In a Budget designed to address a formidable £22bn “black hole” in public finances, the Chancellor has introduced a range of measures that will impact tax planning, inheritance strategies, and investment decisions. As private wealth practitioners, these changes will likely shape how we advise clients on wealth and succession planning. Our experienced private wealth team have provided a detailed breakdown of the key elements and their implications.
If you would like to discuss wealth planning or issues relating to inheritance and tax strategies, please book a free initial consultation with one of our experience private wealth lawyers by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or by completing our Free Online Enquiry Form.
Employers’ National Insurance Contributions
The sharpest intake of breath happened in unison with the announcement about National Insurance. Employers’ National Insurance contributions will rise by 1.2% to 15% from April 2025. More critically, the “secondary threshold” (the level at which employers start paying National Insurance on each employee’s salary) will drop significantly from £9,100 to £5,000 per employee.
In contrast to predictions ahead of today, there was no introduction of National Insurance on employer pensions contributions.
This move may affect business clients’ staffing decisions and potentially lead to higher employment costs.
Takeaway: Clients may need support in exploring cost-saving staffing structures or payroll adjustments to offset these increased expenses.
Unpaid Tax
The Chancellor vowed to crack down on unpaid taxes. She said: “Before a government considers any change to a tax rate or threshold, it must ensure that people pay what they already owe . . . We will invest to modernise HMRC’s systems using the very best technology and recruit additional HMRC compliance and debt staff. We will clamp down on those umbrella companies who exploit workers, increase the interest rate on unpaid tax debt to ensure people pay on time, and go after promoters of tax avoidance schemes.”
The measures aim to narrow the tax gap, with an estimated revenue increase of £6.5bn by the end of the forecast period.
Strategic Insight: With stricter HMRC enforcement, we should encourage clients to ensure that they are meeting all tax obligations. The repercussions of unpaid tax are likely to become more significant as compliance checks increase.
Inheritance Tax
The Chancellor announced three changes to the Inheritance Tax regime, each with implications for tax and estate planning.
- The current threshold of £325,000, which has been at this level since 2009, will remain frozen until April 2030.
- “Inherited pensions” will be brought into IHT from April 2027.
- The scope of Agricultural Property Relief and Business Property Relief is being reduced. The first £1m of combined business and agricultural assets will continue to attract IHT relief at 100%. However, for assets over £1m, IHT will apply with a 50% relief, at an effective rate of 20%. The Chanceller estimated that three-quarters of claims for APR and/or BPR will be unaffected by these changes.
Taken together, these measures are expected to raise over £2bn by the final year of the forecast period.
Inherited Pensions
The decision to bring inherited pension pots left on death within the IHT regime is a major change which will have a significant impact on retirement planning. The devil will be in the detail of course, to determine whether this includes only lump sums, or if it also includes benefits passed down by way of an income.
For many individuals, their pension is one of the most valuable assets they own. Adding pensions to estates is likely to increase substantially the number of estates which become subject to IHT. Extending the freeze on the current IHT thresholds to 2030 only adds to this issue.
The end result of this change is that many more people will now be brought into scope for IHT. Pensions are a long-term investment and it is vital that large-scale changes to how they are taxed are well managed to avoid any risk of undermining confidence in pensions and scaring people from engaging with their retirement savings.
AIM Shares
The Alternative Investment Market is London Stock Exchange’s market for small and medium size growth companies. Until today’s Budget, AIM shares could be inherited without being taxed if they had been held for two years or more.
This IHT break for AIM shares has been partially abolished in the Budget, as only a 50% relief from IHT will be applied to its shares, setting the effective tax rate at 20%.
The FTSE AIM 100 index jumped 4.3% in the minutes after as a result, setting it up for its biggest one-day rise since April 2020.
Strategic Insight: This change presents an opportunity for lawyers to work with their clients’ other private wealth advisers to reassess the clients’ investment portfolios. For those holding AIM shares, alternate strategies or tax planning options may become necessary to offset potential IHT liabilities.
Capital Gains Tax
The Chancellor has raised CGT rates for disposals of assets occurring from 31 October 2024 onwards:
- Basic rate: Rising from 10% to 18%
- Higher rate: Rising from 20% to 24%
These adjustments bring CGT rates for non-residential assets in line with the rates for residential property, which remain unchanged.
Business Asset Disposal Relief (formerly Entrepreneur Relief)
BADR is available on disposals of business assets, reducing the rate of CGT on qualifying gains to 10%. The relief is available to individuals disposing of their personal businesses or interests in a partnership, as well as directors and employees selling shares in the company they work for. Trustees may also be eligible for BADR in certain circumstances.
Under current rules, there is no limit to how many times you can claim Business Asset Disposal Relief BUT . . . the total amount of relief you can claim over your lifetime is £1m. This is known as the “lifetime limit”. The Chancellor has stated that this lifetime limit will remain in place. The rates of CGT are being increased, however.
To encourage entrepreneurs to invest in their businesses, Business Asset Disposal Relief will remain at 10% this year, before rising to 14% on 6 April 2025 and 18% from 6 April 2026.
The Office for Budget Responsibility (OBR) predicts that these CGT changes will raise £2.5bn by the end of the forecast period, keeping the UK’s CGT rate as the lowest among European G7 countries.
Takeaway: For clients considering asset disposals, it may be beneficial to act sooner rather than later. Advise clients on the timing of disposals and BADR eligibility, as these will impact CGT costs significantly in the near future.
Carried Interest
Carried interest is a form of performance-based profit-sharing that benefits fund managers. It is typically paid out after a fund has achieved a minimum return and once investors have received their investments back plus a minimum expected return.
Carried interest is a key tool for fund managers that is designed to incentivize performance and retain talent, and is usually taxed as a capital gain.
The Chancellor announced that the rate of CGT on carried interest is being increased to 32% from April 2025. She also stated that, in April 2026, the government will deliver further reform to ensure that the specific rules for carried interest are “simpler and better targeted”.
Strategic Insight: Fund managers and clients in the investment sector may need to reassess their profit-sharing arrangements and explore alternative compensation structures to remain tax-efficient.
Enterprise Investment Schemes and Venture Capital Trusts
The Chancellor has reaffirmed the government’s support for EISs and VCTs until at least 2035. EIS incentivises investors to invest in early-stage companies, including 30% income tax relief and complete relief on IHT and CGT if held for 3 years.
Insight: Private wealth clients interested in supporting emerging companies may benefit from the tax efficiencies offered by EISs and VCTs. Long-term stability in these schemes provides valuable planning certainty.
Stamp Duty Land Tax
The Chancellor has announced that the surcharge for second homes (the “higher rate”) will be increased from 31 October 2024, with the rate rising from 3% to 5%.
Insight: Given the updated rate, clients may require guidance on structuring property investments in a tax-efficient way, especially if property is a significant component of their wealth.
“Non Dom” Tax Regime
This is probably the most expected announcement in today’s Budget, when the Chancellor confirmed that the “non dom” tax regime is going to be abolished. She also stated that they are going to remove what she referred to as the “outdated” concept of domicile from the tax system from April 2025.
In its place, they are going to introduce a new, residence-based, scheme, with “internationally competitive arrangements for those coming to the UK on a temporary basis”, whilst closing the loopholes in the previous scheme.
This is estimated to raise £12.7bn over 5 years.
Takeaway: Clients with non-dom status are probably already preparing for significant changes. We should expect enquiries about the new residence-based system and alternative planning to mitigate the impact of the abolished non-dom benefits.
State Pension Triple Lock
The triple lock is a policy that increases the UK state pension each year based on the highest of three measures:
- Inflation: Based on the Consumer Prices Index (CPI) for the previous September.
- Average earnings: Based on the average increase in total wages across the UK for May to June of the previous year.
- 5%: A minimum increase of 2.5% .
The triple lock was introduced in 2011 by the coalition government with the intention of protecting the real incomes of pensioners by increasing the state pension in line with inflation. If wage growth is higher than inflation, the triple lock ensures that pensioners share in the economic prosperity. If both inflation and wage growth are low, the state pension still increases by 2.5%.
In today’s Budget, the Chancellor confirmed that the triple lock will be staying in place. In addition, she announced that state pension payment rates will rise by 4.1% for the 2025/26 year.
In relation to Pension Credit, the Chancellor said that the Standard Minimum Guarantee would also rise by 4.1% from April 2025, meaning an annual increase of £465 in 2025-26 in the single pensioner guarantee and £710 in the couple guarantee.
Over 12 million pensioners will benefit from this, as the full new State Pension will rise from £221.20 to £230.25 a week, providing an additional £470 a year, while the full basic State Pension will increase from £169.50 to £176.45 per week, worth an extra £360 annually.
The administration of Pension Credit and Housing Benefit will be brought together for new claimants from 2026. This is 2 years earlier than previously planned, and will support more people to receive the benefits to which they are entitled.
Insight: This policy provides greater predictability in pension planning, but clients with state pensions and limited other income sources may need reassurance in light of inflation and cost-of-living increases.
Carer’s Allowance
The current allowance for carers is £81.90pw. The Chancellor announced that, from April 2025, they will be raising the Carer’s Allowance to the earnings limit equivalent of 16 hours at the National Living Wage per week. This will be worth an additional £45 a week, making over 60,000 carers eligible for support, and helping carers to balance work and caring responsibilities. It will also mean that carers will be able to earn over £10,000pa whilst receiving Carer’s Allowance.
This is the largest ever increase to the earnings limit and provides certainty for carers with a commitment that the earnings limit will increase with the National Living Wage in the future.
The Chancellor also confirmed there would be an independent review into how overpayments are dealt with.
Income Tax
Reassuringly, the Chancellor confirmed there would be no increases in income tax, VAT, or National Insurance contributions for employees.
In addition, she also announced that there would be no extension of the existing freeze on income tax thresholds after 2028.
Final Thoughts
With wide-reaching changes to tax rates, inheritance policies, and relief thresholds, private clients will likely need comprehensive advice on structuring their estates, investments, and tax strategies. As practitioners, staying informed on these Budget updates is crucial to effectively navigate clients through this evolving landscape and position them to manage new tax implications.
If this all feels far too overwhelming and you simply want to drown your sorrows, you can be encouraged by the fact that there will 1p off a pint of real ale when you get to the pub!
If you would like to discuss wealth planning or issues relating to inheritance and tax strategies, please book a free initial consultation with one of our experience private wealth lawyers by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or by completing our Free Online Enquiry Form.
