The Financial Times has presented its view on the budget.

It can be seen here (subscription may be necessary) and says that recent UK Budget, presented by Chancellor Rachel Reeves, has introduced substantial tax increases aimed at addressing the country’s financial challenges, particularly affecting the wealthy and businesses. The Budget outlines a £40 billion tax hike, marking the most significant tax increase since 1993, with key measures targeting income, investment, and property.

Key Tax Changes

1. National Insurance and Employment Taxes:
   • Employers’ national insurance contributions will increase by 1.2 percentage points, and the threshold for businesses to begin paying this tax will drop from £9,000 to £5,000. This move is intended to raise revenue from businesses, but economists warn it may lead to reduced wages and higher prices for consumers.
2. Capital Gains Tax (CGT):
   • The lower rate of CGT will rise from 10% to 18%, and the higher rate will increase from 20% to 24%. This adjustment aligns the higher rate with that applicable to property assets. Additionally, the rate for Business Asset Disposal Relief (BADR) will rise from 10% to 14% for disposals made after April 6, 2025, significantly reducing the relief that was previously available to business owners.
3. Inheritance Tax (IHT):
   • The Budget caps relief on agricultural and business property worth over £1 million, reducing the effective IHT relief from 100% to 50% for such assets. The non-domiciliary regime will also be abolished, transitioning to a residence-based system, projected to generate £12.7 billion over five years.
4. Pensions:
   • From April 2027, inherited defined contribution pensions will be subject to both income tax and inheritance tax, reversing previous tax planning strategies that favored these accounts. This could lead to significant tax liabilities for beneficiaries, especially if the deceased was over 75 at the time of death.
5. Property Transactions:
   • The stamp duty surcharge on second homes will increase from 3% to 5%, and for high-value purchases above £1.5 million, the rate will rise to 17%. Critics warn this will reduce the number of available rental properties as landlords may opt for alternative investments instead.

Reactions and Implications

The measures have sparked concern among various stakeholders, particularly small business owners and property investors. Business leaders have expressed worries that the increased tax burdens could stifle hiring and growth. Freelancers using umbrella companies may see their take-home pay decrease as the employer national insurance rise impacts their pay structure.

Investors are particularly troubled by the increases in CGT and changes to inheritance tax, which could diminish the appeal of investing in businesses and assets. Farmers and family businesses are anticipated to face financial strain due to capped reliefs on property transfers, potentially leading to forced sales of assets.

On the residential front, while the increased stamp duty for second homes might benefit first-time buyers by potentially lowering competition from investors, the overall supply of rental properties could tighten as landlords reconsider their investment strategies.

Conclusion

The comprehensive tax measures introduced in this Budget reflect a significant shift in the UK’s fiscal policy, with implications for wealth distribution and business viability. The long-term impact will depend on how these changes affect investment behaviors and the broader economic landscape, especially as the government aims to restore financial stability amid challenging conditions.