The first Budget from the new Labour government was anything but subdued. Although some of the rumoured changes did not occur, many may feel this pre-Halloween fiscal event brought more challenges than benefits for personal finances.

On a positive note, Chancellor Reeves managed to maintain bond market confidence, avoiding any significant negative reactions. However, this required balancing increased investment with minimal tax hikes, a difficult feat. To enable much-needed infrastructure spending, Reeves adjusted fiscal rules, allowing for more investment by offsetting assets against national debt.

As expected, the overall tax burden is increasing, particularly affecting capital gains tax, inheritance tax, and pensions as predicted. The Chancellor had previously ruled out raising taxes on “working people”, meaning income tax and VAT rates would remain unchanged. This limited options for boosting Treasury revenues and ensuring daily spending aligns with tax receipts.

Changes to capital gains, inheritance tax, and pensions were anticipated, though the impacts were less severe than feared. Additionally, a welcome surprise was the freeze on fuel duty for another year, supporting consumer spending and easing business costs.

SUMMARY: KEY CHANGES AFFECTING PERSONAL FINANCES

1. INCOME TAX AND NATIONAL INSURANCE

Despite a commitment not to raise income tax, the burden is subtly increasing due to “fiscal drag”, where rising incomes push more individuals into higher tax bands. Tax thresholds will remain frozen, but inflation-linked increases will resume in 2028. The minimum wage will rise significantly from £11.44 to £12.12 next year. National insurance contributions for private employers will increase from 13.8% to 15%, and the threshold for employer contributions will drop to £5,000.

2. CAPITAL GAINS TAX (CGT)

Expected changes to CGT materialised but were not as extreme as an equalisation with income tax as we had feared. The government has opted to align rates on shares (18% and 24%) with those on property. Business owners taking advantage of the retained £1 million Asset Disposal Relief will see the reduced CGT rate rise from 10% to 14% by April 2025, reaching 18% by April 2026, potentially accelerating business sales before the increase.

3. INHERITANCE TAX (IHT)

The Chancellor proposed reforms to IHT, capping exemptions on business and agricultural property at £1 million, with lower relief beyond that. AIM shares will only receive 50% relief, effectively setting a 20% tax rate on eligible shares. Unused pension pots will now count towards estate valuations, drawing more individuals into the IHT net, and fundamentally shifting much existing planning.

4. PENSIONS AND ISAS

Despite speculation, there were no major changes to pension or ISA rules. The government will review the retirement saving landscape, ensuring stability in these key investment vehicles. The State Pension will rise by 4.1%, benefiting those losing winter fuel payments. Notably, pensions will be included in estate valuations for inheritance tax starting in April 2027.

5. PROPERTY

Stamp duty rates will rise for second homes and buy-to-let properties from an additional 3% to 5% starting today, October 31 2024. The first-time buyer nil-rate stamp duty threshold will decrease from £425,000 to £300,000 in April 2025, with similar reductions for non- first-time buyers.

6. DOMICILE AND RESIDENCY

The government has confirmed that starting April 6 2025, the remittance basis regime will be abolished in favour of a new residence- based taxation system.

Under this new framework, individuals who have been non-UK residents for at least 10 consecutive tax years will enjoy full tax relief on foreign income and gains (FIG) for their first four years of UK residency. This means they can bring these funds into the UK without incurring any UK tax charges.

A residency test could open the door in the future to exit charges for those wishing to leave the UK, but this is a matter for future budgets.

TO CONCLUDE

Overall, these changes necessitate careful thought and long-term planning, particularly regarding IHT and property purchases.

We will be reviewing the impact these changes have on you and your family as we are able to obtain further information.