The recent Autumn Budget marks a notable shift in UK tax policy, being the first introduced by a Labour government since 2010 and delivered by the first female Chancellor. With £40 billion in projected tax increases, the government aims to stabilise public finances and shape the broader economic environment. Several measures will impact individuals and businesses significantly, including tax adjustments affecting pensions, capital gains, and income.
For private individuals, Chancellor Rachel Reeves announced an increase in capital gains tax (CGT), with the basic rate rising from 10% to 18% and the higher rate moving from 20% to 24%, effective immediately. Although considerable, the Chancellor noted that even with these changes, the UK’s CGT remains lower than in other G7 countries. The highly anticipated inheritance tax (IHT) reforms included extending the freeze on IHT thresholds at £325,000 until 2030. Notably, pension pots will now be included in taxable estates from April 2027. This change will likely affect estates previously designed to use pensions as inheritance, prompting many to re-evaluate retirement and estate planning before the changes take effect. Additionally, business and agricultural property reliefs will be limited to 50% for assets over £1 million starting April 2026, impacting succession plans for small businesses and family farms.
Another key change is the abolishment of the non-domiciled (non-dom) tax regime from April 2025, with the introduction of a residence-based system instead. This change could encourage some to relocate outside the UK but also aims to attract temporary investors with incentives. As part of this initiative, the government will extend Temporary Repatriation Relief to three years, incentivising wealthy foreigners to bring capital into the UK at a reduced rate. The government also intends to add VAT at 20% to independent school fees, ending their business rate relief from April 2025. Stamp duty on second homes and investment properties has already risen from 3% to 5%, which could temper demand in the buy-to-let market, especially in high-value areas like London.
Businesses will also face higher costs due to an increase in National Insurance Contributions (NICs) from April 2025. Employers will see the NIC rate rise to 15%, with a lower threshold of £5,000, potentially raising £25 billion. This may drive wage costs up and impact consumers if these expenses are passed along. The budget also increases the National Living Wage (NLW) to £12.21 per hour for workers aged 21 and over starting April 2025, adding further to wage bills. For private equity, the tax on carried interest will rise from 28% to 32% from April 2025.
The government has pledged to support business investment, with the corporation tax rate holding steady at 25% and reliefs for capital expenditure and R&D remaining in place. These measures aim to offer stability for capital investment while encouraging innovation. Additionally, funding for infrastructure, including projects like the trans-Pennine rail upgrade, is expected to create opportunities for future business growth across the UK.
This budget reflects a targeted approach to raise revenue from wealthier individuals and businesses. From CGT and IHT increases to the end of non-dom status, these measures could reshape the financial landscape for high-net-worth individuals. While it’s crucial to avoid hasty decisions, these developments may impact financial planning. Rest assured, Arbuthnot Latham’s wealth management team is reviewing these changes in detail to understand the implications and help you make informed adjustments to your strategies.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
