UK Budget: A quick summary

By Richard Bowles from the Wealth Planning team at Barclays Private Bank and Wealth Management.

Please note: Barclays Private Bank and Wealth Management does not offer tax advice. Professional advice should always be sought. All numbers quoted are correct at the time of writing.

After months of speculation, the Labour government has finally revealed its tax and spending plans for the year ahead. As many had expected, UK wealth holders are facing higher taxes in the years ahead.

A difficult balance

The challenge for Chancellor Rachel Reeves was how to plug the gap in public finances and invest in the country’s future, having previously pledged not to hike the ‘big three’ taxes – income tax, VAT or national insurance (NI).

After taking office in July, the government uncovered a ‘fiscal hole’ of £22 billion, a figure confirmed by HM Treasury in its public spending audit (but disputed by the Conservative party). The Chancellor subsequently estimated that £40 billion would be needed to cover this shortfall, protect government departments from real-terms spending cuts and build a fiscal buffer.

Here’s a brief overview of the key decisions from one of the largest tax-raising Budgets of recent times.

Capital gains tax rises

Capital gains tax (CGT) rates have been increased with immediate effect. For the sale of most assets, the lower rate has risen from 10% to 18%, and the higher rate from 20% to 24%.

However, there is still no CGT payable on the sale of your main residence. For those with more than one home, residential property CGT will remain at 18% and 24% for lower and higher-rate taxpayers, respectively.

There were no changes to annual CGT allowances, which were frozen at £3,000 per tax year for individuals, and £1,500 for trusts.

Inheritance tax reforms

Noting that only 6% of estates are expected to pay inheritance tax (IHT) this year, the Chancellor opted to keep thresholds unchanged, extending the current freeze by another two years until 2030. The government’s expectation is that more tax will be raised over time, as estates rise in value.

IHT relief on shares that are considered ‘not listed’, such as those on the Alternative Investment Market (AIM), will be reduced by 50% from April 2026. This means that they will be subject to an effective rate of 20% (based on the current 40% IHT rate).

Meanwhile, agricultural property and business property reliefs will be reformed. From April 2026, the first £1 million of business and agricultural assets combined will be free of IHT. The value in excess of £1million will be subject to IHT at 50% of the prevailing rate.

Finally, from April 2027, inherited pensions will be liable to IHT, having previously been exempt.

Income tax thresholds

Income tax thresholds were frozen until 2028 by the previous government. While this freeze will remain in place, it will not be extended further. Instead, the Chancellor announced that thresholds would be uprated in line with inflation from April 2028 – offering some unexpected, but positive news for earners.

Otherwise, there were no changes to income tax rates, with 20% tax payable on income between £12,571 and £50,270; 40% on earnings between £50,271 and £125,140; and 45% tax payable thereafter.

Stamp duty for second homes

While there were no changes for first-time buyers or those replacing their main residence, those with more than one property now face a higher tax bill. From 31 October, the stamp duty surcharge for selling second homes was increased from 2% to 5%, which is payable in addition to standard stamp duty rates.

Businesses to contribute more

Businesses and business owners are picking up a significant portion of this Budget’s tax burden. Employers’ NI contributions are due to rise from 13.8% to 15% from April 2025, while the threshold at which it is paid will fall from £9,100 to £5,000 – the government expects these measures to raise £25 billion. However, there was some support for small businesses, with an increase in the employment allowance from £5,000 to £10,500.

Res non-dom regime scrapped

The res non-dom (RND) tax regime will be abolished from April 2025, removing some of the tax benefits for UK residents whose permanent home is outside of the country for tax purposes.

A new residence-based scheme will be introduced from April next year, offering ‘internationally competitive arrangements’ for those coming to the UK on a temporary basis. However, after living in the UK for four years or more, they will be liable for worldwide tax on income and gains. After 10 years in the UK, their global assets will fall in scope for IHT. There are also changes to rules around using offshore trusts to shelter assets from IHT.

Private schools and fuel

In a previously announced move, the Chancellor confirmed that private schools would lose their VAT allowances from January 2025. Private schools will also lose their business rates relief from April 2025.

Meanwhile, she opted to spare drivers from tax rise, with fuel duty to be held at current levels, and the existing 5p cut maintained for another year. However, those choosing to travel by private jet will be subject to a 50% increase in air passenger duty.

Final reflections

The measures announced today are significant for UK wealth holders, and likely unsettling for some. Understanding the allowances and structures available, and how to make best use of them, can help you navigate such changes.

Rules around taxation are complex, so it’s important to seek professional advice, especially in a changing environment, to ensure your assets are managed as efficiently as possible.

As ever, there is value in being proactive with your financial planning, diversifying your wealth and staying focused on your long-term goals.