Is Labour’s Budget enough to stimulate growth in the UK?
The first Autumn Budget, delivered by Chancellor Rachel Reeves on 30th October, introduced several measures to reach the government’s goal of raising £40 billion from taxpayers and businesses. We were ready for a painful attack last Wednesday on our assets, taxation and investments. Now that the dust has settled, we can assess what is impacting businesses, particularly concerning capital gains tax (CGT) and associated tax deadlines.
What are the facts on the increase in Capital Gains Tax rates?
The main rates of Capital Gains Tax have increased from 10% and 20% and applies to assets other than residential property and carried interest, to 18% and 24% respectively, for disposals made on or after 30 October 2024.
There is also an increase in the main rate of Capital Gains Tax that applies to trustees and personal representatives, from 20% to 24%, for disposals made on or after 30 October 2024.
The rate of Capital Gains Tax that applies to Business Asset Disposal Relief (BADR) and Investors’ Relief, is increasing to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made, on or after 6 April 2026.
Gains from disposals must be reported and any tax due paid by January 31 following the tax year of the disposal. For disposals in the 2025/26 tax year, the deadline is January 31, 2027.
Increase in National Insurance contributions (NICs)
The Chancellor, in addition to increases in CGT, announced changes to employer National Insurance contributions (NICs) at the start of the next tax year on 6 April 2025. Two of the changes are big tax increases which will affect employers:
Firstly, reducing the secondary Class 1 National Insurance (employer) threshold, from £9,100 to £5,000 per annum.
Secondly increasing the main rate of secondary Class 1 National Insurance (employer) contributions, from 13.8% to 15%.
The Class 1A and Class 1B employer rates, which apply to taxable benefits-in-kind, will also increase in line with this.
As a compensation for the NIC rises, the government are increasing the generosity of the Employment Allowance for smaller businesses. All employers will be able to claim it (not just employers who have incurred an employer NICs liability of less than £100,000 in the tax year prior) and the amount each employer can save will increase from £5,000 to £10,500.
What are the implications for businesses?
The Chancellor stated that “the only way to drive economic growth is to invest, invest, invest”.
Where will private investment come from if businesses are taking the brunt of this budget? It’s the time for businesses to do some strategic planning following the budget announcements. Businesses should review their asset portfolios and consider the timing of disposals, with the aim of optimising tax liabilities and adapt their financial forecasting around the increased rates.
Labour’s biggest tax-raising measures to date, aim to boost tax revenues to support public services, including the NHS, while aligning CGT rates more closely with income tax rates. Raising CGT could result in fewer assets being sold, as investors don’t want to incur a higher tax bill and therefore won’t guarantee the increase in tax revenue that the government is hoping for. What are the options? Some businesses will be looking at cutting hours and reducing pay increases to offset the tax increases, as well as substituting capital for labour which could result in cutting headcount. Many retailers and hospitably sector businesses are already commenting that they will have no option but to increase prices for consumers and reduce employment levels.
The good news is, there is some investment in HMRC to make it more fit for purpose, which is helpful. There is plenty of work to do. We are focussing on how we can help our clients with insights, to build their growth roadmap, to start, run and scale-up businesses in the UK. We are future focused to build our own businesses, to grow and succeed following the budget announcements and reduce the economic harm that we are all facing. Let’s all aim for a positive economic effect for the greater good and ways to unlock more economic growth.