Rachel Reeves’ First UK Budget: A Turning Point with Mixed Reactions

On the cusp of an important fiscal shift, Chancellor Rachel Reeves delivered her inaugural UK Budget on a day marked by both anticipation and tension. Following months of speculation regarding government tax schemes and strategies, her announcements aimed to provide clarity for individuals and businesses alike. However, the new budget also outlined additional tax liabilities that could pose economic challenges for certain segments of the population. This article synthesizes the significant points made during the budget address, highlighting the changes to Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT), Inheritance Tax (IHT), and other fiscal policies impacting both personal and corporate finance.

Capital Gains Tax (CGT)

One of the standout changes affects Capital Gains Tax rates. Starting October 30, 2024, the primary CGT rate will rise from 10% to 18%, while the higher rate will surge from 20% to 24%. This increase, while less drastic than some had feared, signals a definitive shift in the government’s approach to asset disposals. Individuals making asset sales in the near future will need to reconsider their strategies, given the accompanying supplementary charges on benefits from non-UK trusts, which will now reach a maximum CGT rate of 38.4%.

Moreover, anti-forestalling regulations are set in place, affecting contracts signed before October 30, 2024, that are not completed by that date. This is aimed at addressing potential measures taken to exploit tax advantages.

Investment managers will also feel the impact of new rules regarding carried interest gains, which will be taxed at a flat 32% rate commencing April 6, 2025. Additional adjustments will see Business Asset Disposal Relief (BADR) and Investors’ Relief rates similarly ramped up, limiting the financial benefits available to those engaged in business disposals.

Stamp Duty Land Tax (SDLT)

Effective after midnight on October 30, 2024, the supplementary SDLT rates for property purchases by individuals holding other residential properties will increase significantly. The new rates reflect a 2% rise across various property values, which will impose an additional strain on potential homebuyers looking to invest. For example, those buying properties priced between £250,001 and £925,000 will now pay 10% instead of the previous 8%.

Notably, non-UK residents will face inflated rates, pushing the top SDLT rate for purchasing residential property in England or Northern Ireland beyond 19%. This new structure signals a tightening grip on the property market, reinforcing the notion that the government is keen to discourage multiple property ownership.

Inheritance Tax (IHT)

Significant changes are also on the horizon for Inheritance Tax. From April 6, 2026, full Agricultural Property Relief (APR) and Business Property Relief (BPR) will be capped at a sum of £1 million, meaning estates retaining agricultural or business assets exceeding this threshold will incur IHT on the excess at 50%. Current IHT thresholds will remain frozen until April 5, 2030, intensifying the gradual increase in taxable estates.

Additionally, unused pension funds and related death benefits will become subject to IHT from April 6, 2027, broadening the scope of what is considered taxable upon death. These transitions mark a crucial moment for estate planning and fortify the case for individuals to reassess their financial strategies concerning business and agricultural property.

Changes to Non-Domiciled Status

Another crucial aspect of the budget pertains to the taxation of non-domiciled individuals. The previous Remittance Basis regime will transition to a new system by which those arriving in the UK after being non-resident for a decade will be exempt from tax on foreign income and gains, regardless of whether they are brought into the UK. However, IHT on worldwide assets applies if they become tax resident for a sufficient term.

This transformation directly impacts individuals and trusts, emphasizing the need for comprehensive tax assessments and potentially prompting reconsideration of residency plans.

National Insurance Contributions for Employers

Employers will feel the effects of increased National Insurance contributions (NICs) starting in April 2025 as rates ascend from 13.8% to 15%. Concurrently, the threshold for when NICs become applicable will decrease from £9,100 to £5,000, adding to the financial burden on businesses. However, to somewhat cushion this impact, the employment allowance, which allows companies to lessen their NICs liabilities, will rise from £5,000 to £10,500.

Income Tax and Corporate Tax Roadmap

In a welcome change, income tax thresholds will be "unfrozen," rising in line with inflation starting in April 2028. Meanwhile, the chancellor has committed to maintaining existing corporation tax rates, small profits rate, and other key tax regimes relating to Research and Development (R&D). This commitment aims to foster a consistent and secure environment for businesses in the UK leading up to the next general election.

VAT on Independent School Fees

Expectedly, independent school fees will be subject to VAT at 20% from January 1, 2025, a move that will increase the financial responsibility of families seeking private education for their children. Provisions have been introduced to ensure clarity around these changes.

Conclusion

Overall, Rachel Reeves’ first UK Budget brings with it a mix of reassurance and apprehension. While providing clarity on various fiscal matters, the additional tax liabilities could create real economic dilemmas for certain individuals and businesses. As the financial landscape evolves in the wake of the announcements, it will be essential for all stakeholders to carefully evaluate how these changes will affect their financial strategies moving forward. Further insights will continue to emerge, particularly surrounding Inheritance Tax and policies affecting non-domiciled individuals.

The need for personalized financial advice has never been more critical as the implications of this budget settle into effect. For individuals and families navigating this new terrain, consulting with tax specialists can prove invaluable in ensuring informed decisions during this transformative period.