The Budget has finally been unveiled and while many in the financial and wealth management sector are of the opinion it wasn’t quite as bad as we feared, the Chancellor’s package of measures revealed last Wednesday contained some nasty elements too.
In our opinion it was a business-negative Budget which won’t help the objective of encouraging business and overseas investors.
One of the bigger concerns is the increase in the National Insurance levy for employers to 15% and also significantly, the reduction in NI starting levels to only £5,000 from £9,100. The National Living Wage will increase to £12.21 next April too.
Preliminary maths suggests this will mean a cost of more than £31,000 to the average employer for one full-time person, which is £615 per week.
Consider that cost is almost certainly going to be passed onto the customer or indeed result in lower wage increases and this could all drive inflation while hindering economic growth.
The general consensus is the Bank of England will cut interest rates to 4.75% when it meets tomorrow (Thursday) but will they remain at that level, drop further or indeed creep back up following the Budget?
What else did the Budget contain? Fuel duty will be frozen next year and you will see a penny off a pint in the pub – don’t drink it all at once!
The fare cap for bus services in England goes up from £2 to £3, not helpful for families reliant upon bus services.
The freeze on Income Tax and National Insurance thresholds – ie the amount you can earn before paying tax – will not be extended beyond 2027/28, which means effectively your wages will see no benefits for another three years.
The lower rate of Capital Gains Tax has been increased from 10% to 18%, while the higher rate will go up from 20% to 24% – this is not as much as was feared, so still an attractive tax option for people.
The big one that will affect many though is Inheritance Tax (IHT), which will now apply to Pension Funds (it is presently zero). Chancellor Rachel Reeves said the change would close the ‘loophole’ that saw unspent pensions exempted from IHT.
From April 2027, IHT will apply to all pension wealth that is transferrable at death, but the IHT nil rate band (NRB) – the threshold before IHT is due – will be frozen at £325,000 and the residence NRB (the threshold for your main residence passed on to direct descendants) will remain at £175,000 for a further two years to 2030. This is set at £175,000 per person, allowing a couple to potentially pass on a property worth up to £1,000,000 tax-free.
The Budget also saw an effective 20% Inheritance Tax on qualifying business assets, agricultural assets and AIM shares (again, presently zero). AIM stands for Alternative Investment Market, a smaller market operated by the London Stock Exchange to allow smaller companies to sell shares in their business.
From April 2026, the first £1million of combined agricultural and business assets would remain exempt from IHT, with a 50% tax relief on assets over that, so a 20% tax rate.
Plus, second-home buyers now face a stamp duty land tax surcharge rise of 2% to 5%, effective immediately.
The Pension tax-free lump sum was not changed, despite fears it may be – but many who acted precipitously may now be regretting a hasty move, especially if they did not seek professional advice first.
Ultimately, the ramifications of certain tax increases from this Budget will manifest themselves down the line in unexpected ways, we suspect.
If you are concerned at how all this may affect you, in terms of estate or Pension planning, or indeed sales of assets, as ever, please do get in touch.
