Chancellor Rachel Reeves presented Labour’s first post-election Budget on Wednesday, outlining the UK Government’s plans for spending and taxation.
An increase in Capital Gains Tax rates was confirmed, along with an announcement that the current freeze on Income Tax and National Insurance thresholds until 2028 would not be extended.
Inheritance Tax thresholds will be frozen for an additional two years to 2030, while there are increases to the State Pension, National Living Wage and Employment Allowance from April 2025.
Reeves said this Budget will raise taxes by £40 billion, while implementing in full all 10 recommendations from the OBR’s review.
Here are our key takeaways from the Budget and what they mean for your money.
Capital Gains Tax rates to rise.
Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that’s increased in value outside of a tax wrapper such as a pension or ISA.
Following announcements in the Budget, the basic rate of Capital Gains Tax has increased from 10% to 18%, and the higher rate has increased from 20% to 24%. This will align the rates of Capital Gains Tax with the existing rates that are charged on residential property sales. This change takes place with immediate effect on 30th October 2024.
The capital gains tax-free allowances of £3,000 for individuals and £1,500 for trusts has remained the same.
Inherited Pensions to be subject to Inheritance Tax from 2027.
Inheritance Tax is a tax on the estate of someone who’s died.
There’s normally no Inheritance Tax to pay if either the value of your estate is below the £325,000 threshold or you leave everything above the threshold to your spouse, civil partner or a charity. You can also qualify for an additional £175,000 threshold when leaving your main residence to a direct descendant.
Currently, in most cases, pensions are not included in an estate for the purposes of an Inheritance Tax calculation. From April 2027, unspent pension pots will be included in the Inheritance Tax calculation.
The Chancellor also announced that there will be a freeze on Inheritance Tax thresholds for a further two years, keeping the thresholds at their current levels until 2030.
Income Tax and NI thresholds to rise with inflation from 2028/29.
Income tax and National Insurance contributions are paid on earnings from employment and profits from self-employment during the tax year.
The previous government froze the tax-free personal allowance at £12,570 and also froze the wider Income Tax and National Insurance thresholds, until 2028.
These thresholds will increase in line with inflation from tax year 2028/29, meaning that in the future more people could be protected from paying higher rates of tax when receiving pay rises in line with inflation.
Employer National Insurance contributions to increase.
National Insurance contributions are paid by employers and employees. Employers currently pay National Insurance of 13.8% on a worker’s earnings above £9,100 per year.
The rate of employer National Insurance contributions is increasing from 13.8% to 15% from April 2025. Employers will start paying this rate of National Insurance on earnings above £5,000 per year, instead of the current £9,100 per year. The Government’s forecasts anticipate that this will raise £25 billion per year by the end of the forecast period.
To offset the impact on smaller businesses, the government has increased the ‘Employment Allowance’ from £5,000 to £10,500, which is a discount that smaller businesses can receive on their National Insurance bill. The Government has also removed the eligibility threshold of £100,000, meaning any eligible employer, no matter their National Insurance bill, can claim this discount. The Chancellor says this will mean 865,000 employers won’t pay any National Insurance at all next year.
National Living Wage to rise by 6.7%.
It is estimated that over 3 million workers will receive a pay boost in the new tax year, after Reeves confirmed the National Living Wage for over 21s will increase from £11.44 to £12.21 per hour, from April 2025. This 6.7% increase is worth £1,400 a year for an eligible full-time worker.
The Chancellor also confirmed that the Government would move towards a single adult rate over time. The National Minimum Wage for 18 to 20-year-olds will rise from £8.60 to £10.00 per hour, an increase of 16.3% – the largest increase in the rate on record.
State Pension increase confirmed.
The State pension Triple Lock increase has been confirmed at 4.1%, giving pensioners up to £470 more per year in 2025/26.
This will increase the full new state pension to £12,014.12 per year, whilst the full basic state pension will go up to £9,206.91 per year.
VAT on private school fees.
The Government also announced it will be ending tax breaks for private schools from the start of 2025, to better invest in state education.
The standard 20% VAT rate will be added to private school fees from 1st January 2025. Any fees paid from 29th July 2024 relating to the term starting in January 2025 and onwards will be subject to VAT. The Government will also soon introduce legislation to remove their business rates relief from April 2025.
We’ll help you do more with your money
We’ll be covering the Budget announcement in further detail in this week’s Do More With Your Money podcast. Make sure you subscribe to our YouTube channel to ensure you don’t’ miss out on the latest episode alongside our regular content.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
It’s important to remember tax is subject to an individual’s personal circumstances and tax rules can change at any time.
As always, pension eligibility and tax rules apply. You should ensure your contribution does not result in your total Pension contribution within the tax year exceeding £60,000 or 100% of your earnings, whichever is lower.
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Information accessed from Gov.uk and up-to-date as of 30/10/24
