The Budget Analysis

Corporate tax roadmap

There was some positive news from the chancellor, in that she has given some stability for business owners in respect of corporation tax in the form of her ‘corporate tax roadmap’. This is really welcome and gives us all some certainty in terms of planning for the next five years.

For the duration of this parliament, this is the promise.

• The current rates of corporation tax and the thresholds that apply will remain fixed. The first £50,000 of taxable company profit will continue to be taxed at 19%. The marginal rate of 26.5% will continue to apply for profits between £50,000 and £250,000 and then a flat rate of 25% beyond £250,000.

• Whilst this is broadly welcomed, bear in mind that there is a stealth element to this; it would have been nice to see the £50,000 and £250,000 limits increased annually in line with inflation, for example. But – beggars can’t be choosers and it could have been a lot worse!

• The capital allowances regime will be maintained in its current form for companies investing in fixed assets.

• For companies innovating, R&D tax relief and Patent Box relief will continue at their current rates.

Important things that DIDN’T change – which had been feared!

• There was no re-introduction of a lifetime limit on the amount you can put into your pension.
• There was no change to the rules on making a 25% tax-free drawdown from your pension pot.
• Higher rate taxpayers continue to get 40% tax relief on personal pension contributions.
• You’ll continue to be able to put up to £60,000 a year into your pension.
• You’ll continue to be able to use up the previous three tax years’ pension input limits (making up for not using the allowance in the three previous years) – there had been fears that would stop.
• There was no imposition of employer’s national insurance on company pension contributions – that would have been a real blow for business owners who look to reduce their company’s tax liabilities by making significant payments in to pensions.
• There was no change to the personal tax rates for dividends (which continue to be 8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate taxpayers.

National living wage up from April 2025

The Chancellor announced a pay increase for millions of minimum wage workers as the hourly rate was increased by an inflation-busting 6.7%.

This significant rise in the national living wage (NLW), taking effect from from April 2025, will be worth £1,400 for a full-time worker over the age of 20, taking their annual salary to £23,810 before tax. The 6.7% increase is over three times higher than the most recent inflation figure, which fell to 1.7% in September.

Additionally, the national minimum wage (NMW) for those aged between 18 and 20 years will rise by £1.40 an hour – the largest increase in this rate ever, as Labour intends to combine minimum wage and living wage over time. The minimum wage for 18 to 20-year-olds is currently £8.60 an hour, rising to £10. In total this will be adding £2,500 to the annual salary of a full-time worker in this age range.

From 1^st April 2025:

NLW (age 21+)       £12.21

18-20-year olds     £10.00

16-17-year olds       £7.55

Apprentices              £7.55

Employer’s national insurance; generally bad news – but a positive for employers with just a few staff

The rate of employers’ national insurance will rise by 1.2% (from its current 13.8% to 15%) from April 2025. In addition, the secondary threshold (the point at which employers start to pay national insurance) will be cut from £9,100 to just £5,000.

Let’s take the example of a member of staff on an annual salary of £30,000. At present, the employer has to pay national insurance of 13.8% on everything in excess of £9,100 – so:

13.8% x (£30,000 – £9,100) = £2,884.

From next April, the employer’s NI payable will be:

15% x (30,000 – £5,000) = £3,750.

So that’s an increased cost to the employer of £866. However, the £866 does attract corporation tax relief – so, assuming the company is paying corporation tax at 25%, the true (after-tax) cost is about £650.

Now, there is a small silver lining for companies with only a small number of employees. You’ll be aware that, at present, your company gets an exemption from paying over the first £5,000 of employer’s NI each tax year. It’s known as the employment allowance. That exemption is going to be £10,500 per annum from April 2025 (so for tax year 2025/26).

Returning to our example, above. Let’s assume that your company only has three people on the payroll, all on salaries of £30,000. The total employer’s NI for them for the year under current rules would be 3 x £2,884 = £8,652. But your company would only need to pay £3,652 to HMRC because of the £5,000 exemption, courtesy of the employment allowance.

Under the new rules from next April, the total employer’s NI for those three staff for the year would be 3 x £3,750 = £11,250. But the higher employment allowance, exempting the first £10,500 of employer’s NI for the year would mean you only having to pay £750 to HMRC – saving £2,902 on the current payment of £3,652.

So, as you can see, with a small number of employees, the benefit of the higher employment allowance more than outweighs the increase in the 13.8% rate to 15% and the reduction in the secondary threshold from £9,100 to £5,000!

Employer’s NI relief for veterans extended

The government has extended the relief for employers hiring armed forces veterans for a further year (at least) until 5^th April 2026. This means no employer’s NI on the first £50,270 of a veteran’s earnings for their first year of employment.

Capital gains tax up – but not by as much as had been feared

The lower and higher rates of capital gains tax (CGT) have been increased from 30 October 2024 (i.e. with immediate effect) – except for CGT payable on the sale of properties.

For property owners (with buy-to-let landlords in mind here), the CGT rates remain unchanged – 18% for basic rate taxpayers and 24% for higher rate taxpayers.

For other assets (e.g. quoted shares), the 10% (basic) rate rises to 18% and the 20% (higher) rate goes to 24%.

So, it’s 18% and 24% for everything now. Well, with one exception……

Capital gains tax on the sale of your business

If you sell your business, you’ll be looking to benefit from business asset disposal relief (BADR) – what used to be known as entrepreneur relief. This allows you to pay just 10% CGT on the first £1m of your gain – with the rest of the gain being taxed at the normal CGT rate (which was 20% until 29^th October, but will now be 24%).

From 6^th April 2025, the 10% rate will rise to 14% and, from 6^th April 2026, to 18%. So, if you sell your business for £3m after 6^th April 2026, and assuming you’d paid nothing to buy the business (i.e. let’s assume the whole of the sale proceeds is the ‘gain’), you’ll pay CGT as follows:

First £1m @ 18%   = £180,000

Next £2m @ 24% = £480,000

Total CGT payable = £660,000

Until 29^th October, that calculation would have been:

First £1m @ 10%   = £100,000

Next £2m @ 20% = £400,000

Total CGT payable = £500,000

So, in just under eighteen months’ time, it will cost you an additional £160,000 in CGT out of your £3m disposal proceeds. Whilst this sounds bad, there had been fears that the £1m limit for BADR would be taken away completely, leaving pretty much all of the gain being taxed at 24%.

Investor relief limit reduced

I have done a blog article on investor relief which you may want to take a look at on the EBA website. Broadly, IR is available on gains made on disposal of shares in a qualifying unlisted trading company where an individual who made the gain subscribed for the shares and is neither an employee nor a paid director of a company. It’s a form of tax relief available in certain circumstances where BADR isn’t – and, until now, has offered a generous 10% rate of CGT on the disposal of shares up to a lifetime limit of £10m of gains.

The chancellor announced that the lifetime limit for investor relief will drop from £10m to £1m (in line with BADR) and that the generous 10% CGT rate will rise, just as for BADR, to 14% from 6^th April 2025 and then to 18% from 6^th April 2026.

Inheritance tax (IHT)

The nil-rate band of £325,000 and the main residence nil-rate band of £175,000 will remain frozen until at least 5^th April 2030 – a two-year extension to the current freeze. So, it will still be possible for a couple (who would each have their own nil-rate bands) to have an estate of £1m between them without there being any IHT liability.

But, in a new move, most pensions savings and death benefits will fall within a person’s estate for IHT purposes from 6^th April 2027. Currently, pensions lie outside the estate and are not subject to IHT. However, a consultation launched on 30^th October makes it clear that all life policy products purchased from pension funds, or alongside them as part of a pension package offered by employers, will not be subject to these new rules. We’ll keep you informed on this when we know more.

IHT on your business

Currently, a form of IHT relief known as business property relief (BPR) gives an exemption to IHT on the value of your business (or shares in your business); that exemption is uncapped, so you could die and pass on your shares worth (say) £5m and there would be no IHT to pay.

But, from 6^th April 2026, only the first £1m will qualify for 100% BPR with the rest being given BPR of 50%. So, in my example above, there would be no IHT to pay on the first £1m but, on the remaining £4m, only £2m (50%) of it would get BPR – with the other £2m being subject to 40% IHT. So, that’s going to cost your beneficiaries £2m x 40% = £800,000.

IHT on AIM shares

For those owning shares listed on the AIM (alternative investment market), there will no longer be 100% BPR. From 6^th April 2026 they will only qualify for 50% BPR.

Higher interest on overdue taxes

As part of measures to clamp down on slow payers, the chancellor said that HMRC will have the power to increase even further the rates of interest they charge. The current HMRC rate on late payment is 7.5%, which is 2.5% over the bank rate, but the plan will see HMRC interest rates imposed at 4.0% over base from 6^th April 2025. That means an increase from the current 7.5% to 9.0%. At that rate, it’s worth looking at other forms of funding (e.g. a loan) to pay off overdue tax liabilities – if you can get a better rate than that charged by the bank of HMRC!

De-frosting of income tax thresholds – but not just yet!

Income tax thresholds frozen by the previous government in 2021 (until 2028) have been’ de-frosted’ from the 2028/29.

The personal tax thresholds for income tax and national insurance will rise in line with inflation in 2028/29 for the first time since the 2020/21 tax year, finally easing the dreaded ‘fiscal drag’ which is pulling millions of people into paying tax for the first time and nearly one million taxpayers in to higher rate tax.

However, for now, the personal allowance remains at £12,570 and the higher rate tax threshold stays put at £50,270. The additional rate continues to kick in at £125,140.

Stamp duty land tax (SDLT) on residential properties

The chancellor confirmed that the temporary rates of SDLT announced by the previous government in 2022, will end on 31^st March 2025. So, from 1^st April 2025:

• The residential nil rate band will revert to £125,000. 
• The First-time Buyers’ Relief nil rate band will revert to £300,000. 
• The maximum transaction value for First-time Buyers’ Relief will revert to £500,000.

There is expected to be a rush to get deals over the line before the end of March!

Stamp duty land tax (SDLT) on second homes and buy-to-lets

The Chancellor has not wasted any time increasing SDLT for second home buyers, buy-to-let landlords and companies buying residential property. It rises from 3% to 5% with effect from 31^st October 2024. The increased rate won’t apply where exchange of contracts took place before 31^st October.

So, although the fact that the 24% rate of CGT remaining unchanged for buy-to-let sales is highly welcome for property investors, the cost of expanding their portfolio will rise through the increase in SDLT.

The chancellor’s thinking behind this, apparently, is to give first-time buyers a ‘competitive edge’ in the property market over buy-to-let investors.

SDLT on purchases of properties over £500,000 by limited companies will be increased from 15% to an eye-watering 17% as from 31^st October 2024. Again, if exchange of contracts has taken place before 31^st October, the 15% rate will apply.

Zero-emission electric cars – 100% tax relief extended by a year

100% first-year tax allowance for the purchase by a company of an electric car (which was due to end on 31^st March 2025) has been extended until 31^st March 2026. It’s only by a year, but maybe this is something that’s now going to be done on a year-by-year extension basis. So, get that corporation tax liability under control by looking seriously at an electric company car fleet!

The 100% tax relief also continues to be available on the cost of installing electric charging points at the workplace. Again, this could potentially end on 31^st March 2026 unless extended again.

Double Cab Pickups (DCPUs)

The treatment of Double Cab Pickup (DCPU) vehicles with a payload of one tonne or more will change, with these vehicles to be treated as company cars (previously these could have been treated as commercial vehicles for tax purposes). This will hugely increase the personal tax cost for the driver of a company DCPU.

However, this costly income tax impact will only apply for DCPUs ordered on or after 6^th April 2025. If your company already has a DCPU, or orders one by 5^th April 2025, the driver will continue to be taxed on it as if it was a commercial vehicle (van) rather than as a car (which is much costlier). They will continue to be taxed on it as if it was a commercial vehicle until 5^th April 2029 (unless, of course, the vehicle is sold or the lease expires). If they’re still driving it on 6^th April 2029 (into the 2029/2030 tax year), then they’ll be taxed on it as if it was a car.

Also bear in mind that, with DCPUs currently classed as commercial vehicles, your company gets 100% corporation tax relief in the year of purchase. That will stop for company purchases of DCPUs from 1^st April 2025. So, if your company is looking to buy a DCPU, get on with it now and do it by 31^st March next year!

Company van benefit-in kind (BIK)

For those directors and employees driving company vehicles that do qualify as ‘commercial’, from 6^th April 2025 they will be taxed on £4,020 each year rather than on £3,960.

Company car benefits-in-kind (BIK)

There’s a reasonably significant increase on the horizon for drivers of company cars – particularly electric and hybrid cars. We already knew the rates up to 2027/28, but the government has now published figures for 2028/29 and 2029/30. A full list of all the rates we know about is given below.

Taking a fully-electric car with a list price when new of £50,000, in the current tax year (2024/25), the company car driver will be taxed on £50,000 x 2% = £1,000. So, as a 20% taxpayer the driver only pays £200 a year in income tax for the privilege of having the car. By 2029/30, that same driver would be paying tax annually on £50,000 x 9% = £4,500. So, as a basic rate taxpayer it will cost them £900 a year in income tax.

The biggest changes on the road ahead apply to hybrids with a high electric range. In particular, taking a hybrid with an electric range of more than 130 miles and a list price when new of £50,000, the driver is currently taxed on just £50,000 x 2% = £1,000 a year – the same as a fully electric car. By 2029/30 that driver will be taxed on £50,000 x 19% = £9,500 each year. That’s a significant change and one that might make you think twice about ordering a company hybrid car.

ISAs

The government announced that the current annual subscription limits for the Individual Savings Account (ISA), Junior ISA and Child Trust Fund accounts will remain frozen until 5^th April 2030 at: 

• ISA – £20,000 
• Junior ISA – £9,000 
• Child Trust Fund – £9,000

They also announced that they will not proceed with the British ISA due to mixed responses to the consultation launched in March 2024.

High-Income Child Benefit Charge (HICBC)

The government has announced it will not continue with reform to base the HICBC on household income. At present, the charge is calculated as 1% of the child benefit payment made for each £200 of income above £60,000. If a couple lives together, it is the higher earner whose income is currently considered. The government has decided not to introduce the reform as it would have brought an estimated cost of £1.4 billion by 2029/30. 

They also announced that they will allow employed individuals to report child benefit payments through their tax code from 2025 and pre-prepopulate self-assessment tax returns with child benefit data. This will make it easier for taxpayers to get their HICBC right. 

Business rates

For 2025/26, retail, hospitality and leisure properties will receive 40% relief on their business rates liability – up to a cap of £110,000 per business. The small business multiplier will be frozen at 49.9p, with the standard multiplier rising to 55.5p.

VAT on private school fees

We already knew about this, but private school fees will be subject to VAT at the standard rate of 20% from 1^st January 2025.