On Wednesday, Rachel Reeves provided the first budget from the Labour Party since 2010. Marking one of the biggest and most important budgets in years, Rachel Reeves stated that the government must “restore economic stability and turn the page on 14 years of Conservative government “. Here are the key points from what was said by the Chancellor.
Personal Tax
Reeves says 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 avoids dragging people into higher tax bands.
Dividend Income
The dividend allowance exempts some dividend income from tax, although that income still counts towards the higher rate thresholds. For 2025/26, the allowance is unchanged at £500. As HMRC does not routinely receive information about dividends received by taxpayers, more people may have to file tax returns to declare tax liabilities which previously would have been covered by the allowance.
Business Tax
During COVID-19, temporary business rates relief was introduced to support the retail, hospitality and leisure sectors. This short-term measure was extended several times, but the current 75% relief is due to end on 31 March 2025.
The government plans to bring in permanently lower business rate multipliers from 2026/27 for RHL properties with rateable values under £500,000. For properties over this rateable value a higher multiplier will apply. This will, for example, affect the majority of large distribution warehouses used by online companies.
Corporation Tax
The government has published a Corporation Tax Roadmap in which it is committed to capping the main rate at 25% and maintaining the small profits rate and thresholds, as well as key features such as full expensing, Annual Investment Allowance, Research & Development relief rates, and the Patent Box.
The main rate of 25% applies to companies with profits over £250,000. The ‘small profits rate’ remains 19% for companies with profits of up to £50,000. Between £50,000 and £250,000 there is a tapering calculation that produces an effective marginal rate of 26.5% on profits between these limits, but an average rate on all profits of between 19% and 25%.
Capital Gains Tax
From 30 October 2024, the main CGT rate for all assets is now 24% (other than receipts of carried interest, which remains at 28%). This 24% rate previously only applied to residential property that was not exempted under principal private residence (PPR) relief. Where the gain can be matched against the taxpayer’s basic rate band, the rate is now 18% for all assets. Previously it was 10%, except for residential property and receipts of carried interest.
Value Added Tax
The VAT registration and deregistration thresholds increased to £90,000 and £88,000 with effect from 1 April 2024. The March 2024 Budget stated that they will be again frozen at these new levels, but it does not say for how long.
Employment allowance
Employment Allowance allows businesses with Class 1 ERNIC of £100,000 or less in the previous tax year to deduct £5,000 from their Class 1 ERNIC bill (as long as there is more than one employee earning above the secondary threshold). This allowance will be increased to £10,500 and the £100,000 cap is removed with effect from 6 April 2025.
Making Tax Digital
The requirement to file tax returns using MTD is due to come into effect from 6 April 2026. Those initially affected by the rules will be those with annual income from a sole trader business or property, or both together, of £50,000. This will drop to £30,000 from 6 April 2027.
If you wish to have more detail on the most recent budget, then please contact us for our full Budget summary.
