The Chancellor of the Exchequer, Rachel Reeves, has delivered her first budget which will see taxes rise by £40 billion. Despite earlier speculation of sweeping changes (discussed in our last blog post), the Chancellor’s budget did not follow through with some of the more radical changes which had been rumoured.

Yet, the Budget to ‘rebuild Britain’ does contain a raft of changes which will have a large impact on both the overall economy as well as individuals personal finances.

In this article, we’ll outline our initial reaction to the Budget and what this will mean for you.

Let’s start with a summary of headline changes. Then we’ll dive into the details of what these changes mean for your money.

Summary of what is changing:

Capital Gains Tax

• Basic rate to increase to 18% (from 10%) and higher rate to increase to 24% (From 20%) from disposals from 30th October.
• Business Asset Disposal Relief (BADR), and Investors Relief (IR), CGT rate increased from 10% to 14% from April 2025 and to 18% from April 2026.
• Carried interest (a major form of compensation for Private Equity and other investment fund management professionals) to increase to 32% from April 2025, with further reforms expected from April 2026.

Stamp Duty

• Stamp duty surcharge on second homes to rise from 3% to 5% from October 31st.

Inheritance Tax

• IHT nil rate bands will not be increasing until at least 2030, an extension of two years. Pensions to be included in the value of your estate for Inheritance Tax (IHT) purposes from 2027.
• IHT relief on AIM shares reduced to 50%, giving an effective IHT rate of 20%.

National Insurance

• Employer’s National Insurance (NI) is increasing from 13.8% to 15% from April 2025.
• Secondary threshold above which employer NI is paid is to be reduced to £5,000 from £9,100.

Private School Fees

• VAT on private school fees is to be introduced from January 2025.

Child Benefits

• The last government introduced a plan to assess the threshold at which Child Benefit gets clawed back to be based on household income, rather than at the individual level. Labour are scrapping this plan.

State Pension

• To increase by 4.1% from April 2025, in line with the Triple Lock.

What isn't changing:

• No extension to the freeze on income tax and NI thresholds, they will rise with inflation from 27/28.
• No changes to pension tax relief or tax-free cash entitlement.
• No changes to ISAs.
• No changes to Capital Gains Tax (CGT) allowances.
• No changes to dividend tax rates or allowances.
• No changes to the plans to reduce Stamp Duty Land Tax (SDLT) thresholds from April 2025

So, let’s dive into some of the specifics of what these changes will mean for your money…

Capital Gains Tax

Compared with the rumours of aligning CGT rates with income tax rates, changing the headline rates to 18% and 24% seems small in comparison.

These changes will come into effect as of the date of the budget, so if you managed to realise a gain ahead of that, lucky you!

If you haven’t realised a gain and you are a long-term investor, it’s not necessarily all bad news. As demonstrated, CGT rates can and do change over time and could feasibly be reduced by a future government before you need to realise a gain, depending on your investment time horizon.

We’ve also taken a look at how these changes will impact business owners in a separate section below.

Stamp Duty

The Chancellor has increased the surcharge on second homes by 2%.

These changes will come into effect from the 31st of October, so again, lucky you if you transacted before the Budget.

This change means that at the top end, stamp duty will be levied at 17%. Full details and new thresholds here.

Inheritance Tax

Those with larger estates they are planning to leave to their loved ones may have been pleased to see that there was no increase to the headline 40% rate of IHT or any extensions to the 7 year rule.

However, due to inflation, freezing the inheritance tax nil rate bands – of £325,000, and £175,000 for the residents' nil rate band – until 2030 will mean that more people will start to pay inheritance tax.

The biggest change that will affect many people is bringing pensions into the scope of inheritance tax from 2027.

As the current rules stand:

• Pensions fall outside of your estate for IHT.
• If you die before the age of 75, your beneficiaries can inherit your pension as a tax free lump sum.
• If you die after the age of 75, they will inherit your pension but will have to pay their own marginal rates of income tax when drawing it down.

These benefits previously made Defined Contribution pensions great vehicles for passing on wealth to future generations.

So, when it came to retirement, many wealthier people would hold off drawing on their pension, instead drawing from ISAs and other taxable assets to try and reduce their IHT liability.

To be clear, the pre and post 75 rules are not changing. And if you leave your pension to your spouse no IHT will be due.

But this change will dramatically affect:

• When it makes sense to stop paying into a pension.
• When you draw from it in retirement.
• The risk you take with your pension compared with your other investments.

There’s lots to unpack here so expect to hear more on this over the next few weeks.

National Insurance

Increasing Employer NI to 15%, and reducing the level at which it starts to be charged, will increase the cost of labour for most businesses.

On its own, reducing the starting threshold from £9,100 to £5,000 will increase the cost per employee by £615 per year.

The question then is who will bear the cost? It could be: Business owners through an increase in costs. Consumers through an increase in prices to maintain margins. Employees through a reduction in future wage growth.

However, many small family businesses will escape the worst of these changes because the Employers Allowance is being increased from £5,000 to £10,500 per year.

There is one small silver lining to an increase in employers' NI. It increases the value of salary sacrifice benefits to your employer by saving your employer NI. These benefits include salary sacrifice pension contributions, cycle to work, nursery, or electric vehicle schemes.

For salary sacrifice pension contributions in particular, many employers will choose to contribute the NI saving into your pension as it is essentially ‘cost-neutral’ for them to do so. If your employer does this, it would be an increase from 13.8%-15% of the contribution. So, if you don’t already know, make sure you ask your company if they will pay that NI saving into your pension.

Every little bit helps.

Private School Fees

As expected, VAT will be introduced on private school fees from the start of 2025 at a rate of 20%.

Additionally, the measure also seeks to curb those who have tried to avoid the risk of having to pay VAT by pre-paying school fees in advance. By coming into force retrospectively, this will capture pre-payment of fees made before the Budget was announced, such that any invoice or payment of school fees made on or after 29 July 2024 will incur 20% VAT.

This will see an average additional cost of £2,000 per child to be paid by the parents of children enrolled in private school.

Child Benefits

Currently, for every £100 you earn over £60,000 you lose 1% of your child benefits.

Which means that if you’re a single income household earning £80,000 you get no child benefits.

But if you’re a double income household earning £60,000 each (£120,000 household income) you get all of it.

Clearly this puts single income families at a disadvantage.

The last government introduced a plan to correct this by assessing the threshold based on household income. Unfortunately, this plan has no longer been included in the Chancellor’s Budget.

Business Owners

If you’re a business owner, there are two reliefs that offer access to a lower rate of CGT on the sale of your business.

Business Asset Disposal Relief (BADR), and Investors’ Relief (IR) offer access to CGT rates of 10%, on the first £1m lifetime gains, or £10m in the case of IR.

The benefit of these reliefs is being reduced.

From April 2025 the CGT rates for BADR and IR will rise to 14% and then to 18% from April 2026, in line with the basic rate of CGT. The lifetime limit for IR is also being reduced from £10m to £1m from the 30th October.

The other big change is the dilution of reliefs when passing on business assets (via Business Property Relief), and some forms of agricultural land (via Agricultural Property Relief), upon death from April 2026.

Both reliefs, previously uncapped, will now be subject to a combined lifetime limit of 100% on the first £1m, with a 50% exemption for assets over and above £1m, meaning an effective rate of IHT on assets above £1m of 20%.

For example, if you own a family business worth £2m, this previously could have passed onto the next generation tax-free, a policy that was designed to protect the break-up and sale of UK SMEs, the so-called bedrock of the UK’s economy.

In the same example now, the beneficiaries of this business would be expected to stump up £200,000 in order to protect this legacy.

For those without the liquid funds able to meet this, the options would be to:

A) Gift the business during the owner’s lifetime (or perhaps consider expensive and complicated trust planning);

B) Sell other assets to fund the tax - the family home for example; or

C) Borrow funds to cover the shortfall.

This will particularly hit businesses rich in assets, goodwill or IP, but without large buffers of cash sat around doing nothing - seemingly this could cause UK business owners to hoard cash to cover any such future tax bill, rather than putting that cash to productive work.

If you have any questions as to how the Autumn Budget will affect you and your financial plans, please reach out to your usual Nova Wealth adviser.

If you don’t already work with us and would like to know more, you can book a time to speak with us here.

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Risk Warnings and Disclaimers

Capital at risk. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. We do not provide tax advice. This article does not constitute personal advice. We do not take any responsibility for third party websites and content we may link to from this article.

Issued on behalf of Nova. Nova is a trading name of Nova Wealth Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN: 778951) and is a limited company registered in England & Wales (10739796).