Thu Nov 7
National insurance contributions – the main tax increase
The new Government’s first Budget plans to raise £40bn in additional tax revenue, the largest chunk of which comes from national insurance paid by those who employ working people. Perhaps the most egregious part of this is lowering the threshold at which employer’s national insurance contributions are due from a salary of £9,100 pa to £5,000 pa. Further the rate has increased from 13.8% to 15%.
This means an employer of a part time worker, say in care services or hospitality, paying a salary from £5,000 to £9,100 p.a. will see its cost of employment increase by 15%! Not a tax on working people? At least this is consistent with basic fiscal theory, namely that the only things you can tax heavily are the poor and land, as neither can run away, except these days workers are more mobile than ever before.
For most employees, the cost to employers will increase by 1.2%. These changes take effect from April 2025.
Income tax
Income tax personal allowances will remain frozen as per the previous Government’s plans until 2028. This is estimated to bring many people (including pensioners on state pensions) back in to paying tax and more people into the higher bands of taxation. There is no change to those earning between £100,000 and £150,000 pa who pay a marginal rate of 60% as they progressively lose their personal allowances.
Capital gains tax
With effect from 31 October, rates have gone up from 10% to 18% for basic rate taxpayers and from 18% to 24% for higher rate taxpayers. Gains from residential property stay at 24%, which is the only relief buy to let investors get in this Budget (see below).
Business Asset Disposal Relief (BADR) (formerly entrepreneur’s relief) remains at £1m taxed at 10% but will increase in 2026/7 to 14% and 2027/8 to 18%.
Given that CGT was introduced to stop income tax avoidance, and should be, and was, under Nigel Lawson, at income tax rates (which the Liberal Democrats proposed), this merits a sigh of relief.
Buy to let and furnished holiday lets (FHL)
You don’t need to be paranoid to think that HM Treasury hates you with a passion, whether you invest in residential property as an individual (with relief for interest paid limited to the basic rate in 2014) or as a corporate.
The latest hit was to increase the additional rate of stamp duty land tax (SDLT) on companies and those individuals who already own a house (anywhere in the World other than Scotland and Wales) from 3% to 5%, which means the highest rate payable on a house has increased from 15% to 17%.
In addition, the temporary raising of the threshold for when SDLT becomes payable on residential property introduced by the last Government, has ended making SDLT due from a price of £125,000, whereas before it was £250,000.
Inheritance tax
FHL’s were hit in the last budget but individuals will now find that they and along with all other businesses are now affected by the new restriction on IHT business property relief which gives 100% relief from IHT for business assets.
Going forward, from 6th April 2025, only the first £1m of business assets will qualify for 100% relief with any excess being relieved by half, i.e. subject to IHT at 20% rather than 40%. The same changes are also made for agricultural property relief.
On the plus side, former farmland now no longer farmed under an agreement for environmental protection will qualify for agricultural property relief.
IHT and pensions
Pensions are invariably funded from income from employment or self-employment also known as working. From 2027, anyone who dies with funds still in their pension will have those funds treated as part of their death estate for IHT.
At present, for most private sector pensions, you can nominate a preferred beneficiary to receive your funds in the event of your death, and invariably the pension fund trustees will honour those wishes and the funds never form part of your death estate. From 2027, they will.
However, most people nominate their spouse as the person to “inherit” their pension fund, in which case the exemption for gifts to spouses should apply to avoid IHT. However, if you are the surviving spouse, this option will not be available to you.
This IHT charge will be in addition to the income tax due on many withdrawals at the usual rates, plus the various scenarios where a punitive 55% rate of income tax can be triggered e.g. certain loans to companies owned by beneficiaries.
In our view, pensions are still a much-underused medium for long-term saving and current tax planning due to the £60,000 pa which can be paid into pensions (and the ability to use up the last 4 years’ worth of unused contributions), and tax free growth within the pension fund itself.
