Nearly four months after the general election, and 14 years after the last Labour chancellor, Rachel Reeves today delivered one of the most anticipated budgets of recent times and finally put an end to the speculation and rumours which have been running rife.

Businesses had been braced for the “painful budget” the Prime Minister had warned of, following closely as it does on the proposed changes to employment law and increases in the national minimum wage (NMW).

We highlight the impact of the key announcements that set out the government’s vision for stability and economic growth.

Key budget announcements

Increases to employers’ national insurance costs

As expected, the headline change and biggest revenue raiser came in the form of changes to employers’ national insurance contributions (NIC). With effect from April 2025:

• the rate of employers’ NIC will rise to 15% from the current 13.8%; and
• the secondary threshold, above which employers’ NIC is payable will drop from £9,100 annually to £5,000, resulting in an additional £4,100 potentially subject to charge at the new higher rate.

Combined with the increase in NMW rates announced yesterday, employers are faced with a twofold hit on their employment costs.

On a more positive note, increase in employment allowance from £5,000 to £10,500 from April 2025 insulates smaller employers from these additional costs.

The high street impact

The Chancellor’s announcements amount to a significant additional tax on jobs for the UK high street. The retail and hospitality sectors employ a large number of people, and an increase of at least £615 a year in the cost of employing a full-time member of staff will have a disproportionate impact on the industry. On top of rises in NMW and the increased administrative burden from the Employment Rights Act, this will leave many businesses on a financial cliff edge.

Promises of business rates reform in 2026 will be welcomed, but need to be set against a real terms 140% increase in next year’s rates bill for small businesses resulting from the existing relief being reduced.

Combined, these measures overshadow more positive news regarding investment in filling the skills shortages which have plagued the hospitality industry, and promises to tackle shoplifting which have eroded retail margins.

High street businesses will be hoping that the lack of tax increases for working people together with a modest 1p reduction in the price of a pint of draught ale will see an uplift in consumer confidence ahead of the all-important festive trading period.

Capital gains tax

Widely anticipated changes to capital gains tax (CGT) rates included increasing the lower rate of CGT from 10% to 18% and the higher rate from 20% to 24%, with effect from 30 October 2024.

Although the lifetime amount of gains eligible for business asset disposal relief (BADR) remains at £1m, the rate of CGT payable on such gains will increase from the current rate of 10% to 14% from 6 April 2025 and 18% from 6 April 2026.

Inheritance tax

The Chancellor announced that the inheritance tax (IHT) nil rate band (currently £325,000) and residence nil rate band (£175,000) are to remain frozen until 2030, however there were sweeping changes to business property relief (BPR) and agricultural property relief (APR).

From 6 April 2026 the first £1m of a claim for BPR and APR combined will continue to be exempt from IHT. Claims for BPR and APR in excess of £1m will attract relief at 50% giving an effective rate of IHT of 20%.

There will also be relief from IHT on 50% of the value of shares held on the alternative investment market (AIM) giving an effective rate of IHT on the value of AIM shares of 20%.

Income tax personal allowance and fiscal drag

The government has decided not to not extend the freeze on income tax and national insurance thresholds beyond April 2028. From April 2028, personal tax thresholds will once again increase by the rate of inflation.

Non-dom tax regime

Rather than the rumoured changes, the key announcement was the abolition of the non-dom tax regime. With effect from 6 April 2025, anyone who has been UK tax resident for more than four years will be subject to UK tax on worldwide income and capital gains.

New arrivals to the UK will not be taxed at all on foreign income or gains for the first four years of residence provided they have been non-UK resident for at least the previous 10 years. Regardless of domicile, all individuals will be subject to IHT once they have been UK tax resident for 10 years.

One of the major concerns of non-doms approaching the Budget was that existing excluded property trusts (EPTs) would lose their exemption from IHT once the settlor had been UK tax resident for a period of 10 years. The Budget has confirmed that foreign property held in trusts created before 30 October 2024 will not be subject to IHT on the death of the settlor. However, all trust assets will be subject to periodic IHT charges.

Pensions

Currently, pensions are excluded from IHT. From April 2027, any value left in your personal pension pot on your death will be included in your IHT estate and taxed in the usual way.

Stamp duty land tax

Buyers of second homes and buy-to-let properties in the UK are faced with an immediate increase in stamp duty land tax (SDLT). With effect from 31 October 2024, the higher rate for additional dwellings (HRAD) increases from 3% to 5%.

Private equity

The Chancellor has opted for a staged approach to carried interest tax, raising the rate to 32% from April 2025 – much lower than the feared 45%. However, the main announcement was the delay of significant changes to carried interest taxation to bring it into the income tax framework. A more targeted, fairer and simpler regime is promised, likely starting in April 2026.

Business taxation

The publication of the corporate tax road map should be welcome news for UK businesses, but the devil may well be in the detail.

However, the Chancellor did confirm the main rate of corporation tax will remain at 25% for the life of this parliament.

On capital allowances, there is a commitment to retain permanent full expensing with the prospect of consultation on extending full expensing to leased assets, simplifying the legislation more broadly, and launching a consultation to review the effectiveness of land remediation relief.

For innovation reliefs, there is a commitment to maintaining current rates of R&D relief, maintaining the patent box in its current form, and enhancing the administration of R&D reliefs, whilst also consulting on extending the use of advanced clearances. Also maintaining the audio visual expenditure credit and video game expenditure credit.

VAT and other indirect taxes

VAT-related announcements in the Chancellor’s speech were limited to reconfirming that VAT will be added to private school fees with effect from 1 January 2025.

The Chancellor also announced increases to air passenger duty on economy short haul flights and private jets and excise duty on tobacco. These increases were accompanied by more welcome announcements on extending the 5p cut on fuel duty for a further year and a cut to duty on draft beer. Further low-profile tweaks to VAT and other indirect taxes may emerge in the published detail following the Chancellor’s speech.

The economist’s view

Today’s Budget was the most significant for the economy in a generation with the Chancellor dramatically raising taxes, spending, investment and borrowing. The consequences will be slightly stronger economic growth, but higher inflation and a slower fall in interest rates.

The Chancellor used her first budget to raise taxes by £40bn to fund additional spending. The majority of the extra revenue (£25bn) will come from raising employers NIC with the balance being made up by changes to capital gains, inheritance tax and “efficiency savings”. While raising tax and spending by the same amount is relatively neutral for overall growth, an increase in NICs will eventually feed through to lower wages and working hours, which will dampen consumer spending.

The Chancellor also announced a whopping £100bn increase in government investment over the next five years, funded by borrowing. The new debt rule, targeting net financial debt, means that, despite the extra borrowing, she still has £15.7bn of headroom.

Overall, today’s budget still has the deficit falling in coming years but more slowly than in the plans Reeves inherited. That means the budget is expansionary and suggests the Bank of England will have to keep interest rates 25bps to 50bps higher than they otherwise would have been.