As expected, today we received a budget with wide reaching implications across the taxpayer base. We’ll be picking through the detail and updating clients accordingly over the coming days, however the headline points are summarised.
Employers and Business Tax
National Minimum Wage (NMW) and National Living Wage (NLW)
Effective April 1, 2025, the NLW for employees aged 21 and older will rise from £11.44 to £12.21 per hour. The NMW will also increase for those aged 18 to 20 (from £8.60 to £10.00 per hour) and for 16 to 17-year-olds (from £6.40 to £7.55 per hour). Additionally, the accommodation offset rate will go up from £9.99 to £10.66 per day (from £69.93 to £74.62 per week).
Class 1 National Insurance Contributions (NIC)
Starting in April 2025, the Chancellor has announced a 1.2% increase in Employers' NICs, raising the rate from 13.8% to 15%. The secondary threshold will also be lowered from £9,100 to £5,000.
Employment Allowance (EA)
The EA will be increased from £5,000 to £10,500. The Chancellor estimates this change will allow around 865,000 small businesses to fall below the threshold for Employers' Class 1 NIC liability.
We’ll be contacting all our clients with employees over the coming weeks to run through the implications of this, as well as all our director only payroll clients.
Electric Vehicles (EVs)
Current incentives for EVs in company car tax will remain in place until 2028. The gap between fully electric vehicles and others will also widen with the initial Vehicle Excise Duty rates starting in April 2025.
Corporation Tax
Higher rate cap remains in place at 25% as well as preserving the Annual Investment Allowance
Compliance
The Chancellor confirmed investments in HMRC's systems and an increase in compliance and debt collection staff. There will be a greater focus on supply chain compliance, particularly regarding umbrella companies, along with a crackdown on worker exploitation and tax avoidance schemes. Additionally, the interest rate on unpaid debts will rise, and fraudulent claims for government grants during the COVID-19 pandemic will be reviewed.
General Tax
Income Tax & National Insurance (NIC) Thresholds
The existing freeze on income tax and NIC thresholds, as established by the previous government, will continue, but this freeze will not extend beyond 2028.
Income Tax and NI Thresholds
The income tax and NIC thresholds will remain frozen until 2028. Starting in April 2028, these thresholds will increase annually in line with inflation.
Reform of Domicile
The non-dom tax regime will be abolished, and the domicile concept will be removed from the tax system, replaced with a residence-based scheme. The Temporary Repatriation Facility under the new scheme, previously available for two years, will now extend to three years for those taxed on the remittance basis.
Inheritance Tax
Beginning in April 2027, inheritance tax will apply to all inherited pension pots. This change will add pension wealth to the death estate, making it subject to full inheritance tax. It ends the previous favourable treatment of pension pots upon death, specifically for individuals who passed away before age 75.
From April 2025, IHT will transition to a residence-based tax system. The £325,000 nil rate band and the residence nil rate band will remain frozen for an additional two years until 2030.
Starting April 2027, inherited pensions will also be subject to IHT. The government plans to reform Agricultural Property Relief and Business Property Relief. From April 2026, an asset value cap will be introduced for 100% Business Property Relief and Agricultural Property Relief, with a combined asset value limit of £1 million; assets over this limit will receive only 50% relief.
For AIM shares, Business Property Relief will be reduced to 50%.
Capital Gains Tax (CGT)
For disposals on or after October 30, 2024, the CGT rates will rise as follows (excluding residential property and carried interest):
For individuals:
Lower rate from 10% to 18%
Higher rate from 20% to 24%
For trustees and personal representatives: CGT will increase from 20% to 24%
For residential property, the lower and higher rates will stay at 18% and 24%, respectively.
Business Asset Disposal Relief (BADR) and Investor’s Relief (IR)
The CGT rate for BADR and IR will remain at 10% for this year, increasing to 15% for disposals made on or after April 6, 2025, and to 18% for disposals made on or after April 6, 2026.
Carried Interest
Starting April 2025, the CGT rate on carried interest will rise to 32%. A review of how carried interest is taxed will take place in April 2026, aiming for a so called “fairer and simpler approach”.
Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT)
EIS and VCT will be extended until 2035, as anticipated.
We will be reaching out in more detail in due course, but please do not hesitate to contact us should you wish to discuss any of today's announcements further.
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