1.    Income tax

The Personal Allowance is the amount of money you can earn each tax year before you start paying income tax.

In 2021, this allowance was frozen until April 2028. Rachael Reeves, the Chancellor, has confirmed that there will be no extension on the freeze, meaning personal tax thresholds will be uprated in line with inflation in 2028/29.

2.    State Pension

The Chancellor has confirmed the State pension will rise by 4.1% in April 2025 and will continue to rise with the triple lock in future tax years.

The full new state pension will increase to £230.30 a week (£11,975 a year) and the full, old basic state pension will go up to £176.45 a week (£9,175 a year).

With this increase, it is more and more likely in the new tax year and thereafter, people will start paying income tax on their State Pensions.

Furthermore, the decision to restrict the winter fuel payment to pensioners on pension credit only, compounds this problem further.

3.    Capital Gains Tax (CGT)

CGT is the tax payable on profits made from a sale of assets such as selling a second home or investments. 

The headline rate has increased from 10% to 18% for basic rate and from 20% to 24% for higher rate.

The Annual Exempt Amount of £3,000 which is the allowance you don’t pay tax on capital gains, has remained the same.

4.    Inheritance Tax (IHT)

IHT is the tax levied on estates on death.

The current Nil Rate Band for IHT is £325,000. This is the amount on which IHT is not charged; above this, the taxable rate is 40%.

The Government allows married couples to bring forward any unused Nil Rate Band on the first death to be used up on the second death. This, in effect, can give you a Nil Rate Band of £650,000 (in the current tax year).

In addition to this, legislation came into force from April 2017 to provide for an additional main residence Nil Rate Band for an estate if the deceased’s interest in a residential property, which has been their residence at some point and is included in their estate, is left to one or more direct descendants on death.

The value of the main residence Nil Rate Band for your estate will be the lower of the net value of the interest in your residential property or the maximum amount of the band. For 2024/25 the maximum is now £175,000 each.

This can in effect give some people a total Nil Rate Band of £1,000,000.

It was feared that the government would take away or reduce some of these allowances however they have not.

They have however extended the freeze on these allowances until April 2030.

They have made changes which will mean that more people start to pay IHT on their assets. One key part is removing non-domicile tax regime which we have not gone into detail on this change as we anticipate it will affect very few of you, however the main takeaway is that this will increase the government coffers.

The Chancellor has also tightened business relief which is a relief used to pass on family businesses/assets to their descendants.

Another key change is…

5.    Pensions

Up to now, your pension did not form part of your estate for inheritance tax (IHT) purposes.

However, a major change incoming will be that pensions will form part of people’s estate for IHT purposes from 2027.

This is a big change and will likely impact many people.

How exactly this is brought in and the details of this change is not clear but we will wait and see how this develops.

6.    National insurance

One of the biggest increases is on National Insurance. But, thankfully for most of our readers, not for employees.

Employers’ national insurance contributions will rise by 1.2 percentage points to 15% from April.

The government will also reduce a secondary threshold from £9,100 to £5,000 (employers will start paying the 15% rate from earnings of £5,000 rather than £9,100).

Although this may not sound like a massive increase, this will significantly increase the government's national insurance revenue and is expected to raise £25bn a year by the end of the forecast period.

7.    There has then been other changes which are not massive headline but worth a mention:

• Private school fees: VAT will be brought in on private school fees in January 2025. (Not a big surprise)
• Fuel Duty is a form of tax levied on the fuel you purchase. The Chancellor has said this will not increase.
• Stamp Duty Land Tax is a tax you pay when purchasing a home. The Chancellor has increased this rate for those buying a second property to 5%.
• No changes to the tax-free cash rules or pensions tax relief.
• National living wage is going up. For those over age 21 this will be going up 6.7% from £11.44 per hour to £12.21 per hour meaning someone working a 40-hour week will be earning around £21,000 per annum.
• Tobacco taxes will rise by 2% above the retail price index (a measure of inflation). A Vape duty will come into effect.
• Taxes on Alcohol will rise in line with the Retail Price Index however the Chancellor is going to cut draught duty by 1.7% meaning she has said is a penny off a pint in the pub.

8.    Summary:

Our views are that people’s worries over this budget were far greater than the reality. These changes seem like they are costed which is one of the most important elements of the budget.

This overview of the budget gives a brief insight into what the new Labour Government plans to do. Unfortunately, the devil is always in the detail and we will have to see if there are any big surprises in the detail.

Keep an eye out for our future blog posts where we will look at these changes in greater detail and the things that you could and should be doing.