Reeves pledges “more pounds in people’s pockets” and improved living standards. The only way to drive economic growth is to “invest, invest, invest”, she says.
Reeves says this budget will raise taxes by £40bn a year, with much of the rise to be paid for by businesses and the rich.
National insurance
Employers' National Insurance contributions will rise by 1.2 percentage points to 15% from April 2025. The government will also reduce a secondary threshold when contributions are due from £9,100 to £5,000.
These changes will increase recruitment costs and could impact the cash flow of the business. However, to support smaller businesses, Employment Allowance (which allows eligible employers to reduce their NIC liability) will be increased from £5,000 to £10,500 and the £100,000 eligibility threshold will be removed. This will help small businesses to offset the increased costs.
Income tax
The Budget confirmed that the previous Government's income tax and national insurance contributions freeze will not be extended and that these personal thresholds will be increased in line with inflation from April 2028.
The surprise move allows Reeves to argue she has kept Labour’s manifesto promise to not increase taxes on working people – even if it does only start in 2028/29.
Capital gains and inheritance tax
Capital gains tax will be increased. The lower rate will be raised from 10% to 18%, and the higher rate from 20% to 24%. There will, however, be no increase on the 18% and 24% capital gains rate imposed on the sale of second homes.
For business asset sale relief and investor relief, the rate will gradually rise to 14% from April 2025 and match the basic lower rate of 18% from April 2026. Therefore, if you are planning to sell business assets, these changes may result in higher tax liabilities.
The government will extend a freeze on the threshold for inheritance tax to 2030, allowing £325,000 to be inherited tax free. From 2027 inherited pension pots will also be subject to the tax.
Reliefs will be reformed for business and agricultural assets. After £1m, those assets will attract inheritance tax of 20%.
National Living Minimum Wage
- The national living wage, the legal minimum for over-21s, will increase by 6.7% to £12.21, equivalent to £1,400 a year for an eligible full-time worker.
- The national minimum wage for employees aged 18-20 will increase to £10.00.
- The national minimum wage for employees aged 16-17 will increase to £7.55.
Additionally, controls on the taxation of Benefits in Kind will become significantly more stringent from April 2026. These are allowances received by employees and directors that are not a direct part of their salary, such as a company car, private health insurance, gym membership, accommodation etc.
Making Tax Digital
The Budget confirmed that the digitalisation (MTD) for income tax would go forward and the previously announced dates had not changed.
From April 2026, taxpayers with a combined gross income (before expenses) from self-employment and/or property over £50,000 will need to register. Then, from 2027, it will also reach those with income of £30,000.
Corporate tax
The government promised to keep the level of corporation tax to 25% for the term of this parliament.
Capital Allowances/CA
The Government will extend for a further year to 31 March 2026 for corporation tax purposes and 5 April 2026 for income tax purposes:
- 100% First Year Allowance (FYA) for qualified zero emission vehicle costs
- 100% FYA for qualified costs of equipment or machinery for electric vehicle charging points.
Pay as You Earn (PAYE)
The Personal Allowance remains £12 570. The only notable change announced is that the tax thresholds on the Personal Allowance and PAYE will be increased by inflation from 2028/29.
Stamp Duty Land Tax
From 31 October 2024, the Higher Rate Additional Dwelling (HRAD) surcharge on Stamp Duty Land Tax (SDLT) increased by 2 per cent, from 3 per cent to 5 per cent. This means that if you buy additional properties - either for your business or as a landlord - you will be required to pay a higher rate of tax. This will also affect you if you already own a residential property and invest in additional residential properties.
Tobacco and alcohol
Правителството ще въведе данък върху вейповете, който ще бъде увеличен в съответствие с този върху тютюна.
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 Reeves announces a cut in draught duty by 1.7%.
Fuel duty
Reeves says increasing fuel duty next year would be wrong, so she 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.
Private school fees
VAT will be brought in on private school fees from January 2025.
Not in the least a surprise, and if you believe the polling, one of the more popular policies in both the Labour manifesto and the budget. Will it see a rush of private school students into the state sector? Time will tell, but ministers are fairly relaxed.
Schools and education
Reeves says the Department for Education will receive £6.7bn of capital investment, a 19% real-terms increase. That includes £1.4bn to rebuild more than 500 schools in the greatest need.
The schools budget will increase by £2.3bn to support the hiring of teachers.
There will be £2.1bn for school maintenance, a £300m increase.
Reeves announces a £1bn increase in funding for special educational needs.
There will be another £300m for higher education.
One of the most visible and enduring legacies of the last Labour government was the many new and renovated schools it delivered. Reeves has set out her ambition to copy this.
NHS
Reeves promises a 10-year plan for the NHS in the spring, targeting 2% productivity growth next year.
She announces a £22.6bn increase in the day-to-day health budget, and £3.1bn increase in the capital budget. That includes £1bn for repairs and upgrades, and £1.5bn for new beds in hospitals and testing capacity.
Housing
The government will spend £5bn on housing investment in 2025-26, including increasing the supply of affordable housing.
The government will reduce right-to-buy discounts, and local governments will retain the earnings from council housing sales to allow them to reinvest.
The government will hire “hundreds of new planning officers” to accelerate housebuilding.
Transport
Reeves commits to the Transpennine Route Upgrade, improving capacity at Manchester Victoria and electrifying the Wigan to Bolton route. She also promises to support east-west rail links between Oxford and Cambridge.
Reeves confirms the government will fund tunnelling of HS2 to London Euston.
There will be a £500m increase in the roads budget next year to target potholes.
Energy
Reeves announces £3.4bn for the warm homes plan to upgrade buildings, lowering energy bills.
The government will fund Great British Energy, a new body to be based in Aberdeen.
Other measures
Рийвс казва, че правителството ще събере 6,5 млрд. лири чрез борба с избягването на данъци, включително от страна на чадърните фирми.
Apart from that, not less important is the investment intention announced by the UK tax authorities (HMRC) in two main areas:
- Communications and compliance staff - an extra 5,000 employees to check compliance, which should ease the pressure on taxpayers and accountants and their teams to speak to HMRC and resolve issues more quickly.
- Debt collection. HMRC will also employ an additional 1,800 debt collection staff acquiring data from credit reference agencies and upgrading IT systems to manage debts.
