How the UK budget affects you and your business
While tax rises were anticipated, changes will have a significant impact on businesses and individuals. The main tax measures effecting our clients in their businesses and individual capacities are summarised as follows:
BUSINESS TAX
National Insurance Contributions
National Insurance Contributions (NICs) for employers is set to rise.
- From April 2025, employers’ NICs will increase from 13.8 per cent to 15 per cent.
- The threshold at which employer NICs become payable will fall from £9,100 to £5,000.
To help mitigate the additional NICs costs for smaller employers, the employment allowance will increase from £5,000 to £10,500 per year and will apply to all businesses given the £100,000 threshold will be removed. This change is effective from April 2025.
Corporate Tax Roadmap
The Government has published a Corporate Tax (CT) Roadmap. In this document the Government commits to:
- Keep the existing R&D, patent box and intangible assets tax regimes.
- Keep the headline rate of UK CT at 25 per cent.
- Maintain the existing CT small profits rate of 19 per cent.
- Maintain the existing core capital allowances regimes with full expensing and the £1m annual investment allowance, which can provide valuable tax deductions for certain types of capital expenditure.
Business Rates
There will be two permanent lower rates of business rates for retail, hospitality and leisure properties and in the short-term there will be a 40 per cent relief for 2025/26 up to a cap of £110,000 per business.
Sales to Employee Ownership Trusts (EOTs)
Persons selling private trading companies to EOTs can benefit from a capital gains tax exemption if various conditions are satisfied. Various changes are proposed to the regime, including:
- The former owners cannot retain control of the company post-sale to an EOT,
- The trustees of an EOT must be UK resident
- The EOT conditions must continue for a longer period for the tax reliefs not to be lost.
PERSONAL TAX
Capital Gains Tax (CGT)
Several CGT changes have been announced as follows:
- The CGT rate for Investors’ Relief, which applies in similar circumstances to BADR but where the investor is unconnected with the business, will increase in line with the BADR rates with effect from 30 October the rates of CGT have increased from the current rates of 10 per cent (basic rate taxpayers) and 20 per cent (higher and additional rate taxpayers) to 18 per cent and 24 per cent respectively.
- The rates for selling second properties remain at 18 per cent and 24 per cent respectively.
- The CGT rate for Business Asset Disposal Relief (BADR) (previously Entrepreneurs Relief), which applies to lifetime gains of £1m on certain disposals by employees and directors in their unlisted businesses, will continue. However, the tax rate will increase from the current 10 per cent to 14 per cent for disposals made on or after 6 April 2025 and from 14 per cent to 18 per cent for disposals made on or after 6 April 2026. This means an increase of up to £80,000 for those entrepreneurs planning to sell their businesses after April 2026.
- The CGT rate for Investors’ Relief, which applies in similar circumstances to BADR but where the investor is unconnected with the business, will increase in line with the BADR rates
The lifetime limit for Investors’ Relief will reduce from £10m to £1m for disposals made on or after 30 October 2024, significantly limiting its financial benefit going forward.
Carried Interest Changes
Carried interest gains made by investment managers will from 6 April 2025 be subject to CGT at a new flat rate of 32 per cent (rather than at 18 per cent or 28 per cent under the previous system). T
This is a temporary measure, as the Government intends to consult further on a revised tax regime for carried interest from April 2026. The proposal is that qualifying carried interest will then be treated as trading profits and subject to Income Tax and NICs. However, the amount of “qualifying” carried interest subject to tax will be adjusted by applying a multiplier resulting in an effective tax rate at 34.1 per cent including NICs.
Inheritance Tax (IHT) Changes
A variety of changes will be made to IHT as follows:
- Business (and Agricultural) property relief will change from 6 April 2026. The existing 100 per cent rates of relief will continue for the first £1m of combined agricultural and business property. Thereafter, the rate of relief will be 50%, which translates to an effective 20% IHT expense. Many family businesses, trusts and estates will now have to plan for IHT liabilities on business and agricultural property.
- An effective IHT rate of 20 per cent will also be levied on shares in companies on the Alternative Investment Market. Therse shares were previously exempt from IHT (when held for at least 2 years). The new £1m business property relief allowance will not apply to AIM shares
- Pension funds and death benefits payable from a pension into a person’s estate will be brought into a person’s estate for IHT purposes from 6 April 2027.
- Extension of the freeze on the standard tax-free allowance (£325,000) and residence nil-rate band (£175,000) until 2030
Income Tax
Income tax rates will not increase, and income tax rate thresholds will be “unfrozen” and will begin to rise in line with inflation from April 2028.
Non-Domiciled Individuals
The Government will proceed with abolishing the non-dom tax regime with effect from 6 April 2025 and it will replace it with a residence-based regime.
In summary:
- Individuals who have not been resident in the UK for the previous 10 years will not pay UK tax on foreign income and gains (FIG) for the first four years of tax residence even if such FIG is remitted to the UK.
- There will be a temporary repatriation facility applying for three years to encourage individuals who previously claimed the remittance basis to remit existing pre-6 April 2025 foreign income and gains to the UK at reduced tax rates of 12 per cent rising to 15 per cent from 6 April 2027.
- For CGT purposes qualifying individuals will be able to rebase personally held foreign assets to 5 April 2017 on a disposal where certain conditions are met.
- A new residence-based system for inheritance tax will apply from April 2025. Inheritance tax will be due on a person’s worldwide assets on their death if they have been UK tax resident for 10 UK tax years out of the prior 20 tax years and there will be a “tail-provision” which will keep such persons within the scope of UK IHT on worldwide assets for a period after leaving the UK.
- The Overseas Workday Relief which can exempt from UK tax employment income from non-UK duties will be reformed and extended to four years although the amount claimed annually will be limited.
VAT on Independent School Fees
Education and board and lodging supplied by independent schools will be subject to VAT at the standard rate of 20 per cent from 1 January 2025.
Fees received by independent schools from 29 July 2024 for terms commencing from 1 January 2025 are also subject to VAT due to anti-forestalling provisions.
Stamp Duty Land Tax
The rates of SDLT which apply to property purchases in England and Northern Ireland where a buyer is an individual and already owns another residential property and to corporate buyers, are being increased by 2 per cent. Therefore, the additional rate will now be 5 per cent. This translates to the fact that a top rate of 17 per cent SDLT (or 19 per cent for non-resident purchasers) applies to the purchase price exceeding £1.5m.
The higher rate of SDLT which may be applied to purchases of residential properties worth more than £500,000 by companies for non-commercial purposes, is to be increased from a flat rate of 15 per cent to a flat rate of 17 per cent.
The new rates of SDLT will apply to all purchases where contracts were exchanged after midnight on 30 October 2024. Transactions which exchanged contracts before midnight on 30 October 2024 and which complete before 1 April 2025 will continue to benefit from the old rates where certain conditions are satisfied.
If you would like to discuss the budget or any other accounting or tax matters, we’re always happy to have a no obligating consultation – craig@elevationfinancial.uk
