Wednesday’s budget was not as bad as expected! However it was wide-ranging with some stings in its tail which we have tried to identify for our clients below. It also sets out the plan for the next 5 years of this government in many areas which we welcome.
National Insurance (NI)
The rate of Class 1 NI paid by employers will increase from 13.8% to 15% from 6 April 2025 (at least it’s a round percentage) on annual salaries above £5,000 (rather than £9,100 currently). To compensate, the employer’s allowance has been increased to £10,500 from £5,000 for 2025/26 for all eligible employers with more than one director. However, businesses with large numbers of part-time or lower paid staff will be worst affected and we will reach out separately to help you budget for this increase.
Due to the self-employed NI reduction to 6% from 6 April 2024, we will check all our small limited company clients (particularly with single directors) to make sure it still makes sense to remain limited beyond March 2025.
The Employer NIC relief scheme for employers hiring qualifying veterans of the Armed Forces in their first year of employment in a civilian role will remain until 5 April 2026.
The lower earnings limit will be £6,500 for 2025/26 and the small profits threshold will be £6,845 (the minimum earnings at which entitlements to benefits are given). The voluntary class 2 rate will be £3.50 per week (worth paying if your self-employment profits are below £6,845 to maintain entitlement to state benefits).
All the other National Insurance rates & thresholds remain the same.
Business
No changes to corporation tax rates. A roadmap was published confirming that the current corporation tax rates & thresholds; capital allowances regime (full expensing & annual investment allowance for the first £1m of asset expenditure); and R&D expenditure scheme will be held for the course of this parliament (5 years).
There will be a consultation in Spring 2025 on widening the use of advance clearances in R&D reliefs to provide certainty to businesses on whether their projects qualify, which could prove helpful.
The National Minimum Wage is increasing from £11.44 to £12.21 from April 2025 for over 21s. This represents an increase of 6.7%. The government is gradually trying to remove the lower minimum wage rates for employees aged 18-20 years old which could make employing this age group even riskier, especially given the proposed changes to workers’ rights to immediate unfair dismissal payments. Their wage rate increases to £10 from £8.60.
Electric company car benefit in kind charges have been announced for the next five years as 3% of list price for 2025/6, 4% for 2026/27, 5% for 2027/2028, 7% for 2028/29 and 9% for 2029/2030; thus, retaining the large differential between electric and non-electric cars. Also 100% first year allowances on new electric cars and EV chargers have been extended to 31 March 2026.
Dual Cab Pickups will be classed as cars from 5 April 2025 although existing rules will continue to apply for already purchased vehicles (or vehicles ordered before 5 April 2025) until the earlier of their disposal, lease expiry or 5 April 2029.
The payrolling of benefits will be mandatory from April 2026 and the Pillow May team like to be ahead of the game so will be using the voluntary payrolling system with clients for 2025-26 (more details to follow in February 2025 for relevant employers).
Due to the high level of tax avoidance in umbrella companies, the responsibility for accounting for PAYE and NIC on these workers will move to the agency (or the end client if no agency) from April 2026.
The late payment interest rate on unpaid tax liabilities will increase by 1.5% to 4% over base rate from 6 April 2025 where HMRC are trying to discourage businesses from using them as a source of funding!
The small business multiplier for business rates is being frozen at 49.9p and the retail, hospitality & leisure sector will receive 40% reduction in their business rates from April 2025 (compared to current 75% reduction).
Personal
No change to income tax rates or any other personal tax allowances/thresholds which are all frozen until April 2028 but expected to increase by inflation after that.
Capital gains tax annual exemption (tax-free limit) remains at £3,000 but the capital gains tax rates change with immediate effect to 18% (from 10%) for basic rate taxpayers and 24% (from 20%) for higher rate taxpayers.
Business Asset Disposal Relief and Investors’ Relief have both been preserved at a lifetime limit of £1m and the capital gains tax rates payable will increase to 14% for disposals made on or after 6 April 2025 and 18% from 6 April 2026 onwards (based on the disposal completion dates for any contracts entered into between 30 October 2024 to 5 April 2026).
Pension funds which have not been drawn down or converted into annuities will be included within an individual’s estate for inheritance tax purposes from April 2027. It would be worth ensuring that you have withdrawn your 25% tax-free lump sum from your pension before that date.
The intention to base the clawback of Child Benefit on HOUSEHOLD income from 6 April 2026 has been cancelled as expected.
The extension of £5k to the normal annual ISA allowance of £20k if you invest in UK equities (“British ISA”) has been cancelled.
Air passenger duty rates will increase by 13% for 2026-27 and by a further 50% for larger private jets.
Private school fees will be subject to VAT from 1 January 2025.
Making Tax Digital for Income Tax will be extended to sole trader and landlords with income over £20,000 by 2029 (precise timetable to be announced). However, if you already use FreeAgent to keep your records then this won’t really effect you.
Property
Stamp duty land tax is increasing from 3% to 5% for those buying second homes or companies purchasing land & property in England & Northern Ireland. Stamp duty of 17% is payable on any residential property worth over £500,000 purchased by a company for non-commercial purposes. Non residents continue to pay a supplement of 2%.
No extension was announced to the nil rate band extensions currently in place for stamp duty land tax so the nil rate band will decrease to £125,000 (£300,000 for first time buyers) from 1 April 2025.
There are no longer separate higher capital gains tax rates for residential property disposals (although the 60 day reporting any payment deadline still remains).
The capital gains tax rate payable for arrangements entered into before 30 October 2024 will be dependent on the date of completion of the contract, rather than the date of exchange of contract. However, the date of exchange of contract will be used for Stamp Duty Land Tax!
As previously announced, the tax advantages on Furnished Holiday Lets are being removed from 6 April 2025. We will talk to all our clients with Furnished Holiday Lets in the next couple of months to find out their future plans and explain the tax consequences.
Significant changes were announced to Agricultural Property Relief (on land & property used for agricultural purposes) and Business Property Relief (on business assets and shares in unquoted trading companies) from April 2026. 100% relief will only apply to the first £1m of value with the remainder getting 50% relief (effective rate of tax of 20% payable).
There were no changes announced for potentially exempt transfers (still Inheritance tax (IHT) free if the donor survives 7 years) or capital gains tax holdover relief for trading and agricultural property. Therefore, it may be worth considering lifetime gifts of these assets although the IHT relief on the gift will be based on IHT rates in force at the time of death (if after 6 April 2026) not the time of gift (if on or after 30 October 2024).
AIM shares will only qualify for 50% relief from April 2026.
