Summary
- The Budget introduced several tax-raising measures, including a reduced Cash ISA limit for under-65s from April 2027 and extended freezes on income tax and National Insurance bands until 2031, increasing fiscal drag.
- Higher taxes are planned for dividends, property and savings income, alongside future NIC charges on salary sacrifice pension contributions above £2,000.
- Limited positives include a new 40% capital allowance for business assets and greater flexibility in transferring Business and Agricultural Relief between spouses.
Normally, heading into Christmas, the budget is somewhat of a painful memory. However, in 2024 business owners (not just farmers – but owners of all trading businesses) had their festive spirit quashed as a result of the Chancellor’s Inheritance Tax announcements.
But this year, with the budget being a month later, it is hard not to feel as though we have all lived through a nightmare before Christmas. The extra month of media speculation (no doubt fuelled by Treasury briefings) has been enough to sap the festive joy from even Jolly Old Saint Nicholas.
Cash ISA savers aged under 65 are set to receive a lump of coal in their stockings this year. The cash ISA limit has been cut to £12,000 with effect from April 2027. The £20,000 persists for those over 65 years of age – presumably on the assumption that older individuals have less risk capacity – but those under 65 will have to invest into stocks and shares to make use of the full ISA subscription allowance.
It isn’t just the winter weather that is freezing. Personal tax and National Insurance bands will remain frozen for an additional three years, so until 2031, having been locked in until 2028 by the previous government. This is surprisingly effective in raising revenue for the Treasury because of the much maligned ‘fiscal drag’ effect where, due to inflation, taxpayers end up paying higher rates of tax when they would not necessarily have done if tax bands were increased alongside inflation.
On top of the general freeze, there are targeted increases in the rate of tax applying to certain types of income – namely dividends, property and savings income. In very broad terms, a 2% surcharge is to apply (except for the additional rate for dividends which will remain at 39.35%). For dividends this will come in from 6 April 2026 and from 6 April 2027 for property and savings income. Taxpayers who do not have the luxury of spending all day pouring over tax legislation and rates tables would be advised to put a mathematics degree at the top of their Christmas list this year – yet more rates and bands make the calculation of an individual’s personal tax liability (with even modest passive income) surprisingly complicated, which I doubt those designing the policy would have appreciated.
For anyone in a salary sacrifice pension scheme, gifts from the Chancellor were in short supply. Set to apply from 6 April 2029, employer and employee NICs on pension contributions will apply to salary sacrifice pension contributions above £2,000 per annum.
Santa’s elves at the Treasury did manufacture a few presents. A new 40% capital allowance for ‘main pool’ business asset purchases will be introduced, although the rate of residual expenditure in the pool will be cut from 18% to 14. In a very slight concession to last year’s IHT relief changes the 100% Business and Agricultural Relief limit can now be transferred between spouses
I would be remiss to end my Christmas-themed editorial without mention of Father Christmas’ list of who has been naughty or nice over the past year. I am sure that in the eyes of the Chancellor, top of the list in the ‘naughty’ column will be the Office for Budget Responsibility.
The OBR were seemingly in a particularly giving mood – and in rather irresponsible fashion – their report was ‘leaked’ before the event itself, leading to the bizarre scene of PMQ’s carrying on as though nothing had happened, while those on the opposition benches could be seen to be studying the charts and graphs produced by the OBR on their phones before the Chancellor had even taken to the dispatch box.
Despite yet another tax-raising (£26 billion pounds) budget, all of us at Churchgates hope that readers have a very enjoyable Christmas and a happy and healthy New Year. Once the festive celebrations are over and the decorations are packed away, think about making your New Year’s resolution of getting your finances in order. Churchgates can advise on all aspects of your financial situation, with dedicated tax, accounts, legal and wealth management teams under one roof.
