Chancellor Rachel Reeves’ Budget: “Fixing the foundations for growth”
After waiting 14 years for the next budget on behalf of the Labour Party and for the very first time having a budget designed and delivered by a female Chancellor of the Exchequer, Rachel Reeves brought to us today her proposals for fixing the foundations of the UK economy and getting the country on track for growth and to “Invest, invest, invest! “ as she has set out her mission for ” fixing the foundations of the economy and rebuilding Britain”. Keep reading for UKBAA Executive Chair Jenny Tooth OBE’s commentary.
Rachel Reeves was keen to emphasise that the budget was fully aligned with the OBR and focused on reducing inflation to 2.0% and increasing GDP by 1.6% and moving from a current position of £1.27bn debt to £9.9bn surplus by the end of their current term in 2029.
For angels and early-stage investors there were a number of key budget announcements in relation to tax as well as spending that will have an impact on the capacity and appetite of our community to invest in innovation and entrepreneurship in the years ahead. But we hope that many of our HNW community who had contemplated leaving will indeed cancel their plans and continue to invest here in the UK!
Capital Gains Tax
The lower rate of Capital Gains Tax will increase from 10 percent to 18 percent,and the Higher Rate from 20 percent to 24 percent, while maintaining the rates of capital gains tax on residential property at 18 percent and 24 percent.
After very gloomy statements in the run up to the budget, the increases whilst significant may be regarded as lower than expected and as stated by the Chancellor, the UK will still have the lowest Capital Gains Tax rate of any European G7 economy, hopefully retaining our competitiveness and continuing to attract international investors.
CGT on Carried Interest
After much speculation, Capital Gains Tax rates on carried interest will be increased from 28 percent to 32 percent from next April 2025.
However, the Chancellor also announced that in April 2026, the Treasury will deliver further reforms to ensure that the specific rules for carried interest are “simpler, fairer and better targeted.
Inheritance Tax
The Chancellor will extend frozen inheritance tax thresholds for a further two years beyond 2028, so the first £325,000 of any estate can be inherited tax-free, rising to £500,000 if the estate includes a residence passed to direct descendants — and £1 million when a tax free allowance is passed to a surviving spouse or civil partner.
But inherited pensions will now be brought into inheritance tax from April 2027. Whilst existing Business Property and Agricultural Property Reliefs from IHT will be reformed with effect from April 2026, so that the first £1m of combined business and agricultural assets will continue to attract no inheritance tax, but for assets over £1 million, inheritance tax will apply with 50 percent relief, at an effective rate of 20 percent.
Most significantly for investors, shares held on the Alternative Investment Market and other similar markets, have received 100 percent relief up to now and these will now be reduced to 50 percent relief on inheritance tax setting the effective rate at 20 percent.
Non Dom tax status
Rachel Reeves confirmed that the government will fully abolish the non-dom tax regime and remove the concept of domicile from the tax system from April 2025.“If you make Britain your home, you should pay your tax here,” Reeves said.
Business Asset Disposal relief
The lifetime limit for Business Asset Disposal Relief will be maintained at £1 million and will remain at 10 per cent this year, before rising to 14 per cent in April 2025, and to 18 per cent from 2026/27 maintaining a significant gap compared to the higher rate of capital gains tax.
EIS and VCTs Tax relief schemes
The Chancellor signalled the Government’s commitment to supporting growth and entrepreneurship and their intention to continue to work with leading entrepreneurs and venture capital funds to ensure that policies support a positive environment for entrepreneurship, restating the Government’s commitment to the EIS and VCT schemes which had been extended to April 2035.
R&D Tax schemes.
The Chancellor provided reassurance that the tax reliefs would be maintained, but there was no reference to further reforms of the schemes as many in our community have called for.
Employer tax on NIC contribution
As expected, the Government is increasing employers’ national insurance contributions by 1.2 percentage points to 15 percent from April also lowering the threshold at which NI is paid from £9,100 to £5,000.
However, protections for smaller businesses were announced, with the employment allowance rising from £5,000 to £10,500, taking small employers out of paying any national insurance at all.
Nevertheless, this new tax may be regarded as especially hitting businesses backed by angels and early stage investors that are seeking to scale and build their teams significantly increasing their costs of hiring further skills and talent.
Income Tax Threshold freeze Maintained to 2028
In a surprise announcement, the Chancellor stated that income tax thresholds which had been frozen by the last Government to 2028 will be updated in line with inflation from 2028. This had largely been expected to be extended beyond that. However, it was considered to impact heavily on working people.
Corporate Tax Roadmap
Alongside the Budget, the Government provided a Corporate Tax Roadmap with a view to offering certainty to business to encourage investment and give business the confidence to grow. The Roadmap includes commitments to cap the headline rate of Corporation Tax at 25%, which is the lowest in the G7 and to maintain the capital allowances system , including permanent full expensing and the £1 million Annual Investment Allowance.
Public Spending and Investment
The Chancellor announced her intention to protect public services which are set to grow at an average by 2025-6 of 3.3% in real terms and boosting public spending by over £100 bn over the next 5 years. However for the next financial year, all government departments have a 2% productivity, efficiency, and savings target, that is expected to save billions of pounds but will be very challenging to maintain.
Key flagships for the Government’s investment plans announced, include an additional £22.6 billion for day-to-day spending over two years for the Department of Health and Social care.
Further flagship investments include: National Wealth Fund to catalyse over £70 billion of private investment into core infrastructure and the Government’s Pensions review to unlock greater investment in UK growth assets.
She also referred to the recent green paper which set out plans for a Modern Industrial Strategy to support investment in growth-driving sectors . It set out the eight growth-driving sectors (advanced manufacturing, creative industries, clean energy industries, defence, digital and technologies, financial services, life sciences, and professional and business services.
Investments announced in support of the priority sectors include £975 million for the aerospace sector over 5 years to fund vital research and development for the latest aerospace technology; over £2 billion over 5 years to support the automotive sector; up to £520 million for a new Life Sciences Innovative Manufacturing Fund to drive growth and build resilience for future health emergencies. Tax reliefs and further support of the Creative Industries sector.
Additional Funding to the British Business Bank
We were delighted to hear that as part of its Spending review plans, the Chancellor has announced additional funding for Regional Angels Programme, also the Life Sciences Investment Programme, Future Fund: Breakthrough a that back innovative, high growth businesses and early-stage start-ups as well as for Start Up Loans over the next financial year.
In line with the ambition of the Invest in Women Taskforce to expand access to funding for female entrepreneurs, the Bank will also invest £50m in female-led funds through its existing programmes.
Investment in Research Innovation and Technology
Among the Government’s public investment plans, the Chancellor announced £20.4bn investment into R&D including £6.1bn for core research to support Engineering; Biotech and Medical Science.
This includes the Government’s R&D investment into the EU Horizon association enabling UK researchers and businesses can participate research cooperation, worth more than £80 billion.
At least £25 million in 2025-26 is committed to launch a new multi-year R&D Missions Programme to solve targeted problems that will crowd in private and third sector investment to accelerate delivery of each mission.
Support to Devolved Nations and regions
Additional spending support was announced for the devolved Nations and regions including the Devolved Mayor’s in Greater Manchester and West Midlands, with City and Growth deals across the regions. Also further funding to Innovation Accelerators, which the government will extend into 2025-26 to continue to bolster high-potential innovation clusters in the Glasgow City Region, Greater Manchester, and the West Midlands.
Further details on the Budget, Spending review and specific Government Department and supplementary documents can be found here.
