How did the Autumn Budget impact entrepreneurs?

Last week, we witnessed the first and long-awaited Budget speech by the Labour party's Chancellor of the Exchequer, Rachel Reeves. In a moment of history, she is also the first woman to hold the office in its 800 years existence, and the first woman to deliver a Budget speech. Whilst the Budget hiked taxation levels to record levels, so many dire rumours had been circulating beforehand that it ended up being not quite the nightmare before Halloween that many feared. But how has the latest Budget impacted entrepreneurs?

Business Property Relief and IHT

On a personal level, Rachel Reeves made fewer changes to the inheritance tax regime than had perhaps been anticipated. The headline tax rates have not changed and the 7-year survival period for tax-free lifetime gifts was not extended, but there are significant changes to BPR. From 6 April 2026, 100% relief is to be restricted to the first £1m of business property. Only 50% relief will be available on the excess. Putting a cap on the relief means that for the first time in decades, the owners of private businesses need to plan for IHT charges on the transfer of businesses exceeding £1m in value. 

The allowance will be available per individual on IHT charged on death and lifetime gifts. Any unused allowance will not be transferable to a spouse or civil partner, but together they will have £2m. There is an element of immediate effect as lifetime gifts made now will be subject to the cap if the donor fails to survive for seven years and dies on/after 6 April 2026. No relief is needed for outright gifts made more than 7 years before death so passing on businesses early, or via a spouse, will be key to IHT planning in future.  

The allowance is also available to trusts holding business property - and on each trust made by the same settlor before Budget Day, but shared between multiple trusts made on/after the Budget. There will be a consultation in early 2025 on the precise application to trusts, but these are still likely to be attractive: with holdover relief from CGT now at 24% being significant on assets with low base costs; IHT entry charges at 10% (or nil, before April 2026) and up to 3% every ten years on the excess value over £1m. 

AIM investments will continue to attract BPR but at the reduced rate of 50% relief in all cases. Although these will not benefit from the new allowance, they won’t use up any of the allowance either. We note that the share price of many AIM companies rose immediately following the Budget, suggesting the changes were not  as bad as many in the market had expected. IHT payable on business property will continue to benefit from the instalment option, to spread payments over 10 years - and instalments on some BPR assets are generally interest-free. (Note that interest on unpaid tax will increase from 2025 to 4% above base rate, so claiming the instalment option on other property will be an expensive way to fund IHT).

Capital Gains Tax

Again, there were no real structural changes to CGT and so aspects such as the tax-free uplift on death remain, for example.

Rates have, however, increased with immediate effect, though not by as much as some people expected. For disposals made on or after Budget Day, CGT will increase from 10% to 18% for individuals paying the lower rate, and from 20% to 24% for all gains realised by executors and trustees and for higher and additional rate taxpayers. This will bring the headline CGT rates for all assets into line with residential property rates, which are unchanged. Unusually, it causes a split tax year for 2024-25 for the purpose of allocating losses and allowances, as last seen in 2010-11.

The new rates will not apply to gains arising on unconditional contracts made before 30 October that have not yet completed; but there are anti-forestalling rules for gains exceeding £100,000: the parties must confirm there was no tax advantage purpose by reference to the time of disposal and, if they are connected parties, the contract was made for wholly commercial reasons.

A 10% rate remains for the rest of this tax year for both business asset disposal relief (BADR) and investors’ relief, but there will be a phased increase to 14% in 2025-26 and 18% from 6 April 2026. BADR remains restricted to a lifetime limit of £1m of gains and the lifetime limit for investors’ relief is reduced from £10m to £1m from Budget Day.

Income tax, NICs, VAT & savings

Income tax & VAT rates and employee NICs are not changing, in line with Labour’s manifesto commitments. Income tax thresholds will remain frozen until April 2028, and will then be uprated in line with inflation.

Employer NICs are increasing from 13.8% to 15% from 6 April 2025 and, together with a threshold reduction, this is the biggest revenue raising measure to be announced at the Budget.

ISA subscription limits will remain at their current levels until April 2030 and there will be no new British ISA as previously trailed.

As expected, 20% VAT will be levied on private school fees and boarding costs from 1 January 2025, with anti-forestalling measures for pre-payments made between 29 July and 30 October 2024.

EIS/VCTs  

Shortly before the Budget, the EIS and VCT schemes were extended for a further ten years to 6 April 2035. These schemes will continue to provide Income and Capital Gains Relief for investors in new shares of qualifying EIS companies and VCTs. To qualify for EIS and VCT relief, the same previous conditions will apply.

EOTs

The Budget announced several adjustments to the taxation of Employee Ownership Trusts (EOTs). These changes will prevent selling shareholders from retaining effective control of the business after a sale to an EOT by controlling the EOT. The trustees of the EOT will need to be UK residents at the time of sale to the EOT and they will need to take reasonable steps that the price paid by the EOT does not exceed the market value of the shares. There will now also be an extended period to the end of the fourth tax year following the transaction where Capital Gains relief may be rescinded. 

There were however a number of announcements that our team of experts have neatly summarised that address Property and Corporate Taxation; Non-Domicile Taxation; and Private Client Taxation, all of which can be found on our Budget hub – here. 

This summary is intended to provide a first point of reference for current developments in aspects of the law. It should not be relied on as a substitute for professional advice.

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