud, including by expanding HMRC’s criminal investigation work and legislating to prevent abuse in non-compliant umbrella companies.”
State Pension to rise
The Basic and New State Pension will be uprated by 4.1% next year, giving pensioners an extra £470 a year from April 2025. The Treasury said more than 12 million pensioners will benefit from the rise – going up from £221.20 a week, to £230.25 a week.
The full basic State Pension will increase from £169.50 to £176.45 per week, worth an extra £360 annually.
Furthermore, the Pension Credit Standard Minimum Guarantee will also increase by 4.1% from April 2025. That equates to an annual increase of £465 in 2025-26 in the single pensioner guarantee and £710 in the couple guarantee, according to the Treasury.
Non-Dom Tax Regime
An issue spoken about for a long time – and legislated for by the previous Government soon before the General Election – was the axing of the so-called Non-Dom tax regime. Ms Reeves confirmed its abolition from April 2025. She said the Government would close what she described as ‘loopholes’ in the Conservative administration’s plans, published earlier this year.
Increase to Energy Profits Levy
Also known as the windfall tax on energy giants, the Chancellor announced the Energy Profits Levy (EPL) rate will rise by 3%, going up to 38%. This kicks in from 1 November 2024. The levy will end in March 2030.
Fuel Duty frozen
Good news for motorists came with the announcement that fuel duty would be frozen for next year, despite the substantial cost for the Treasury. “There will be no higher taxes at the petrol pump next year,” Ms Reeves said.
Air Passenger Duty to rise
Air Passenger Duty (APD) is to increase from 2026-27. Higher rates for private jets will increase by 50%. According to the Treasury, the APD rise equates to “£1 more for passengers taking domestic flights in economy class, or £2 more for those flying to short-haul destinations in economy class, £12 for long-haul destinations”. |
