A Budget Tax Raid On The Wealthy Which Will Inevitably Back-Fire On The Government

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Chancellor Rachel Reeves delivered one of the longest Budget speeches in recent memory on 30 October 2024, marking Labour’s first Budget in almost 15 years. Here’s a summary of the key changes and how they may affect private investors:

Abolition of Non-Domicile Tax Regime

The UK’s non-domicile tax regime is set to be abolished from 6 April 2025. Instead of domicile status, the UK will now base Inheritance Tax solely on residency. This change may affect UK-resident investors who previously benefitted from the non-dom regime, as worldwide income and gains may now be subject to UK tax.

Capital Gains Tax (CGT) Changes

  • Increased CGT Rates: From 30 October 2024, the CGT rates for assets other than residential property and carried interest have increased to 18% for basic rate taxpayers and 24% for higher rate taxpayers. For trustees and personal representatives, the rate rises to 24%.
  • Business Asset Disposal Relief & Investors’ Relief: For disposals from 6 April 2025, CGT on qualifying business assets will rise to 14%, and to 18% for disposals from 6 April 2026. This staged increase may encourage investors to consider early disposals to benefit from lower rates.

 

 

Inheritance Tax (IHT) Adjustments

  • Extended Freezing of IHT Thresholds: The nil-rate band (£325,000) and the residence nil-rate band (£175,000) are now fixed until April 2030, increasing the likelihood that rising property values will push more estates into the IHT net.
  • Taxation on Inherited Pensions: From 6 April 2027, unused pension funds at the time of death will be treated as part of the deceased’s estate for IHT purposes, applying to both Defined Contribution (DC) and Defined Benefit (DB) schemes. This change may impact inheritance planning strategies that involve passing on pension wealth tax-free.

Agricultural and Business Relief Reform

Starting 6 April 2026:

  • Partial Relief on Agricultural and Business Property: The first £1 million of combined agricultural and business property will still receive 100% relief, with a 50% relief on assets above that threshold. Additionally, the business relief rate for shares not listed on major exchanges (e.g., AIM) will be reduced to 50%.
  • Impact on Family Businesses: These changes could impact family farms and privately held businesses, encouraging more detailed succession planning and potentially prompting estate restructuring before 2026.

National Insurance Contributions (NICs)

  • Increase in Employer NICs: From April 2025, employer National Insurance rates will rise from 13.8% to 15%, with the secondary threshold reduced to £5,000. Smaller businesses, however, will benefit from an increased Employment Allowance, raised to £10,500.

Pension Changes

  • QROPS Transfers: From 30 October 2024, transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) within the EEA and Gibraltar will no longer be exempt from the 25% Overseas Transfer Charge (OTC). From 6 April 2025, these schemes must comply with UK pension regulations, and by 6 April 2026, all registered pension scheme administrators must be UK residents. These changes could affect pension portability and tax efficiency for UK residents planning to retire abroad.

 

 

Stamp Duty Land Tax (SDLT)

  • Higher SDLT Rates: Effective 31 October 2024, the surcharge on additional properties and purchases by companies has increased from 3% to 5%, and the single SDLT rate for companies buying properties over £500,000 has risen from 15% to 17%. These adjustments could increase acquisition costs for second homes and property investments through company structures.

Summary for Private Investors

This Budget brings substantial changes, especially to CGT, IHT, and the non-dom regime. Investors should consider reviewing their portfolios and estate plans in light of these updates. Tax-efficient investment vehicles, strategic use of trusts, and early planning can help mitigate some of these impacts. Given the complexity of these changes, consulting a financial adviser may be beneficial to align investment and tax strategies with the latest developments.

Unfortunately, the Labour government has committed the usual mistake of governments in recent years in particular, be they Conservatives or Labour, of imposing increased taxes on the financially independent and the wealth creators in society which will ultimately lead to less tax revenue and greater poverty.  Many studies have shown that when governments impose high taxes, less tax revenue is raised.  Perverse but true.

Both of the main parties are reluctant to slash public expenditure.  Yet there is plenty of evidence of government waste. Instead, they tend to mainly borrow more and tax us more heavily usually through stealth taxes.  The trouble with borrowing excessively is that the next generation has to foot the bill.  It’s merely a case of kicking the can down the road.  The UK now has public borrowing of 100% of GDP.  This level of borrowing only usually occurs in war-time, not peace-time!  That is quite some feat.

The UK was already becoming a less popular country before the Budget but it is now even less popular.  Wealthy non-domiciled individuals may no longer wish to be UK tax residents and set up their businesses in the UK because of increased taxation. Less businesses in the UK will mean less jobs.

As for hard “working people” who have worked long hours for many years to build their wealth, they may be disincentivised to make such sacrifices in future if a substantial amount of their wealth will be taken from them in the form of taxation.

It is clearly a poorly thought through Budget with very little regard for the long-term growth prospects of the UK and pretty much a continuation of the wind of direction under the previous Tory government.  It is very short-term focussed.

Countries that thrive globally have smaller government and lower taxation. They are more libertarian in nature.  As a result, they have greater prosperity.  Just look at the example of countries such as Singapore, Switzerland and Hong Kong (when ruled by the British) etc.  You know it makes sense.*

 

 

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.

 

 

Chartered and Certified Financial Planner

Managing Director of Wealth and Tax Management

If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email wealth@wealthandtax.co.uk