Margaret Thatcher famously called us a “nation of shopkeepers,” underscoring how SMEs form the backbone of the UK economy. With the recent Budget announcement from the first female Labour Chancellor, Rachel Reeves, were SMEs considered a top priority when planning these fiscal shifts? We’re delving into what these changes mean for growing businesses, property investors, and entrepreneurs alike.
The National Insurance Hike: Impact on Growing SMEs
increasing from 13.8% to 15%. While the Chancellor pledged no increase in National Insurance, this hike will be felt by employers of growing businesses.
Thankfully, the first £10,500 of Employers’ National Insurance remains exempt. However, the reduced employee earnings threshold of £5,000 may limit the benefits for small but expanding companies.
How might businesses react?
We might see a shift toward moderating salary increases and perhaps adjusting pension contributions. It’s something SME owners will need to weigh carefully to keep their finances balanced without impacting staff satisfaction.
Capital Gains Tax: What Does It Mean for Entrepreneurs?
Capital Gains Tax (CGT) was another concern for many in the business community, especially those planning exits or investments. While CGT hasn’t risen to income tax levels as some had feared, both the basic and higher rates are up – now set at 18% and 24%, respectively. Additionally, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) saw changes.
Tax Rate Increases: Starting April 2025, the relief rate on the first £1M gain will increase from 10% to 14%, with a further rise to 18% in 2027.
These shifts could lead some business owners to reconsider selling, or at the very least, to plan more carefully to maximise profits before these changes fully take effect.
Buy-to-Let Investors: New Challenges
Buy-to-let landlords, who have already faced evolving legislation on tenant rights, safety, and tax, are now facing an additional tax burden. The Stamp Duty Land Tax (SDLT) higher rate for additional properties has been raised from 3% to 5%.
With the UK facing a housing shortage, increasing the SDLT may discourage new investment in rental properties, especially for those considering entering the market. For current landlords, this might just be the latest factor pushing them to reassess their portfolios.
Inheritance Tax & Inherited Pensions
The budget maintained the current inheritance tax exemption of £325,000 (plus an additional £175,000 if passing down a property to a direct descendant) until April 2030. However, from April 2027, inherited pensions will now be subject to inheritance tax, a move aimed at preventing pensions from being used as a tax-efficient way to transfer wealth rather than to fund retirements.
This change may lead people to consider gifting pension savings during their lifetimes or spending more in retirement, which could, in theory, stimulate the economy. It’s worth noting that careful planning around pensions will be increasingly vital for those thinking about future generations.
Changes to the Non-Dom Tax Regime
The longstanding non-dom tax regime, designed to attract foreign investment, has been phased out. From now on, inheritance tax will be based on residence rather than domicile, raising an expected £12.7 billion. This reform is aimed at fostering long-term UK investment and attracting high-net-worth individuals to contribute more directly to the economy. While this could impact foreign interest, it’s a signal that the UK is reorienting its priorities in a bid for greater revenue stability.
What Does This Mean for You?
With such sweeping changes, every small business owner, entrepreneur, and property investor will need to adjust their financial strategies. At Richard Riley and Associates, we’re here to provide guidance as you navigate these updates.
Now more than ever, proactive planning and a clear understanding of the new tax landscape will be essential to make the most of available opportunities – and to prepare for upcoming challenges. Please do get in touch if you’d like to discuss how these changes impact your financial strategy.