It was a treat to see Rachel Reeves become the first woman to deliver a budget (about time!), but did she have more tricks than treats lined up for the UK public?
Overall, yesterday’s budget wasn’t as extreme as the media (and perhaps clever government PR!) would have you think. Yes, there were tax rises, but there were also positives. I break down the tricks and treats for your personal finances below.
Treat – stealth tax to end in 2028
It was confirmed that the freeze to income tax thresholds will end in 2028/29, with tax bands increasing in line with inflation. The first increase to tax thresholds since 2020 and an end to the ‘stealth tax’ which has seen more people, paying more tax. There were no other increases to working people.
Trick – the death of buy to let?
Stamp duty surcharge on additional property and limited company property purchases increases from 3% to 5% today. Making the entry charges for buy to let investors and holiday home purchases even higher. Could this end buy to let investing?
Treat – pension contribution tax relief remains
After many rumours around potential removal of pension contribution tax relief, it stayed. Contributing to pensions continues to be incredibly tax efficient, particularly for higher and additional rate taxpayers.
Trick – pensions subject to IHT from April 2027
Pensions will fall in scope for inheritance tax (IHT) from April 2027. A big change that may encourage more lifetime gifting from pensions.
There are implications for current earners as well. High earners should check the status of your death in service provided by your employer. If your total estate exceeds IHT nil rate bands (frozen until 2030), IHT could be due on your death in service benefit. Get in contact if you feel this could impact you.
Treat – Affordable home ownership scheme
If you’re looking for a first home, there are schemes available. I’ll admit, it’s 7.30pm this evening and we’ve run out of personal finance treats …
Tricks – quite a few …
There were other tax increases made during the budget that could impact you:
Capital gains tax (CGT) increase. Not as much as expected, but CGT has increased to 18% at basic rate and 24% at higher rate. Aim to use your annual exemption (£3,000) to mitigate this change.
Inheritance tax rule change. Business owners and agricultural property owners will now only receive 50% relief on IHT, meaning a 20% inheritance tax rate, rather than the previous 0%.
Employer national insurance contribution (NIC) increase. Employer’s NICs have increased from 13.8% to 15%, plus the threshold for paying employer NIC has decreased from £9,100 to £5,000. Business owners should review their remuneration. While this looks to be hitting employers only, ultimately employees could see lower pay increases in future.
Manifesto pledges. VAT on school fees, non-dom status changes and taxation of private equity pay will all change as expected.