In what must be one of the most anticipated Budgets in many years, the UK’s first female Chancellor Rachel Reeves brought forward a host of announcements in her speech, the first for a Labour-led government in more than 14 years.
The strict commitment not to increase rates of Income Tax has been upheld, and in a welcome surprise, the freezing of the personal allowance and thresholds at which the higher and additional rates of tax become payable has not been extended and will conclude in line with the timeline introduced by the previous Government. The freezing of thresholds contributed to the “fiscal drag” felt in recent years, whereby more individuals are brought into higher rates of income tax with wage inflation. As such, the timeline for an uplift in the thresholds from 2028/29 onwards provides some benefit, albeit a few years away.
In the context of National Insurance Contributions (NICs), the Chancellor has trodden a fine line, confirming no increase in employee NICs (which is borne by employees), but with employer NICs increasing by 1.2% to 15% from April 2025 and the threshold at which it becomes payable dropping from £9,100 to £5,000, representing an incremental cost for employers. Time will tell whether this additional cost to businesses has a negative impact on wages or general levels of employment here in Northern Ireland. Combined with the increases in national minimum wage which will take effect from April 2025 (£7.55/hour for apprentices and 16-17 year olds, £10.00/hour for 18-20 year olds and £12.21 for all others), these measures could increase wage bills significantly. There was, however, some reprieve with the Employment Allowance for employer liabilities increased from £5,000 to £10,500, which combined with the removal of the £100,000 employer NIC threshold will allow more local employers to benefit.
In terms of Capital Gains Tax (“CGT”), the Labour manifesto had only indicated their intent to act in respect of carried interest (a form of remuneration for fund managers and private equity investors) which it has actioned by increasing the rate to 32% from April 2025 and statement of intent to bring it fully within the Income Tax regime from April 2026. Until the detailed provisions are received, it is not clear exactly how this will operate and the potential impact on availability of private capital for investment in business, which has become increasingly important to growing businesses in Northern Ireland, will take longer to clarify.
More generally, rates of CGT had been predicted as in the Chancellor’s sights and these have been increased, with the lower rate increasing from 10% to 18% and the higher rate from 20% to 24% from today. While it is positive that reliefs such as the principal private residence relief are unchanged, so the sale of family homes will typically stay outside the charge to tax, the changes to business tax reliefs could have an impact on business owners here.
Business Assets Disposal Relief (formerly Entrepreneur’s Relief) which is available to certain business owners disposing of their business has been maintained with a lifetime allowance of £1 million, but with the CGT rate tax increasing to 14% from 6 April 2025 and to 18% (the main lower rate) from April 2026. CGT rates on Investors’ Relief will similarly rise.
Inheritance tax had also been identified by the Chancellor as an area to be updated. Whilst the nil rate band, which has remained at £325,000 since 2009 is unchanged along with the £175,000 residence nil rate band where property is left to children or grandchildren, both freezes have been extended beyond the original timeline from 2028 to 2030, along with the availability of the unused nil rate band to a surviving spouse. Of greater consequence for those whose estates are likely to bear IHT charges are the changes to the reliefs which to-date have applied on the transfer of business and agricultural assets.
Agricultural property relief (“APR”) and business property relief (“BPR”) will both be reformed from April 2026. 100% relief will continue to be available for the first £1 million of combined business and agricultural assets, with 50% relief thereafter – effectively a 20% IHT rate on valuable assets such as family farms and businesses. The rate of BPR will be reduced to 50% in all circumstances for shares which are not listed, such as AIM shares, which had often been seen as a valuable investment tool for managing inheritance tax. The exemption on the transfer of unused pension pots on death will be withdrawn and these will now form parts of a deceased’s estate from April 2027.
Changes to the taxation of non-UK domiciled individuals (non-doms) had already been announced by the former Chancellor Mr Hunt in the Spring Budget and Labour had indicated their intention to proceed with these provisions, albeit with some changes to the detail. Northern Ireland and the UK more generally have many Irish non-doms, due to the common travel area which allows easy ability to take up residency, so these changes will potentially be of interest to some here in NI. The new regime will introduce residence-based tests from 6 April 2025 with those opting into the regime not paying any UK tax on foreign income and gains for the first four years of tax residence. From the same date, there will be a new residence-based regime for IHT which will include measures to end the use of offshore trusts to shelter assets from Inheritance Tax.
The business tax roadmap narrowed to a corporate tax roadmap; positives are the reconfirmation of the commitment to a maximum 25% rate of corporation tax and maintenance of full expensing and the Annual Investment Allowance, both critical for encouraging capital investment by local businesses, plus the existing R&D reliefs, all of which can encourage further local productivity enhancements and innovation.
Indirect tax changes were minimal; Labour had indicated that they didn’t intend to raise the rate of VAT and they have honoured that commitment. The much-discussed VAT on school fees provisions have been reconfirmed. Fuel duty rates remain frozen for 2025/26. There are some changes to Air Passenger Duty which may impact local holiday makers – £2 more for those flying short haul in economy, with the biggest hikes saved for those in premium and business classes and those travelling by private jets. Those buying additional dwellings (second homes) face an increase in the Stamp Duty Land Tax by a 2% increase in the surcharge, bringing it to 5%.
Overall, for Northern Ireland taxpayers, the Budget represents a mixed set of measures. The fact that there is no immediate increase in taxation for working people will be welcome, but it certainly presents potential challenges for many of Northern Ireland’s businesses and business owners as they grapple with increased wage bills. Some of the measures which withdraw long relied upon reliefs for the transfer of assets, combined with higher CGT rates, have certainly changed the tax landscape substantially and as always, the review of the detail over the coming days will be important.
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