The UK Budget

Rates

The rates of capital gains tax on shares and other assets have been increased to 18% at the lower rate and 24% at the higher rate, this brings the rate in line with the rates currently charged for disposals of property.

Business Asset Disposal Relief 

This relief is available where a person makes a disposal of all or part of a trading business. 

The limit for the relief is still set at one million pounds per lifetime but the rate of tax is increased from 10% to 14% in 2025 and to 18% in 2026. 

From 6 April 2025 the remittance basis regime will be abolished and replaced with a new residence-based regime. 

New arrivals that have been non-UK resident for at least 10 consecutive tax years will benefit from full tax relief on foreign income and gains (FIG) arising during their first 4 tax years of residence period. These funds can be brought into the UK without a UK tax charge. 

Individuals who are currently UK resident but who, on 6 April 2025, have been tax resident for fewer than 4 years (following 10 consecutive years of non-residence) will be able to utilise the FIG regime for any tax year of UK residence which falls within the remainder of their first 4 tax years of residence. 

After the 4-year period has elapsed, the individual will be subject to UK tax on their worldwide income and gains. 

An individual’s residence status for the purposes of the FIG regime will be determined using the Statutory Residence Test (SRT). 

The government will increase personal tax thresholds on income tax and national insurance in line with inflation from 2028-29, something that had been floated as a possibility. This will avoids dragging more people into higher tax bands. 

The rate of employee’s national insurance is as promised unchanged however the rate paid by employers has increased from 13.8% to 15% and level at which this starts to be pad has reduced to £5,000 for £9,100. 

The employer’s allowance has increased form £5000, to £10,500, meaning many small employers will not pay national insurance at all. 

Pensions 

Pensions will now form part of an individual’s estate for Inheritance Tax purposes. The pension scheme administrator will be responsible for liaising with the deceased member’s personal representatives and paying any tax due.   

This is an unwelcome development for savers. However, the annual allowance for tax relieved savings remains unchanged and UK pensions continue to enjoy valuable tax exemptions within the fund which still represents a great way to save and defer tax for your future. 

Business and Agricultural Relief

In addition, business relief and agricultural relief will be limited to one million pound free of tax and then 20% tax on the balance of the value of the asset, this one million is combined between the two reliefs.  As a small business or family farm could well be worth more than one million pounds this could cause the sale of the farm as it would not be viable if enough were sold to pay the tax. 

Residence Basis of Taxation 

Previously inheritance tax was changed based on a person’s domicile, which is an old-fashioned basis of taxation, this has now changed to a residence basis so if you have been UK tax resident for 10 of the last 20 years you will be liable to inheritance tax on your worldwide assets.  A long-term resident will remain fully within the scope of IHT until they have been non-UK tax resident for 10 consecutive years if they were resident in the UK for 20 years or more.  

This tail will be shortened where an individual was resident in the UK for between 10-19 years. Broadly speaking the tail is 3 years where the period of UK residence is between 10-13 years. This is increased by one tax year for each additional year of residence. 

The introduction of a residence based IHT system will be welcomed by long term UK expats, as their non-UK assets will fall outside of the scope of IHT after 10 years of being non-UK resident. 

The additional rate charges on second homes, buy to let property has been increased by 3% from 3% to 5%. 

Fuel duty will not increase next year so this extends the freeze for a year and maintains the last government’s 5p cut.  Fuel duty was frozen between 2011 and 2022 and cut by 5p in March 2022 after Russia’s full-scale invasion of Ukraine. 

The government will implement a levy on vapes, which will be increased in line with tobacco.  

Tobacco taxes will rise by 2% above retail prices index (RPI) measure of inflation for the rest of this parliament, and tax on hand-rolling tobacco will increase by 10%. 

Taxes on alcohol will rise in line with the RPI, but Ms Reeves announces a cut in draught duty by 1.7%, which she says is a penny off a pint in the pub.