The long-awaited budget that threatened to stifle UK growth and entrepreneurial aspiration has been delivered.
Coverage in the run-up to the budget was punctuated by concerns about tax changes and fears that Labour would damage the investment community and the ‘non-working’ person, whoever they might be.
These fears have been realised in a raft of measures constituting a tax raid on the UK’s risk-takers responsible for driving the economy.
We present the highlights below.
Tax
In total, this budget increased taxes by £40bn.
Labour has targeted higher earners, investors, and entrepreneurs by increasing Capital Gains Tax, modifying tax relief on AIM shares, and bringing pensions into inheritance tax. The non-dom tax status will be abolished from April 2025.
Capital Gains Tax
Investors are being punished by an increase in Capital Gains Tax from 10% to 18% for the lower rate and up to 24% for the higher rate.
“The change is a blow for investors. This could have been worse, with suggestions of a doubling of the rate, but it’s scant consolation for anyone hit with a bigger tax bill,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
“This doesn’t just affect those who are hit with a far bigger bill, it also makes investment less attractive for newcomers who don’t want to have to get to grips with a new tax risk. Already far fewer people in the UK invest than elsewhere in the world, and this could compound the problem. For existing investors, there’s a danger this will drive investor behaviour, and people will focus on tax considerations, rather than the investments that make the most sense for their circumstances. There’s also a danger they may hoard the assets – possibly until their death.”
Inheritance Tax
Those who have saved all their life to pass on the reward of their hard work will now pay more to the government. As asset prices rise, more people will be dragged into paying the tax with thresholds frozen until 2030.
Pensions will now be subject to IHT under new rules.
“It is good to have clarity on Inheritance Tax nil rate band (NRB) continued freeze, although this will bite as more estates fall into the IHT brackets. The exposure of inherited pensions to IHT will reduce the attractiveness of pensions as a wealth transfer tool, changing the landscape for pensions,” said Craig Ritchie, Partner at GSB Wealth.
Business tax
National Insurance for Employers will be increased to 1.2% and the threshold will be lowered to £5m. Offering some form of positivity, corporation tax will be frozen.
“The UK stock market has lost many great companies in recent years. Some have been bought out by overseas buyers who were taking advantage of weak sterling and an out-of-favour-market,” said Rachel Winter, Partner at Killik & Co.
“Others have moved abroad voluntarily, seeking access to greater numbers of investors and more business-friendly environments. While today’s increase in employer NI contributions is a blow, the freezing of corporation tax rates is welcome news. The FTSE 250, which is a much more UK-focused index than the FTSE 100, has risen during the Budget speech.”
AIM shares
In the run-up to the Budget, potential changes to the tax treatment of shares with business property relief have rocked London’s AIM market. The chancellor has targeted AIM by implementing a 50% inheritance tax relief instead of the complete abolishment some feared. The AIM market soared on the news.
“London has long been a hotbed for exciting companies seeking to raise capital and scale their companies. By announcing 50% IHT relief for AIM shares instead of altogether abolishing relief, the government has signalled its intention to make the UK a favoured destination for global growth companies to list,” said Dr Clifford Gross, CEO of Tekcapital.
“Fears of damaging changes to the tax incentives available to AIM companies have proved overblown. Despite tax incentives encouraging estate-planning investors to invest in AIM companies, good quality growth companies will attract investor pounds over time, enabling them to maximise their potential.”
Housing and Construction
Labour announced several measures in the run-up to the budget, one of which was £500m for social housing, part of a broader £5bn package for housebuilding.
Housebuilding shares liked the news with Persimmon, Vistry and Barratt Redrow rallying on the news.
Vistry, who works closely with housing associations, rallied over 3%.
“Support for social and affordable housing is vital if the government is to achieve its target of building 1.5 million homes during this parliament,” said Kevin Limn, CEO of Adsure Services.
EIS & VCTs
Good news for the venture capital industry. The chancellor has committed to EIS and VCTs until at least 2035. EIS incentivises investors to invest in early-stage companies, including 30% income tax relief and complete relief on IHT and CGT if held for three years.
Wages
As announced before the Budget, Labour will increase the minimum wage by 6.7%. to £12.21 per hour for over 21s.
Growth
The UK economy is expected to grow 1.1% in 2024, faster than predicted.
Post Office scandal
The chancellor has set aside over £1.8bn to compensate those impacted by the Post Office software scandal and £11.8bn for victims of the infected blood scandal.