Budget Update

After months of speculation and worry we finally know what taxes will be increased to try and fix the country. We also know what the definition of a working person is, enlightening for many, I’m sure! Despite the months of endless speculation and raft of changes announced, Reeves fell far short of taking the award for the longest budget ever speaking for ‘only’ 79 minutes (Gladstone in 1853 took a whopping 4 hours 45 minutes!)  about how she proposes to fix broken Britain. I’ll cover off the main announcements in the budget and try and provide some analysis where possible. As you’ll appreciate, there is a lot to digest and consider, and for a fuller analysis we’re hosting a budget webinar on Friday 1^st November at 10am (link here Webinar Registration – Zoom), and will also be providing further written commentary over the coming weeks. Conversely, please feel free to pick up the phone to us if you have any specific questions.

Tax Rises

Capital Taxes

• CGT rates – The lower rate increased from 10% to 18%, and the higher rate from 20% to 24%. CGT rates for property will stay the same at 18% and 24% for basic and higher rate taxpayers respectively. Effective immediately. Not as bad as people feared.
• BADR(Entrepreneurs relief) – The allowance remains at £1m, but the rate of tax increases to 14% from 6^th April 2025, and 18% from 6^th April 2026. This is clearly bad news for small business owners, with a potential £80k tax hit from April 2026 onwards.
• IHT – Reeves extended the allowance freeze to 2030 from 2028. That is, the £325k allowance and the potential £175k residential nil-rate band remains in place until 2030.
• IHT/Pensions – Pensions will now fall into a person’s estate as of April 2027. This is a huge change for pensions and will be incredibly complicated to implement. The devil will be in the detail.
• Business/Agricultural Property Relief – From April 2026 BR/APR will only apply to the first £1m of assets, in addition to the usual allowances. Thereafter, 20% tax will be levied. The AIM market which currently attracts BPR will attract a tax of 20% in all circumstances. These are dreadful policies which will significantly impact business owners and farmers, and lead to lasting economic damage.
• Carried Interest (Private Equity) – A new CGT rate of 32% will apply from April 2025.

Employment Taxes

• Employers’ National Insurance will increase from 13.8% to 15% from April 2025.
• Not a tax per se but minimum wage is set to rise by 6.7%, £12.21 per hour, and a single adult rate phased in over time.
• This causes a huge amount of pressure for businesses. Small businesses account for 61% of total UK employment and it really feels like they’re being targeted disproportionately in this budget.

Property Taxes

• Stamp duty – The surcharge for stamp duty on additional dwellings will increase by 2% to 5%.

Changes to definitions of debt

• Moved to Public Sector Net Financial Liabilities (PSNFL) from Public Sector Net Debt (PSND). Moving to PSNFL includes a wider range of government assets, thus enabling greater borrowing. This provides an extra c.£50bn of additional firepower for long-term investment as opposed to day-to-day expenditure. Our self-imposed fiscal rules have always been a bit too rigid and short-term in nature. This is a sensible move from the Chancellor, assuming the investments are reasonable, and projects are managed carefully.

Market reaction

• UK Government Bonds – Price have fallen and the yield on the 10-year gilt has risen from 4.2% to 4.39%. Not the biggest sign of confidence and quite damaging.
• FTSE 100 – Down 0.60%. Not the biggest fall and we’re seeing a rotation into smaller more domestically orientated UK stocks.
• FTSE 250 – Up 1.1%. Housebuilders, construction and infrastructure are rallying. Enjoying the vast amounts of investment to come over the coming years.
• AIM 100 Market – Up 4.3%. Whilst IHT will now be levied at 20% on AIM shares, it’s better than feared and we’re seeing a relief rally.
• Sterling – Strengthened somewhat, 1.20 against the Euro and 1.302 against the Dollar

The budget raises c.£40bn in total, which appears to be the largest amount of tax rises to have ever occurred in a budget. Overall, whilst many would agree that the country needs investment and reform, a number of the revenue raising measures have the potential to cause significant economic harm. There is a lot of detail to work through, but the main areas of concern are around costs for small businesses, the exemptions for IHT (including pensions become liable for IHT), and increases to the rates of capital gains taxes. The positive is that a significant amount of money will be directed towards investing in the economy and infrastructure. Please reach out to your usual contact at BRI if you have any questions.

Dan Boardman-Weston
Chief Executive

30/10/24