Labour's first Budget in 15 years has arrived, giving individuals and businesses across various sectors much to digest.

In the Autumn Budget, Chancellor Rachel Reeves unveiled a series of tax adjustments aimed at balancing economic growth with public spending priorities.

Sam Wightman of Jerroms Miller Specialist Tax on the Autumn Budget 2024
Sam Wightman, Corporate Tax Assistant Manager at Jerroms Miller Specialist Tax, examines the primary changes and their potential implications for businesses, focusing on areas such as capital gains tax, inheritance tax, and national insurance.

Limited Companies

Limited company owners received a bit of reassurance, with confirmation that the main corporation tax rate will remain capped at 25% for the current parliamentary term. In addition, both the small profits rate and marginal relief will be retained.

Reeves also underscored the importance of enabling businesses to reinvest in themselves. To support this, the government will maintain the £1 million annual investment allowance, alongside uncapped full expensing, the writing down allowance, and the structures and buildings allowance.

Current research and development (R&D) tax relief rates will also be upheld, with HMRC moving forward on its plan to create an R&D advisory panel and enhance guidance to encourage more businesses to claim the relief.

Employers

Employers, perhaps most impacted by this Budget, saw several key changes.

As anticipated, both the national minimum wage and national living wage will rise in 2025. From April 2025, the minimum wage for 18-20 year-olds will increase to £10 per hour, while the National Living Wage for those aged 21 and over will see a 6.7% rise to £12.21 per hour.

Confirmed pre-Budget speculation regarding employers’ national insurance contributions (NICs) proved accurate, with the NIC rate rising from 13.8% to 15% from April 2025. This increase is intensified by the reduction in the secondary threshold (the point at which employers start paying NICs) from £9,100 to £5,000 from April 2025, frozen until April 2028.

In response, the employment allowance will increase from £5,000 to £10,500, and the £100,000 employers’ NIC threshold will be removed from April 2025, providing valuable relief to smaller employers.

Plans remain for employers to report and pay tax and Class 1A NICs on benefits in kind in real-time from April 2026, with exemptions for accommodation and loans. The NIC increase represents one of the more sweeping changes in this Budget, raising employment costs for all but the smallest businesses.

Individuals

Income Tax

As expected, Reeves confirmed no changes to income tax rates or thresholds, which are to stay fixed until April 2028, after which they will rise with inflation.

Capital Gains Tax (CGT)

One of the more impactful measures for business owners is the increase in capital gains tax, effective immediately. The lower CGT rate now stands at 18%, up from 10%, while the higher rate has risen from 20% to 24%.

Though these rates are higher, they remain lower than some feared, with some analysts predicting a potential jump to 40% for the higher rate.

Business Asset Disposal Relief (BADR)

The Budget also included changes to Business Asset Disposal Relief (BADR). The 10% rate on gains up to £1 million remains for the current tax year, but from April 2025, BADR will increase to 14%, aligning with the 18% CGT rate from April 2026.

While anticipated since Labour came into power, the CGT rate increases may still surprise some business owners, particularly those planning to exit their businesses soon. Strategic succession planning is now more essential than ever to achieve tax-efficient commercial goals.

Employee Ownership Trusts (EOTs)

With higher CGT rates, Employee Ownership Trusts (EOTs) have become increasingly appealing to business owners, given that qualifying disposals are free from CGT. However, EOTs saw some adjustments in the Budget, notably in conditions for relief, which now aim to prevent former owners from retaining control of the company post-sale.

Business Property Relief, Agricultural Property Relief, and Inheritance Tax

Changes to Business Property Relief and Agricultural Property Relief from April 2026 may be unwelcome news for some, especially farmers. The first £1 million of assets transferred at death will continue to receive 100% relief, with a 50% relief on amounts exceeding this threshold. Furthermore, relief for shares not listed on recognised exchanges, such as AIM, will reduce to 50%.

These inheritance tax relief adjustments may concern business owners, but effective planning should help mitigate their tax exposure.

Additional Measures

As previously announced, VAT on private school fees will be introduced at the standard 20% rate from 1 January 2025. The government also announced, unexpectedly, the removal of business rates relief from private schools, effective from April 2025.

Stamp Duty Land Tax remains largely unchanged, aside from a 5% surcharge on second homes. Meanwhile, interest on unpaid tax liabilities will increase by 1.5% from April, an attempt to encourage prompt tax payments.