Labour has delivered its first Budget since wresting control of Parliament from the Tories in the summer, and the announcements will have wide-ranging implications for savers, investors, workers, businesses, and the country as a whole.
Both chancellor Rachel Reeves and Prime Minister Keir Starmer used the pre-Budget news cycle to paint a gloomy picture of the state of the UK’s finances, preparing everyone for tax rises and tough spending decisions.
And they were true to their word with a huge rise in business taxes, changes to the capital gains tax (CGT) regime and a shake up of inheritance tax (IHT) and pensions, which the chancellor said would help raise £40bn.
Reeves also provided an update on how the economy is performing, and how quickly it might grow in the near future, with some bleak predictions which she blamed on the inherited state of public finances.
The Investors’ Chronicle team outlines everything you need to know from the Budget.
Pensions pots hit in inheritance tax crackdown
Pensions will become subject to inheritance tax (IHT) as part of a plan to raise more money for the Treasury, with relief options also reduced.
Pensions are normally not considered part of someone’s estate and, as such, are not subject to IHT. But this will change from April 2027, penalising those who had planned to use them to reduce their IHT bill.
The IHT tax-free threshold will also remain frozen until 2030. The threshold is currently set at £325,000, increasing to £500,000 for those who leave their home to children and grandchildren. The threshold was already due to remain frozen until 2028, but the change will drag a higher number of estates above it as asset and property values increase over time. More estates will owe IHT as a result, at the standard 40 per cent rate.
From April 2026, agricultural property relief and business property relief will also be reduced. After the first £1mn of combined business and agricultural assets, which will still be passed on tax-free, IHT will be levied at 20 per cent on the rest. A 20 per cent IHT rate will also apply on Aim shares. VC
Read more on the pension crackdown
Capital gains tax rises for investors, as landlords spared
The capital gains tax (CGT) has been increased for both basic and higher rate payers. The basic rate will increase from 10 per cent to 18 per cent as of 30 October, while the higher rate will rise from 20 per cent to 24 per cent. CGT rates on residential property, also at 18 per cent and 24 per cent, will remain the same.
Reeves also announced changes to business asset disposal relief. While the £1mn lifetime limit will remain unchanged, the rate of business asset disposal relief will rise. It will remain at 10 per cent this year, increasing to 14 per cent in April 2025, before rising to 18 per cent in 2026-27.
The government also reiterated its commitment to extend the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs), with their associated CGT benefits, to 2025. HM
Read more about the CGT changes
Businesses hit with £25bn national insurance hike
Rachel Reeves has increased employers’ national insurance contributions (NICs) by £25bn, in what was Labour’s biggest tax-raising measure.
Employers currently pay NICs of 13.8 per cent on a worker’s earnings above £9,100 a year. The rate will be increased to 15 per cent from April 2025 and the salary threshold will be lowered to £5,000 a year. This is expected to raise £25bn by the end of the forecast period. Reeves did not introduce employer NICs on pension contributions, however.
“I know this is a difficult choice,” Reeves said. “I do not take this decision lightly. We are asking businesses to contribute more…but in the circumstances I have inherited, it is the right choice to make.”
In total, NICs – including those from employees and self-employed individuals – raised £172bn last financial year, which accounted for roughly 16 per cent of total tax collected, according to Interactive Investor. JS
Read more on the National Insurance hike
Reeves tweaks rules to bolster credibility
Reeves announced £40bn of tax increases as Labour pledged to “rebuild Britain” and restore economic stability. The chancellor confirmed a change to the measure of debt used in her second fiscal rule, allowing for increased investment in the UK economy.
The chancellor took several steps to bolster her fiscal credibility and avoid a Liz Truss-style market meltdown. A pre-announcement last week gave bond markets time to digest changes to fiscal rules, while the chancellor tightened both fiscal rules to hold over a three-year time period.
OBR forecasts suggest a relatively muted outlook for growth (1 per cent next year, rising to 1.6 per cent by 2029) though the watchdog does expect today’s Budget measures to boost the economy over the longer term. The chancellor is on track to meet both of her fiscal rules, but will be left with a relatively modest £15.7bn buffer against the debt rule by 2029.
Business groups have also expressed concern about the impact of increases in the minimum wage and higher employer NICs. Anna Leach, chief economist at the Institute of Directors warned that “the effects of higher NI costs will be borne by workers” hitting employment prospects and earnings. HT
Read more on what Labour's Budget means for the UK economy
Aim stocks rally after limited tax hike
Although inheritance tax relief on Aim shares was not abolished, it has been cut in half. The chancellor said this sets the effective tax rate on disposals for shares held for longer than two years at 20 per cent from 2026.
Expectations that the relief would be abolished in its entirety had led to a sell-off in Aim shares in recent weeks, with the Aim All-Share index dropping by 7 per cent since the election, compared with a flat performance for the FTSE All-Share index and a 1 per cent gain for the FTSE Small Cap index.
However, the retention of 50 per cent relief on shares held on Aim “and other similar markets” was deemed a positive, with the Aim index rallying by 4 per cent in the wake of the chancellor’s announcement. MF
Read more on the impact the budget had on Aim shares
Housebuilders rise as Reeves confirms support
Housebuilding stocks rose during the chancellor’s speech as Rachel Reeves confirmed support for the industry. Shares in Barratt Redrow (BTRW) were up by 4 per cent, Persimmon (PSN) by 3.5 per cent, Vistry (VTY) by 3.5 per cent and Taylor Wimpey (TW.L) by 2 per cent.
In her speech, Reeves confirmed that the government would provide more than £5bn of investment to deliver housing, including £3.1bn to support the Affordable Homes Programme, as well as £3bn in guarantees to support SME housebuilders. She also confirmed that she would be providing registered providers with a five-year rent settlement of CPI+1 per cent.
Following the publication of the Grenfell report, cladding remediation has been a focus. Reeves said that she would be providing £1bn of investment to accelerate the removal of dangerous cladding. NV
Leisure and retail stocks receive business rate relief
In positive news for UK high streets, further business rates relief was confirmed by the chancellor. She said this would help avoid a “cliff edge” next year, when temporary reliefs were set to end.
Retail, leisure and hospitality companies will get 40 per cent business rates relief next year, up to a cap of £110,000 per business. The small business tax multiplier was also frozen.
Further help for the hospitality sector came through a 1.7 per cent cut in alcohol duty on draft beer, which Reeves said would take a “penny off the pint in the pub”. Pub shares gained on the news, with Young & Co Brewery (YNGA) up 7 per cent and companies including Mitchells & Butlers (MAB) and JD Wetherspoon (JDW) also in the green. CA
Air passenger duty hike for private flights
The chancellor has cracked down on private jets, increasing air passenger duty by 50 per cent. Rachel Reeves said this was “equivalent to £450 per passenger for a private jet to, say, California”.
She added that air passenger duty as a whole had not kept up with inflation in recent years. An “adjustment” has been introduced as a result, which will increase the cost of a short-haul economy flight by no more than £2. JS
Minimum wage increase puts strain on hospitality stocks
Hospitality, retail and supermarket stocks will be hit as Rachel Reeves announced a 6.7 per cent increase in the national minimum wage.
For those 21 years old and over, the minimum wage will rise above inflation, from £11.44 an hour to £12.21, granting around 1.6mn workers a pay rise. For those aged 18-20, their minimum wage will rise by around 16 per cent to £10 per hour.
However, businesses are worried that the increase in minimum wage, combined with the national insurance hike, will put particular strain on the retail and hospitality sector.
Andrew Goodacre, chief executive of the British Independent Retailers Association (Bira) said: “Further increases in minimum pay are of course welcome for lower-paid retail employees… But many retailers will have no option but to pass these costs on to consumers through higher prices, and where this isn't possible, it will likely result in reduced employment levels across retail and hospitality sectors.” MG
Reeves surprises on income tax threshold freeze
The income tax and national insurance thresholds will be unfrozen from 2028, ending the stealth tax rise implemented by the former government.
Thresholds were originally frozen by the Conservatives, starting from the 2021-22 tax year until 2027-28. Freezing thresholds, including the tax-free personal allowance of £12,570, constitute a de facto tax hike. This is because as wages increase over time and the cost of living rises due to inflation, more people are dragged into higher rates of income tax, without their real earnings having increased. This effect is also known as ‘fiscal drag’. VC
End of stamp duty holiday adds thousands to tax bills
The holiday is over for stamp duty. The Budget did not mention the current first-time buyer holiday, suggesting that stamp duty will revert to its old thresholds of £125,000 for all buyers, and £300,000 for first-time buyers as of March 2025. It currently applies to all homes over £250,000, with first-time buyers only paying stamp duty on purchases over £425,000. The chancellor also announced that the government would be increasing the Higher Rate for Additional Dwellings (ie second homes and investment properties) by two percentage points to 5 per cent, effective from tomorrow.
The end of the stamp duty holiday would leave the property market without any demand-side stimulus after the Help to Buy scheme ended in 2023.
It will increase the bill for the average first-time buyer by £3,538, according to Rightmove. The property website estimated that the percentage of first-time buyers exempt from stamp duty would decrease from 61 per cent to 40 per cent.
4.8 per cent of homes listed on Rightmove are under £125,000, while 40.1 per cent are under £300,000. However, those buying in London will be hit hardest – just 0.1 per cent of homes in London are listed for less than £125,000 and 9.7 per cent for under £300,000. NV
Isa allowances frozen until 2030
The government will freeze allowances for Isas, Lifetime Isas and Junior Isas at their current levels until 2030, in a blow to investors. Annual limits on the trio will remain at £20,000, £4,000 and £9,000 respectively. Labour also confirmed it would not go ahead with the £5,000 British Isa allowance, to solely invest in domestic shares, as proposed by the last Tory government. TL
Non-dom regime to be abolished
Plans to crack down on the tax treatment of wealthy foreigners with non-domicile status in the UK were confirmed, despite speculation that they would spark an exodus of non-doms and not raise any money.
Former chancellor Jeremy Hunt decided to abolish the non-dom regime earlier this year, but Labour is going ahead with its plan to toughen up the measures.
The government will also extend the temporary repatriation relief “to further encourage investment into the UK”. The measures will raise £12.7bn over the next five years, according to the OBR. VC
Banks avoid further tax hikes
The UK’s retail banking sector looked nervously for signs that the government would increase the banking levy. A change had been forecast, however, Reeves decided to leave the sector alone, perhaps reflecting the fact that banks’ share of tax receipts has been rising along with their profits.
According to the trade association UK Finance and PWC, UK banks contributed £44.8bn in tax to the end of March 2024, an increase of 4.7 per cent on the prior year – perhaps one of the few areas where organic growth driven by higher interest rates is contributing to better tax receipts. Bank shares rose on the lack of a levy announcement.
However, the financial services industry will hear more details on how the government intends to regulate the industry when the chancellor delivers her first Mansion House speech next month. This could include new remit letters for both the Prudential Regulation Authority and the Financial Conduct Authority on how to improve the UK’s international standing.
Shares in NatWest (NWG) rose 2.5 per cent immediately after the Budget, with Lloyds Banking Group (LLOY) up 1 per cent, having been down earlier in the day. JH
North Sea companies hold onto some tax offsets
The Budget surprised the oil and gas industry, now used to constant tax alterations, with no new announcements, with the energy profits levy to increase as per the manifesto and the 29 per cent investment allowance to be scrapped in line with a July plan.
This means overall tax offsets to come down but not as much as feared, with the first-year capital allowance to remain. The total tax rate is now 78 per cent, with Labour raising the levy from 35 per cent to 38 per cent. North Sea energy companies pay a corporate tax rate of 40 per cent instead of the normal 25 per cent. The levy will now expire a year later than before, in 2030.
Keeping some offsets will “ensure that the oil and gas industry can protect jobs and invest in our energy security,” Reeves said.
Company share prices jumped on her statement. Serica Energy (SQZ) climbed 13 per cent, Harbour Energy (HBR) was up 5 per cent, while Jersey Oil and Gas (JOG) was up 50 per cent.
Labour had pledged to raise another £6bn in taxes from the industry in its manifesto, although the industry says the combination of the total 78 per cent tax rate and lower offsets will still reduce investment in the North Sea. But an end to uncertainty will also help valuations and potentially revive stalled projects. AH
PHP and Assura shares up
Shares in Primary Health Properties (PHP) and Assura (AGR) rose today as the chancellor outlined plans to invest into the NHS estate, the deficiencies of which were highlighted by the Darzi Report. Shares in PHP rose by 3.18 per cent, while Assura shares were up by 3.02 per cent.
The chancellor has earmarked £1bn to reduce the backlog of maintenance, repairs and upgrades. £1.5bn has been earmarked to deliver capacity for more than 30,000 NHS procedures, over 1.25mn more diagnostic tests and new beds across the NHS estate.
Mark Davies, chief executive of PHP, welcomed the increased investment: “We are encouraged by the government’s plans to increase annual funding in healthcare by £25bn…the Budget provides a significant opportunity for PHP as a leading investor, manager and developer of primary care properties in the UK.”
Jonathan Murphy, Assura CEO, added: “It is encouraging to see the government’s commitment to providing investment to upgrade the NHS estate. As recently outlined by Lord Darzi, the current primary care estate is severely outdated, with 20 per cent of the GP estate predating the founding of the health service in 1948 and 53 per cent more than 30 years old. We welcome further details on how the Government plans to execute this ambition in the coming weeks.” NV
Gambling sector shares up on duty reprieve
The gambling sector breathed a big sigh of relief after pre-Budget fears of significant tax rises proved unfounded.
Ministers had reportedly examined proposals to raise £3bn from the sector through doubling betting duty on high street operators and more than doubling remote gaming duty (which applies to online and over-the-phone betting) paid by online operators. But the only announcement on the sector from the chancellor was about a consultation on remote duty reform, which could see it brought into a single tax “to simplify, future-proof and close loopholes in the system”.
Relief was clear in share price movements. Evoke (EVOK) rose by 10 per cent, Entain (ENT) by 7 per cent, Flutter Entertainment (FLTR) by 7 per cent, Rank (RNK) by 5 per cent and Gaming Realms (GMR) by 9 per cent. CA
Infrastructure pledges bolster building firms
Shares in some of the UK’s biggest contractors have climbed in response to the chancellor’s transport plans.
Labour has confirmed it will commit funding to begin tunnelling work at London Euston for HS2. Shares in Costain (COST), which is helping to build the tunnels between West Ruislip and Euston, rose by more than 3 per cent in response. Chief executive Alex Vaughan said the announcement “gives certainty and clarity for the UK’s largest and most complex infrastructure programme”.
Rachel Reeves has also pledged to upgrade the Transpennine route and establish a rail link between Oxford, Milton Keynes and Cambridge. Renew Holdings (RNWH), which has a large rail division, rose by 5 per cent. JS
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