The aim of this update is to try and identify the Budget annoucements that will impact the majority of our clients and therefore we have concentrated on these changes. Scott and I will be happy to talk to individuals who are looking for a more specific discussion on areas that they will be impacted by personally.
The first Labour Budget in 14 years, and the first ever from a female Chancellor, broadly delivered what had been expected from the leaks and private briefings prior to Rachel Reeves appearance in Parliament. Expectation was that this Budget would be challenging, and those expectations have proven to be well founded. The £22bn black hole in the Government’s finances was mentioned right at the beginning of Rachel Reeves Budget speech and on several other occasions during her 77 minutes at the Despatch Box. After the Chancellor blamed the Conservatives for their incompetence and mis-management of the public finances, she got down to business.
Income Tax
The personal allowance will remain unchanged at £12,570.00 until April 2028 at which point indexation will resume. This has to be welcomed as the freeze on the tax rate thresholds since April 2021 has been a tax grab for the Treasury.
Inheritance Tax (IHT)
There were no changes to the nil rate threshold (£325,000.00) or the residence nil rate band (£175,000.00) but the freeze on these allowances was extended until April 2030. Where there was a significant change was in the inclusion of inherited pensions in the calculation of IHT from April 2027. There is a consultation period planned to review this change of legislation so at this point we would advise clients to defer from making any big decisions in this area. Once the final legislation is in place clients may wish to revisit their pension planning to review the impact of the new environment.
Capital Gains Tax (CGT)
The rate of CGT will increase from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers with immediate effect. The CGT free allowance was left at £3,000.00. These changes should prompt more people to take full advantage of their Individual Savings Account (ISA) allowances which were maintained at £20,000.00 pa per individual.
The rate for business asset disposal relief and investors relief will increase to 14% from 6th April 2025 and will then increase again to 18% from 6th April 2026. The lifetime limit will be reduced to £1 million for all qualifying disposals made on or after the 30th October 2024.
Triple Lock – State Pensions
The Triple lock was confirmed for State Pensions, as was broadly expected. What this means in practical terms is that the basic state pension will rise by 4.10% from April 2025. The single state pension will increase from £221.20 per week to £230.30 per week or £11,975.00 per year.
Summary
Taking the Governments tax and spending plans into account it looks likely that the fiscal injection into the economy will be inflationary, to some extent, and this has consequences for the pace of interest rate reductions which in turn may have a dampening down effect on equity market returns compared to where they may have progressed. Time will tell, as will the impact of the Trump US Presidency.
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