On 30th October, Chancellor Rachel Reeves delivered the first Annual Budget under the new Labour Government. There were several changes to the current tax landscape. In this article we look at some of the key points and how they may affect you.
What are the headlines?
There were a number of key changes. The below will create the most significant pain points:
- From April 2025 the rate of National Insurance (NI) contributions for employers will increase.
- Capital Gains Tax rate will rise, effective immediately.
- From April 2027, pension pots will form part of the estate for Inheritance Tax purposes, meaning bereaved families could be liable for 40% tax on those retirement savings.
- Agricultural Property Relief (APR) and Business Property Relief (BPR) will be reformed from April 6th 2026.
- As initially proposed as part of the election manifesto, VAT on private school fees will be introduced. This will take effect from January 2025.
The increase in NI contributions is perhaps the most far-reaching change with the government essentially deciding that businesses would absorb the impact of the £40 billion tax rise.
National Insurance changes in focus
How much is the NI increase?
NI will increase from 13.8% to 15% on employee earnings above £5,000. The previous threshold was £9,100. This will raise an additional £25 billion a year.
What does this mean for business owners?
In short, an increase in National Insurance means employers will have to pay more on their employees’ earnings.
Will Employment Allowance help still be available?
There have been some changes to this too and the Employment Allowance, which helps to reduce NI costs for employers, will increase from £5,000 to £10,500 per year meaning some small businesses will no longer be able to reduce their NI liability.
Which sectors will be most affected?
There is fear that the NI increase will impact tax planning for all small to medium businesses but particularly for Primary health care providers that provide NHS services including GPs, dentists, pharmacists and care homes. These businesses are not protected from the rise in the same way as NHS hospitals and other public sector companies.
Other businesses who employ staff on fewer hours and lower wages like the hospitality industry will also be affected.
The sole director company with no other employees are also affected as they will face an increase in the national Insurance cost but are not eligible to the Employment Allowance.
As a business owner, what steps should you take?
Sole Director employee companies need to reconsider how they withdraw funds from their company bearing in mind that under these changes some National Insurance will need to be paid to safeguard state pension rights.
Other key tax issues to consider
Schools: Concerned about VAT on private school fees?
Essentially, parents are now liable for a 20% increase in school fees. Our recent article on education under the new Labour Government looks at this in detail. Find out more here: https://tblaccountants.co.uk/news/education-vat-and-the-new-labour-government/
Pension Pots: How can you protect your finances in lieu of the pension pot tax?
The announcement that pension pots will become liable for Inheritance Tax could have significant implications for retirement planning. While this change may not affect everyone, it could have a substantial impact on the financial strategies of many individuals. As a result, individuals may need to reassess their retirement plans and potentially make adjustments to their savings and investment strategies to mitigate the potential tax burden.
Capital Gains Tax: What does the Capital Gains increase mean?
The rate paid by basic-rate taxpayers has increased from 10% to 18% and from 20% to 24% for higher-rate taxpayers. These changes are effective immediately. Understanding where you stand on CGT is really important. ISA allowances and pensions provide some aid but there have been changes to the inheritance tax treatment of pensions too. If you are self-employed and need help unpicking this new landscape, get in touch.
Agricultural Property Relief (APR) and Business Property Relief (BPR): How will the loophole closures on APR and BPR affect you?
If you’re dealing with business interests valued under £1million you will still receive 100% tax relief. Anything over that, careful planning is vital. We are able to support you with planning during your lifetime to avoid these tax charges arising.
For tax planning and specialist advice, get in touch today.
