Chapters Financial News

You will be aware that there was much speculation as to the plans of the new Chancellor, Rachel Reeves MP, for this year's Budget. Following Labour's estimates of a £22bn shortfall in the UK's finances, the estimated tax raise was £40bn in this Budget (the highest since the 1970s). Changes were expected in order to raise revenues, either by raising tax, or by reducing outgoings with efficiencies, as we saw recently with the introduction of means-testing for the winter fuel payment.

Many might suggest that today's announcements set the overall fiscal tone for the term of this new government for the next few years, noting that it was a confident speech.

Changing of debt parameters

There were many leaks to the press of fiscal plans prior to the Budget, much to the displeasure of Sir Lindsay Hoyle, the Speaker of the House of Commons, a few days prior. The Speaker's fury focused particularly on the leaking of the plan to effectively redefine the way the UK's debt rules work going forward. The planned effect is to allow the Chancellor to borrow more money for the next five years. We are talking about up to £50bn extra to help pay for the planned spending ahead, such as infrastructure spending. The risk is that interest rates remain higher than expected, costing us more over time. It will be interesting to see how the markets react in the future.

What are the headline changes?

With the dust now settling from the Chancellor's announcements, we have been able to look at some of the headlines announced today and have detailed these below. We have also been able to access early Tax Cards for the coming tax year 2025/2026 and if you would like a copy of this, then please let us know.

Please note that no individual advice is provided in the text of this blog, and you should take individual advice for your own circumstances.

We have detailed the headlines below as we understand them at the time of writing (30/10):

• Income tax: no changes to tax rates; however, the freeze on thresholds will not be extended beyond the decision of the previous government – from 2028/2029, income tax thresholds will be uprated in line with inflation.
• National Insurance Contributions (NICs):
  • Employee NICs: threshold freeze will not be extended beyond the decision of the previous government – from 2028/2029, thresholds will be uprated in line with inflation.
  • Employer NICs: will rise from 13.8% to 15% from April 2025, and the secondary threshold – the level at which the employer starts paying NICs– will fall from £9,100 to £5,000 gross pa (raising an estimated £25bn).
• Inheritance Tax (IHT):
  • The nil rate band of £325,000 and the residence nil rate band of £175,000 remain unchanged, although are now frozen to 2030.
  • Inherited pensions will be brought into IHT from April 2027. Under current rules, on death before age 75, the value of a money purchase pension can normally pass tax-free to the chosen beneficiary/ies. On death after 75, the value is taxed at the beneficiary/ies' highest marginal rate.
  • Agricultural Property Relief and Business Property Relief: from April 2026, the first £1M of combined qualifying agricultural and business property will be free of IHT. On assets of over £1M, IHT will apply with a 50% relief, at an effective rate of 20%.
  • From April 2026, a 50% relief in all circumstances on IHT on AIM shares and other similar holdings, an effective IHT rate of 20%. Under current rules, qualifying shares fall outside the estate for IHT purposes after two years.
• Capital gains tax (CGT): the lower rate of CGT will increase from 10% to 18%, and the higher rate from 20% to 24% for disposals made on or after 30 October 2024. The CGT rates on gains on second properties remain the same (lower rate 18% and higher rate 24%).
• Business Asset Disposal Relief (BADR / formerly Entrepreneurs Relief): the lifetime limit of £1M will remain. BADR remains at 10% this year, increasing to 14% in 2025 and 18% thereafter.
• Stamp Duty Land Tax (SDLT):
  • From 31 October 2024, the SDLT surcharge for second homes will increase from 3% to 5%.
  • For first time buyers, the nil rate stamp duty threshold is currently set at £425,000, which was set to end in April 2025 and fall back to £300,000. This may be extended, although no specific announcements as yet.
• Carers' Allowance: increase in the weekly earnings limit to 16 hours per week at the national living wage, meaning that a carer will be able to earn over £10,000 gross pa whilst still receiving Carers' Allowance. The government will also review the 'cliff edge' earnings situation and overpaid allowance.
• State Pension: the triple lock will be honoured, meaning that the State Pension will increase by 4.1% in 2025/2026.
• Rise in the minimum wage from April 2025 for over 21's to £12.21 per hour, an increase of 6.7%. For 18–20-year-olds, the minimum wage will rise from £8.60 to £10 per hour, and for apprentices, from £6.40 to £7.55 per hour
• Air Passenger Duty will rise from April 2025, although by no more than £2 for economy class short-haul flights. This duty will increase by a further 50% for private jet passengers. As an example, duty on an economy class flight of under 2,000 miles will be £13.
• Fuel duty remains frozen next year and the existing 5p cut will also be retained for another year.

Summary

We all need to be mindful that there may be further changes to fiscal policy between now and 06 April 2025, and if these occur, we will arrange for an updated version of the Tax Card to be produced.

There are other tax changes that do not appear above, such as VAT on private school fees from January 2025.

Please do talk to us about any objectives that you have for your pension planning, along with other arrangements, such as investments and ISAs.

Please take suitable financial / accountancy advice for your individual circumstances before implementing any changes to your arrangements.

We hope these notes are helpful and we look forward to helping you with your financial planning over the remainder of this tax year and into the future.

Keith Churchouse
Director
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.