Chancellor Rachel Reeves’ first Budget was a significant one in all senses.
“…this Budget delivers a large, sustained increase in spending, taxation, and borrowing.”
So said the Office for Budget Responsibility (OBR) in the first paragraph of its overview of the Autumn Budget. The numbers are indeed large:
- spending is up by almost £70 billion a year over the next five years;
- taxation will rise by £36 billion a year; and
- borrowing will still be above £70 billion a year in 2029/30.
The Chancellor’s tax-raising opportunities were constrained by the Labour manifesto pledges to hold the rates of income tax, VAT, corporation tax and national insurance contributions (NICs) – only for employees, although other interpretations are available. The result was that other taxes had to carry the burden of providing extra funds for the Treasury:
- Over half the additional revenue came from changes to employer’s NICs from 2025/26. These saw the class 1 employer rate rise from 13.8% to 15.0%, and the starting point for payments fall from £9,100 of annual earnings to £5,000. The impact of this was mitigated slightly by a £5,500 increase to £10,500 in the employment allowance – effectively an employer NIC credit.
- The main capital gains tax rates have increased from 10% to 18% (for non-taxpayers and basic rate taxpayers) and from 20% to 24% (for higher and additional rate taxpayers). The rate for business assets disposal relief will rise from 10% to 14% in 2025/26 and then 18% in the following tax year, with the maximum amount of lifetime relievable gain staying at £1 million.
- Inheritance tax (IHT) relief for businesses and agricultural property will be cut back from April 2026, with the relief for qualifying shares listed on the Alternative Investment Market halved to 50%.
- Death benefits from pensions will be brought into IHT from 2027/28, although there were none of the other tax changes that had been rumoured in the weeks before the Budget. Notably full income tax relief on contributions remains and employer contributions continue to be free of NICs.
If you could be affected by any of these changes (or further changes not mentioned in this update), make sure that you seek advice. The sooner you are prepared for this new, higher tax environment, the better.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
