Budget Briefing

On Wednesday, Rachel Reeves delivered a historic budget, being the first ever female Chancellor of the Exchequer to do so and the first Labour one for 14 years.

With an unusually long gap between election day and budget day, the last three months were filled with rumours and speculation as to what was going to be announced and the possible outcomes.

So now, we can move on to some facts (or some facts as we know them, as they may well change before they become effective) 

There is no shortage of analysis of the budget online and in the newspapers, but I want to focus on the key issues that could affect you as a client of Capital.

Income Tax and National Insurance

What was announced?

The government will not extend the freeze to income tax and National Insurance contributions thresholds. From April 2028, these personal tax thresholds will be uprated in line with inflation.

What does it mean?

The fiscal drag will unfortunately continue until April 2028 and result in more people paying tax that may not currently do so and resulting in others falling into higher rates of tax. However, the news of a mid-spring thaw in April 2028 will be an important consideration when reviewing when to take income from your pension or investment portfolio.

And, if access is still required to supplement income, ISAs and investment bonds can be used to meet those withdrawal requirements without triggering an income tax event.

Savings allowances and Dividend Nil Rate

What was announced?

The starting rate for savings will remain at £5,000 for the 2025/26 tax year, maintaining its current level.

The Personal Savings Allowance will be £1,000 for those with adjusted net income of £50,270 and below, £500 for those with adjusted net income between £50,270 and £125,140, and £0 for those with adjusted net income above £125,140, maintaining the current levels.

The dividend nil rate of taxation will remain at £500.

What does it mean?

You should use these allowances where possible. If your savings or investments exceed the savings allowances or dividend nil rate, we can consider appropriate tax wrappers to place these in. 

State Pension

What was announced?

Under the triple lock rules, the state pension increases each year by the highest of 2.5%, inflation (the September CPI figure), or earnings growth (based on the average increase in UK wages from May to June).

The Chancellor announced that the state pension will increase by 4.1%.

What does it mean?

Simply put, if you receive a state pension you will have more next year! 

The current state pension is £221.20 a week. Increasing this figure by 4.1% will make it £230.27 a week, a sweeping increase of £471 a year. This will take the annual rate (assuming 52 weekly payments) up to £11,974, which is still below the personal allowance of £12,570. 

Pension Death Benefits

What was announced?

This is a big one for our clients. It was announced that unspent pensions would be brought into the inheritance Tax (IHT) regime from April 2027.

Based on the detail in the consultation, almost all pensions become subject to IHT on death  go into the IHT remit. Where the pension benefits are paid to your spouse an exemption will apply.

What does it mean?

Many clients use their pensions as intergenerational wealth transfer vehicles, so plans for passing on wealth will need to be reassessed.

However, there will no doubt be a great degree of detail needed from this consultation, with the potential for changes to be made. So, a watching brief as opposed to immediate action may be prudent.

Despite the proposed changes, pensions remain a vital part of retirement and investment planning.

Inheritance Tax

What was announced?

In the Autumn Statement 2022, it was announced that the existing IHT thresholds were to be maintained until 5 April 2028. This kept the Nil Rate Band at £325,000. 

The Chancellor announced that the IHT thresholds are to be further maintained at current levels for tax years 2028/29 and 2029/30

What does it mean?

The £325,000 NRB is available to all individuals and can be set against all asset types upon death. The NRB can also be used::

• To allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an IHT liability
• In calculating the periodic and exit charges on relevant property (discretionary) trusts.

It’s interesting to remember that the NRB has been fixed at £325,000 since the tax year 2009/10. This policy is only forecast to increase the number of taxpaying estates by 1,400 in 2028/29 and 2,900 in 2029/30.. 

Capital Gains Tax – Rate changes

What was announced?

The main rates of CGT are currently charged at a lower rate of 10% and a higher rate of 20%, and these will be increased to 18% and 24% respectively, from 30 October 2024. These new rates will match the residential property rates, which are not changing. 

What does it mean?

With the Annual Exempt Amount already having been reduced from £12,300 in 2022/23 to £3,000 in the current tax year, an increase in rates will not be welcome for those holding assets subject to CGT.

The new rates open up the possibility of considering other tax wrappers, such as investment bonds, which may offer useful planning opportunities.

Individual Savings Accounts (ISAs) and Junior ISAs

What was announced?

The subscription limits for Adult ISAs and will remain at the current levels from 6 April 2025 to 5 April 2030.

It should also be noted that the government will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.

What does it mean?

Taking full advantage of your ISA allowance each year becomes even more important as part of your wealth preservation and growth strategy.

Subscription limits are as follows:

• Adults ISAs – £20,000
• Junior ISA – £9,000 

Stamp Duty Land Tax

What was announced?

From October 31, 2024, the Higher Rates for Additional Dwellings (HRAD) surcharge on Stamp Duty Land Tax (SDLT) will increase by 2 percentage points from 3% to 5%.

The single rate of SDLT charged on the purchase of dwellings costing more than £500,000 by corporate bodies will also be increased by 2 percentage points, from 15% to 17%.

What does it mean?

It means an increase in tax for those purchasing second homes, buy-to-let residential properties, and companies purchasing residential property. Buy-to-let investment has become even less attractive for most people.

Summary

There’s much to absorb, and many measures are subject to consultation and may change. Rest assured, the team at Capital is actively analysing all the details and will update you if we feel there are actions you should consider.

In the meantime, feel free to get in touch if you’d like to discuss any aspect of the changes.

Hazel Scarff

Chartered Financial Planner