Chancellor Rachel Reeves has delivered her first Budget, with a range of tax changes that could affect personal financial portfolios. Here are the key changes and what you need to know for the end of the tax year.
Labour’s first Budget since 2010 has finally arrived. Rachel Reeves spoke for more than an hour announcing major tax changes, investment plans and tweaks to Government borrowing.
The wider implications of the Chancellor’s tax raising measures are mooted to include a 0.4% increase in inflation according to the OBR, and a 0.25% bump up in interest rates.
These are largely modest given the major spending, borrowing and taxation commitments Reeves announced. But what about specific measures that could affect our end of year tax plans?
Key measures
1. Capital Gains Tax
The Government has hiked capital gains tax (CGT) rates from 10% to 18% for lower earners and from 20% to 24% for higher earners. The current tax-free allowance of £3,000 remains untouched.
This stops short of proposals to equalise CGT with income tax. Rachel Reeves said in her speech that just 1% of taxpayers face a CGT bill each year, and the new rates leave the UK still competitive compared to our G7 peers.
In terms of the end of the tax year the most important consideration here is to ensure that you maximise your allowances. This goes beyond just the CGT allowance – pensions and ISA allowances remain unchanged. Housing assets within these vehicles, where possible, can mitigate some of the effects of CGT and can provide valuable protection from extra liability.
2. Pensions inheritance exemption
Inherited pensions will fall under inheritance tax (IHT) rules from April 2027. From then the total value of pensions will be added to a person’s estate for IHT purposes and could significantly increase net estate values for some with large pension holdings.
Alongside this, Rachel Reeves announced that the main IHT allowances of £325,000 per person, and £175,000 including main residence, will remain unchanged until 2030. This will perpetuate ongoing ‘fiscal drag’ for estates which tip into liability for the tax. The allowances have been unchanged since 2009.
Although this change is potentially an issue for those who have planned to use their pensions to minimise IHT liability, the good news is that the plans are still more than two years away from implementation, and are subject to a consultation to iron out the details of the policy.
Like with CGT, it is important to consider where the best place for assets and other money is in light of these changes, and to ensure annual allowances are maximised.
3. Other changes
The changes above are the most directly salient for long-term financial planning, but there have been other changes too that can impact our end of year planning. Those include:
Income tax: The income tax band freeze will end in 2028, returning to inflation-linked increases moving forward. This is positive as income increases will be punished relatively less and could allow for greater saving potential
Stamp Duty: The stamp duty surcharge on second homes or holiday lets was hiked from 3% to 5%, effective immediately from the day after the Budget. unfortunately this means any second home owners looking to sell were more or less immediately exposed to higher tax liabilities.
School fee VAT: The private school VAT implementation was confirmed from January 2025. Although this comes ahead of the new tax year, it is a good idea to consider as soon as possible any adjustments that need to be made to accommodate potential increases in costs if you’re paying a child’s school fees.
End-of-year tax planning
While the measures in the Budget are perhaps not as dramatic as initially feared, it is clear there will be some impact on long-term personal financial plans.
In particular, fresh considerations should be made around CGT and IHT as these are the two tweaks that most directly affect portfolios.
For CGT it is important to ensure the allowance is being maximised each year.
The change to pensions inheritance rules creates new complications and should be considered more carefully in consultation with a financial adviser. Get in touch if you would like to discuss your options.
