News
The Chancellor of the Exchequer delivered her Budget on 30 October. Here, lawyers from our Corporate, Probate, Residential Property & Conveyancing, Employment and Real Estate teams look at what it means.
Faye Cook, Partner in the Corporate team comments: “Following M&A deal activity remaining subdued in Q1 & Q2 2024, the results of Q3 will undoubtedly be drastically different, with both cross-border and domestic M&A transactions racing to close before the delivery of today’s Autumn Budget, amid fears of a Capital Gains Tax (CGT) increase.
“Players in the M&A & Corporate Finance sectors have been stretched to their limit in recent weeks as business owners and sellers have rushed to get their deals across the line. Their efforts were not in vain following Chancellor Rachel Reeves’ Budget this afternoon, which, with immediate effect, increased the rate of CGT from 20% to 24%. Any deals which did not complete before today will be subject to the newly higher CGT rates.
“The Chancellor did maintain the CGT lifetime limit of £1million, she said, “to encourage entrepreneurs to invest in their businesses”. However, there were significant changes to the rates of Business Asset Disposal Relief (BADR), which will remain at 10% this year, but then increase to 14% in April 2025 and 18% in April 2026. This is anticipated to cause a spike in deal activity on smaller M&A transactions in the lead up to these rate increases next year and the following. However, the effect of this may be fairly minimal in the wider M&A Mid-Market transactions as the tax payable on any portion of the proceeds which attract BADR are likely to be fairly insignificant in the context of larger Mid-Market deals.”
Esther Lee, Partner in the Probate team adds: “The Budget has been announced and it is a bad day for farmers and business owners. Currently, if you die owning business or agricultural assets that qualify for agricultural or business relief (AR or BR), or indeed give those assets away in your lifetime either outright or to a trust, then in many cases the value could be fully relieved from inheritance tax. The Chancellor has announced that from April 2026, these reliefs for inheritance tax are going to be severely limited.
“This is likely to hit farmers and landowners particularly hard. Due to the need to diversify income streams, these types of businesses are likely to have strands of their business model that would either qualify for BR or AR. Now, their value will be combined for calculating the relief. Whilst smaller businesses are still protected and can continue to pass free of tax the impact on higher value businesses is likely to be substantial.
The changes mean robust valuations of the business and agricultural assets will be vitally important. Where farm land may have development potential and the land value is now over £1million there are likely to be some high value arguments between HMRC and the land owner or their executors.
“This Budget makes estate planning even more important. Business owners will need to look at the possibility of making lifetime gifts in good time, considering entering into partnerships with the next generation and possibly insurance backed products to help pay the tax.”
Rebecca Swain, Head of Residential Property & Conveyancing says: “Despite all of the pre-Budget speculation of the Chancellor increasing Capital Gains Tax rates on residential property disposals, the rates were left unchanged (at 18% and 24%). Whilst this may have prevented a surge in investment property sales, the hike in the SDLT surcharge on the purchase of additional and second properties (from 3% to 5%) is likely to deter some from investing in residential property. It is hard to see how this will alleviate the rental property supply issues where demand outstrips supply and is driving rents higher. That SDLT increase takes effect from midnight on the 30 October, so there will be a rush of property buyers trying to get their transactions exchanged ahead of that deadline.
“As anticipated, the Chancellor has not frozen the current SDLT thresholds, which means that the rates will increase for all purchasers from the end of March 2025 as planned (including first time buyers). This will no doubt mean that the market will remain buoyant until then, at least, and that there will be a rush to get matters exchanged and completed ahead of those increases.”
Nick Hoben, Head of Employment comments: “With the Labour Government’s fiscal plan to raise £40bn in tax over the next 5 years, it came as no surprise that instead of raising tax from the working population, (although the fiscal drag of freezing tax bands and personal allowances until 2028 is unchanged from the previous Government) the Chancellor announced that employers will have to pay more in employer’s National Insurance contributions, from 13.8% to 15% from April 2025 and with the lowering of the threshold for employer’s National Insurance contributions on earnings from £9,000 down to £5,000 per annum.
“The other big announcements made today include raising the National Living wage from £11.44 per hour to £12.21 per hour from 1 April 2025 for those aged 21 years old and over. The 18–20-year-olds on National Living Wage will see their wage increase from £8.60 to £10 per hour. Apprentices rate will rise from £6.40 to £7.55 per hour. It is therefore likely that with inflation around 2.0% and these added costs of employment, employers will be prudent with wage increases or look to make cost of labour savings by restructuring.”
Alisa Sweeney, Partner in the Real Estate team says: “When it comes to the food and drink sector, today’s Budget gave with one hand while taking with the other. While many will welcome the news of 40% relief on their business rates liability and support up to a cash cap of £110,000 per business, as well as the small business multiplier in England being frozen at 49.9p for 2025-26, there will be dismay over tax increases for employers, which will hit the industry hard. Rises in the national minimum wage and a 1.2% increase in employers’ National Insurance contributions will add significant costs to employing staff for food, drink and hospitality businesses.”
