Rachel Reeves' first Budget as Chancellor has had the rumour mill in overdrive as she strives to fill a blackhole in the public finances. The biggest single measure designed to address that blackhole was a 1.2% increase in the rate employer NICs. Many of the rumoured changes, such as a return of the pension’s lifetime allowance and a cap on pensions tax-free cash failed to materialise which is good news for clients. However, there are a number of tax raising measures which clients will need to be aware of.
This was clearly going to be a challenging Budget, with the Chancellor seeking to address the nation’s funding gap, while at the same time trying to shore up public services and encourage economic growth. It is yet to be seen exactly how the changes announced today will affect businesses in practice, and how their response plays through to employment and wages. Hopefully, however, the most immediate and pressing decisions on taxation and public spending have now been made, and there will be some stability and certainty for both businesses and households in the years ahead.
We have set out some brief highlights below:
Income Tax
The personal allowance will remain at £12,570, and this is frozen until 2028.
The rates for the UK (excluding Scotland) will remain at:
This was clearly going to be a challenging Budget, with the Chancellor seeking to address the nation’s funding gap, while at the same time trying to shore up public services and encourage economic growth. It is yet to be seen exactly how the changes announced today will affect businesses in practice, and how their response plays through to employment and wages. Hopefully, however, the most immediate and pressing decisions on taxation and public spending have now been made, and there will be some stability and certainty for both businesses and households in the years ahead.
We have set out some brief highlights below:
Income Tax
The personal allowance will remain at £12,570, and this is frozen until 2028.
The rates for the UK (excluding Scotland) will remain at:
- Basic tax rate 20% on first £37,700 over the personal allowance.
- Higher rate 40% on earnings over £37,700 plus personal allowance.
- Additional rate 45% on earnings over £125,140.
National Insurance
Employer National Insurance
Class 1A and 1B employer National Insurance contributions from 6 April 2025 will be increased from 13.8% to 15.0% on earnings over £5,000.
The Secondary Threshold, from which employer contributions start to be paid, will reduce from £9,100 a year to £5,000 a year.
The Employment Allowance, which allows employers who pay less than £100,000 in National Insurance contributions to reduce their National Insurance bill, will increase from £5,000 to £10,500 from 6 April 2025.
Pension death benefits
There is normally no inheritance tax on death benefits if the choice of beneficiary is the scheme administrator’s, using their powers of discretion. From 6 April 2027, inherited pension death benefits will be subject to inheritance tax regardless of who chooses the beneficiaries.
State Pensions
The Government is keeping the triple lock. The Basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2025 by 4.1%, in line with earnings growth in September 2024.
- The new State Pension will rise by £474.85 to £12,016.75 a year
- The Basic State pension will rise by £361.40 to £9,175.40 a year
Inheritance tax
The nil rate band (£325,000) and the residential nil rate band (£175,000) will remain frozen until April 2030.
From 6 April 2026, an individual will be able to leave combined business and agricultural assets to their loved ones of £1million without an Inheritance tax liability, with any excess being taxed at 20%.
If you have any questions regarding impact of the recently announced changes on your estate get in touch with us to discuss this in more detail.
Mark DipPFS & BsC (Dual Honours)
Haverfords Director
