The inaugural budget from Chancellor Rachel Reeves was delivered with the anticipated objective of increasing investment in public services while seeking to ensure stable public finances.
Key to funding the increased public expenditure are the rises in employers’ national insurance and changes to the wealth taxes:
National Insurance
Employers face a 1.2% rise in National Insurance contributions, with the rate increasing from 13.8% to 15.0% at the start of the new tax year in April 2025. In addition, the rate at which employers start to pay NIC on employees’ annual earnings is reduced from £9,100 to £5,000. The impact on the smallest businesses has been partially offset through an increase in Employment Allowance from £5,000 to £10,500 per year.
The Treasury is forecasting that the increase in employers NIC will contribute c.£25bn towards the total £40bn requirement for new public spending goals, although the expected drag on wage growth and likely increases in unemployment from these budget changes raise doubts as to the true net outcome.
Capital Gains & Inheritance Tax
The Chancellor announced an increase in capital gains tax rates, raising the basic rate from 10% to 18% and the higher rate from 20% to 24%. Additionally, the government will extend the freeze on the inheritance tax threshold, keeping the tax-free allowance at £325,000 until 2030.
Previously, unquoted investments, including shares in companies traded on AIM could be inherited tax-free if held for two years. Under the new rules such investments will now attract a 50% inheritance tax relief, offering some respite to UK small-cap investors who feared relief might be entirely abolished.
Russell Cook, Head of Corporate Finance at Dowgate Capital commented:
“The UK Budget has provided investors with a degree of certainty, enabling them to now plan for the future under the new Government. One of the highlights was the decision to retain a 50% inheritance tax relief on AIM shares, which has avoided a further sell down of AIM stocks and retains one of the key attractions of the AIM Market.”
