The first Budget of the new Labour government was delivered to Parliament on 30 October by the Chancellor, Rachel Reeves.

The impact of the proposed £40bn of tax increases are summarised below.

What we knew before the Budget

The following announcements were made before the Budget:

National Living Wage (NLW) 
The NLW, which applies to workers aged 21 and over, is set to increase to £12.21 per hour from April 2025, marking a rise from its current rate of £11.44. 

National Minimum Wage (NMW)
Rates for 18 to 20 year olds will increase from £8.60 to £10 per hour.

VAT on private school fees
Starting 1 January 2025, private school fees will be subject to 20% VAT.

Abolition of Furnished Holiday Lettings Tax Regime
From April 2025, the tax benefits associated with Furnished Holiday Lettings (FHL) will end, potentially affecting property owners reliant on this tax relief.

Budget announcements

Income Tax
There are no changes in the rates of Income Tax and the thresholds at which the higher (40%) and additional (45%) rates apply.

Starting rate for savings
The government will introduce legislation in Finance Bill 2024-25 to retain the 0% band for the starting rate for savings income at its current value of £5,000 for tax year 2025 to 2026.

Inheritance Tax
The Inheritance Tax nil-rate bands are already set at current levels until 5 April 2028, and the government will introduce legislation in Finance Bill 2024-25 to fix these levels for a further two years until 5 April 2030:

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

Qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability.

Unused pension funds and death benefits payable from a pension will be brought into a person’s estate for Inheritance Tax purposes from 6 April 2027.

Agricultural Property Relief and Business Property Relief
The government will reform these reliefs from 6 April 2026. The existing 100% rates of relief will continue for the first £1 million of combined agricultural and business property and 50% relief thereafter.

Relief for shares designated as ‘not listed’ on the markets of recognised stock exchanges, such as AIM, will also be reduced to 50%.

Capital Gains Tax (CGT)
The main rates of CGT will change from the previous 10% and 20%, to 18% and 24%, respectively, which applies to gains on disposal of chargeable assets made on or after 30 October 2024 (Budget Day).

The rate of CGT for Business Asset Disposal Relief (BADR) and Investors’ Relief is increasing to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026.  The £1m limit for BADR remains unchanged.

The Investors’ Relief lifetime limit will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. 

No changes will be made to the 18% and 24% rates of Capital Gains Tax that apply to residential property gains.   

Employers’ National Insurance Contributions

From 6 April 2025 until 5 April 2028, the threshold at which employers’ contributions will apply is being reduced from £9,100 to £5,000. In future years, this threshold will increase in line with the Consumer Price Index.

The main rate of employer’s secondary rate (Class 1) NIC will increase by 1.2% from 13.8% to 15%. Class 1A contributions (that apply to benefits in kind) and Class 1B contributions will increase by the same amount.

The government will also introduce legislation to increase the Employment Allowance from £5,000 to £10,500 and remove the restriction that currently applies to the Employment Allowance, where only employers who have incurred a secondary Class 1 National Insurance contributions liability of less than £100,000 in the tax year prior are able to claim.

Making Tax Digital for Income Tax and Self-Assessment
Making Tax Digital (MTD) for Income Tax will be extended to sole traders and landlords with income over £20,000 by the end of this Parliament. The precise timing of this will be set out at a future fiscal event. This expands the rollout of MTD for Income Tax, which will begin from:

• April 2026 for sole traders and landlords with income over £50,000 
• April 2027 for those with income over £30,000. 

Stamp Duty Land Tax
The government will introduce legislation in the Finance Bill 2024-25 to increase the higher rates of Stamp Duty Land Tax (SDLT), payable by purchasers of additional dwellings and by companies, from 3% to 5% above the standard residential rates. The changes will apply to transactions with an effective date on or after 31 October 2024.If you have any questions on the Budget and what it means for you and your business, please get in touch.