So, the budget finally arrived after what felt like weeks of waiting – but what did it include?

At first glance the measures were not nearly as bad as first feared, and some of the more worrying measures that were anticipated ahead of the official announcements, did not make the grade.

However, there are still many changes which will hurt workers, savers and investors and with the rise in alcohol duty, there was nothing much to be cheerful about in this Budget.

Some of the most notable measures announced in the Budget include:

  • Tax thresholds for Income Tax, National Insurance, Inheritance Tax and VAT are frozen, pulling more people and businesses into higher taxes over time through fiscal drag
  • Pension contributions above £2,000 made through salary sacrifice will attract National Insurance from 2029
  • Income Tax on savings, rental income and dividends will rise by 2%, adding pressure especially on landlords
  • A new “Mansion Tax” from 2028 will charge homeowners with properties over £2 million and £5 million an extra £2,500 and £7,500 in annual tax respectively
  • Electric and hybrid drivers face new per-mile charges from 2028
  • Relief on Employee Ownership Trust sales has been cut immediately, raising tax from 0% to 12%

Is there good news in the Budget?

As it happens, the good news, is actually what the Chancellor omitted this time:

It did not include a tax rise on companies – rates and reliefs stayed the same with a little extra for businesses that invest into certain qualifying assets

It did not include an exit tax – a relief for expats and anyone thinking of moving to sunnier climes

It did not include a tax on members of partnerships similar to employers’ National Insurance

It did not include a tax based on the value of your home when selling it – which was welcome news for homeowners who worried they would not be able to downsize if they wanted to release capital

It did not include an increase to income tax, National Insurance or VAT – or at least the rates themselves didn’t increase …

And it didn’t include an explicit wealth tax – although the lasting impact will be just that.

So what did it include?

Freezing tax thresholds

The freezing of Income Tax and National Insurance thresholds will drag more workers into higher rates of tax as wages grow.

The nil rate band for Inheritance Tax (IHT), below which an estate does not attract IHT, has been frozen. It last changed almost 20 years ago.

The VAT threshold above which a business must register was also frozen having been widely expected to drop. This may have discouraged businesses from growing their turnover above it, for fear of losing customers who seek out non VAT registered trades.

Pension and income taxes

Private sector employees will face further taxes on pension contributions that they make via salary sacrifice. Contributions that are currently exempt from National Insurance will now attract it above an annual £2,000 threshold.

The real nasty for savers and investors is income tax increases. Rates are going up by 2% on income from savings, rental properties and dividends.

For landlords, already struggling under increased regulation, it is another unwelcome burden.. It seems likely that these changes will encourage more savers and investors to consider Family Investment Companies where tax rules may be more attractive.

The “Mansion Tax”

From April 2028 those that live in a house worth more than £2 million will be liable for an additional tax burden, collected through the Council Tax, (although not given to the councils apart from a collectors fee). This starts at £2,500 and rises to £7,500 for homes worth more than £5million. It is estimated more than 140,000 homes will be affected by this by the time it comes in.

Electric vehicles

If you drive an electric or hybrid car, you will need to pay an extra 3p or 1.5p per mile from April 2028. The cost and complication of enforcing a mileage-based scheme is sure to be high.

Employee Ownership Trusts

Effective immediately, those selling their businesses to an Employee Ownership Trust now receive only half the relief they did previously, taking the tax rate from 0% to 12% while the ink is still drying on the contract.

What does it all mean?

This budget has been called a smorgasbord. It’s a haphazard collection of measures, with many not even coming into effect for years, perhaps even after the next election, in which case, you might ask, why cause all this anxiety ? It also feels very heavy on the costs of implementing some of the more complex workings out.

However, when, or possibly if, they do come into effect, the reality is that businesses, employees and investors will pay more tax.

At Wellers, we remain available to our clients and any business owners or individuals who would like our support interpreting what the Budget means for you and what actions you might take next to minimise the impacts.

Please contact us at enquiries@wellerslawgroup.com or phone 020 8464 4242