On 30 October, the Autumn Budget was announced, confirming a myriad of tax changes.
In what has certainly been the most anticipated budget in recent memory, Chancellor of the Exchequer Rachel Reeves delivered Labour's first budget since 2010 and the first budget by a female Chancellor in British history on 30 October.
Since coming into government in July, Labour have repeatedly stated that difficult financial decisions would have to be made to plug the financial black hole caused by "worst set of circumstances since the Second World War" which they claim to have inherited from the Conservative government. Despite this, Labour have consistently promised to protect the finances of Britain's working people while aiming to raise £40 billion for the UK economy.
The measures announced by Reeves follow the Office for Budget Responsibility's predictions that the UK economy will grow by 1.1% this year, 2% in 2025, and 1.8% in 2026, with inflation averaging 2.5% this year, 2.6% in 2025, before falling to 2.3% in 2026.
The financial measures follow a series of actions already revealed by the Chancellor. The government have confirmed that VAT will be levied on private school fees from the start of the January term. Furthermore, winter fuel payments are set to become means-tested, a measure which has already been criticised by some charities and MPs.
Taxation and income support
Capital Gains Tax (CGT)
To many, it will not be a surprise that Reeves has announced an increase to CGT rates, given that speculation regarding an overhaul to the CGT regime has been widely reported in recent weeks.
From 30 October the lower rate of CGT will increase from 10% to 18% and the higher rate from 20% to 24%. The rates levied on the sale of residential property will remain unchanged at 18% and 24% respectively. This change means that for almost all gains (other than "carried interest") a single set of CGT rates now apply to all assets.
To encourage investment by entrepreneurs, Business Asset Disposal Relief (BADR) will remain at 10% this year, before rising to 14% next year and 18% in 2026. The lifetime limit for BADR will remain at £1 million.
Income Tax and National Insurance
As part of their election campaign, Labour promised not to increase taxes on the "working people". The party stated that it would not raise income tax, employee National Insurance, or VAT. While that is the case, it was also announced that the freeze on income tax and National Insurance thresholds will end in 2028 and be updated in line with inflation.
Given the use of so called "fiscal drag" to increase tax revenues in recent years, this change was somewhat unexpected.
In April 2025, the National Living Wage will increase for over-21s by 6.7% and for 18 – 20-year-olds by 16%, alongside an increase of 4% to the state pension.
The primary cash-raising change will instead be targeted at employers. Employer National Insurance contributions are set to increase from a rate of 13.8% to 15% and will kick in on employee earnings above £5,000 from April, down from £9,100 as they are currently. Offsetting this somewhat is an increase in the Employment Allowance from £5,000 to £10,500 and a removal of the £100,000 threshold.
Inheritance Tax (IHT)
The threshold at which an estate becomes liable to IHT has been set at £325,000 since 2009 and the previous government confirmed that this threshold would remain frozen until 2028. Reeves has extended this freeze for a further two years in this budget.
In addition, the government announced two major changes to the IHT rules. Firstly, the government will bring unspent pensions and death benefits within the realm of the IHT charge from April 2027, as these are not presently considered for the purposes of calculating IHT. Labour predicts this measure will affect around 8% of estates per year but it is important to note this change remains subject to consultation.
Secondly, a further considerable change to the IHT regime will impact the applicability of Agricultural Property Relief (APR) and Business Property Relief (BPR). From April 2026, the existing rate of 100% relief will continue for the first £1 million of combined agricultural and business assets, with a rate of 50% relief applying for assets thereafter.
The introduction of this £1 million cap on 100% relief will apply to all property within the estate on death, any lifetime transfers in the seven years before death (i.e. failed potentially exempt transfers), and transfers into trust. It is worth noting that this £1 million allowance is not transferable between spouses and will also be divided among trusts.
Investments on the Alternative Investment Market will benefit from a rate of relief for IHT of 50%.
The non-dom regime
Reiterating promises previously made, Reeves confirmed the Labour government's intention to abolish the "outdated" concept of domicile within the UK taxation system.
From April 2025, taxation will be on a residence-based scheme instead, with the Office for Budget Responsibility predicting that this tranche of measures will raise £12.7 billion over the next five years.
Transport and energy
The previously announced 5p cut in fuel duty on petrol and diesel was due to end in April 2025, but Reeves has announced that this will be extended for a further year. There will be "no higher taxes at the petrol pump next year".
The so-called "windfall tax" on the profits received by gas and oil companies has been increased to 38%, which will now expire in March 2030.
The Chancellor commented that air passenger duty has not kept up with inflation so change must occur. The government intends to introduce an increase of no more than £2 for an economy short-haul flight but will increase the rate on private jets by a further 50%.
Duties
The trend of increasing tobacco taxes has continued, with the rate to increase by 2% above inflation. This is alongside the newly introduced tax of £2.20 per 10ml of vaping liquid set to come into force in October 2026.
Tax on non-draught alcoholic drinks will be increasing by the higher Retail Price Index measure of inflation but tax on draught drinks will be cut by 1.7%, a measure which was met by resounding applause in the Commons.
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