The Autumn Budget saw headline tax rates remaining largely unchanged, with the Chancellor opting to raise taxes via fiscal drag measures caused by the freezing of various thresholds. This will have a direct impact on individuals, property investors, pension scheme members and employers in particular. Here we’ve noted a few of the main takeaways affecting our clients.

 

Inheritance Tax (IHT)

Following extensive backlash to the change in treatment of Agricultural Property Relief (APR) and Business Property Relief (BPR) in the last Budget (whereby full relief would be limited to the first £1 million of qualifying assets, with the remainder taxed at an effective rate of 20%), there was a welcome announcement that this £1 million “allowance” would be transferable between spouses and civil partners on death, similar to the transferable nil rate band. Although this means that spouses and civil partners will be able to leave a combined £2 million of qualifying agricultural or business assets on death free of IHT, a huge number of farmers and business owners will still face a very significant IHT liability.

The nil rate band and residence nil rate band thresholds have been further frozen until April 2031. This means that individuals can continue to utilise their individual nil rate band of £325,000 whilst the residence nil rate band will continue to sit at £175,000. Generally speaking, this will allow spouses and civil partners with children to leave up to £1 million of assets free of IHT. However, the continued freezing of the thresholds will of course bring more families into the reach of IHT as property prices rise.

Payments of compensation arising out of the infected blood scandal will now exempt from IHT “regardless of the circumstances in which those payments are passed down” thereby closing an unfortunate loophole that meant in some cases families would have missed out on the IHT relief if the compensation was paid after the person’s death.

 

Capital Gains Tax (CGT) and Employee Ownership Trusts

Sales of businesses to employee ownership trusts (EOTs) are becoming an increasingly popular alternative route for sellers seeking to realise value, benefit from certain tax advantages and further incentivise employees. As explored in our earlier note on Employee Ownership Trusts – Key components and legal considerations.

 

Investments and ISA reforms

Taxes on “passive income” such as dividends, property income and savings interest are set to increase by 2%, aimed at narrowing the gap between how income from work and income from employment are taxed.

From April 2027 the annual ISA cash limit will reduce to £12,000 with the remaining £8,000 allowance reserved for stock and shares. This is aimed at encouraging savers to invest in the stock market rather than holding large cash sums, in a bid to drive better returns and boost the economy. This new limitation is only applicable to savers up to the age of 65; savers over the age of 65 will continue to enjoy the full £20,000 cash ISA allowance.

 

Changes affecting employers and employees

As largely expected, income tax thresholds and equivalent National Insurance Contribution (NIC) thresholds will be frozen for an additional three years until 2031, thereby increasing the tax take without increasing the rates.

 

National minimum wage rates (April 2025 and April 2026)

Personal income tax rates held until 2031

Salary sacrifice arrangements

For those saving for retirement, a new cap of £2000 on employee pension contributions via salary sacrifice schemes was introduced from April 2029. Employee contributions over that threshold will be subject to employee and employer NIC’s in the same way as other workplace pension schemes, affecting some middle and higher earners.

 

Cost to businesses

There will also be increased cost to businesses with a further increase in national minimum wage rates from April 2026. A new mileage-based tax for electric vehicles and plug-in hybrid cars to be introduced from 2028, which may reduce some of the cost advantages that are currently associated with electric fleet vehicles.

We will continue to review the changes and likely impact upon our clients as the finer details continue to emerge and as the government publishes further policy documents.

 

For legal guidance and advice regarding Private Wealth, Employment or Corporate law queries, please contact our teams for more information.

 

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.