Article last updated 1 November 2024.
While financial goals are uniquely personal, our financial planning specialists are currently exploring common themes with high-net-worth individuals following the first Budget from the Labour government.
Income Tax thresholds will increase in 2028
The Chancellor has pledged to raise Income Tax thresholds by inflation from April 2028. As you can see from the chart below, the initial £150,000 threshold for Additional Rate tax that was implemented in 2010 would apply to an equivalent income of £225,000 today.
This reinforces the importance of reducing your taxable income wherever possible. One way to do this is to maximise pension contributions, which are deducted before Income Tax and National Insurance Contributions (NICs) are applied. Typically, those earning more than £200,000 of taxable income per year are eligible for less tax relief.
Any interest-paying investments held outside an ISA also count as income. Therefore, investing in alternative investment vehicles, such as Venture Capital Trusts and the Enterprise Investment Scheme could help, as these allow you to claim 30% of the value of an investment off your income tax bill. However, these opportunities are higher risk and should not be considered unless you are prepared to lose all the funds you invest. Investment advice is essential before making any decision on these vehicles.
Capital Gains Tax rises
From 30 October, the main rates of Capital Gains Tax (CGT) rose immediately from 10% to 18% for lower rate taxpayers and from 20% to 24% for higher rate taxpayers. The tax-free allowance remains £3,000 per person.
CGT is payable on the sale of an asset that results in a profit or gain, minus some expenses. As shares and savings held in an ISA are exempt from CGT, individuals should ensure they are using their tax-free ISA allowance of £20,000 per year.
In addition, shares held in Enterprise Investment Schemes and Seed Enterprise Investment Schemes, as well as Venture Capital Trusts, could be exempt from CGT. However, it’s important to note that qualifying criteria, such as minimum holding periods and maximum investment amounts, apply. Appropriate diversification of your investments and use of alternative tax wrappers could have multiple benefits.
As CGT is triggered by the sale of an asset, careful consideration of the timing of this action can also be factored into long-term financial planning.
This is particularly important for business owners who are planning to exit their business as the Chancellor also adjusted the Business Asset Disposal Relief. If an asset qualifies for this relief, the tax on the gain will increase from 10% to 14% from 6 April 2025 and to 18% on 6 April 2026.
Tax rises on Carried Interest
Private Equity fund managers were already aware that the level of CGT paid on carried interest was under review. The rate of tax payable will rise from 28% to 32% from April 2025, which is still lower than Income Tax rates of 40% or 45%.
Inheritance Tax is applied to more assets
Inheritance Tax (IHT) thresholds will be extended until 2030. While spouses are exempt from Inheritance Tax, the first £325,000 of an estate can be inherited tax-free by others, until this date. If a primary residence is being inherited, certain beneficiaries may qualify for an additional £175,000 of Inheritance Tax relief on estates valued under £2m. The remaining value of the estate is taxed at 40 per cent.
The Institute for Fiscal Studies (IFS) believes the number of estates liable for IHT will rise to 7% by 2032-33. The property market means that the impact will be heavily skewed, with the IFS estimating that almost a quarter of all Londoners (or their surviving spouse) will pay IHT in ten years’ time, compared with roughly 5% of the population in the north-east.
There were fears ahead of the Budget that Business Property Relief and Agricultural Property Relief would be repealed. Before, all eligible assets were exempt from IHT as long as they had been held for at least two years. Now, the first £1m of assets can be inherited tax-free, with anything over that taxed at 20%.
AIM stocks that are eligible for Business Property Relief will not benefit from the £1m nil-rate band; instead IHT of 20% will be levied on the total value of stocks from 6 April 2026.
Pensions are included in the value of an estate
Pensions will be included in the value of an estate from April 2027. We believe this will increase the number of estates liable for IHT by almost a quarter. A lot of our clients use their pensions as prominent features of their retirement and estate planning solutions, so it’s important to revisit these plans in light of the changes.
The State Pension will continue to increase
The new rate of State Pension will be close to £12,000 per year, not far off the £12,570 Personal Allowance. At relatively mild levels of inflation, the state pension is likely to exceed the Personal Allowance by 2028.
Non-Dom tax status is abolished
The tax status of non-domiciled UK residents will be abolished. The government will be releasing more details in due course.
VAT is applied to private school fees
In a heavily trailed policy, the government has confirmed it will go ahead with the introduced VAT on private school fees. Many high-net-worth individuals we support have a complex or irregular income patterns. Careful mapping of expenditure should be included in all long-term financial plans to take account of any increases.
Stamp Duty increases on second homes
The surcharge on stamp duty applied on additional homes rises from 3% to 5% immediately. The levy on properties worth more than £500,00 that are bought by companies will also increase, from 15% to 17%.
This should be factored into any investment decisions along with consideration of property ownership structures.
Dividend Tax remains static
The Dividend Allowance has been left at £500, having been steadily cut from £5,000 in 2017-18. Some had speculated that taxes on dividends would be aligned with Income Tax (like interest on savings and bonds).
Making sure dividend-producing assets are held in tax-efficient vehicles will help to reduce the tax paid on dividends that fall above the Dividend Allowance.
Corporation Tax remains static
The fourth big tax freeze alongside Income Tax, NICs and VAT is Corporation Tax, which the Chancellor has pledged to cap at 25%, its current rate, for the duration of this Parliament. It’s hoped that this certainty will provide some stability and support to businesses as they grow.
National Insurance Contributions increase for employers
Employers currently pay NICs on top of employees’ earnings above £9,100 at 13.8%. From 6 April, the Chancellor is increasing Employer NICs by 1.2 percentage points to 15%, reducing the threshold for Employer NICs to £5,000 and adjusting the allowance cap.
Appropriate financial planning and tax treatments evolve over time. Please get in touch to discuss any individual questions and concerns.
Opinions, interpretations and conclusions represent our judgement as of this date and are subject to change. The contents of this article do not constitute a personal recommendation or advice.
