Budget Commentary from Crowe Partners
TAX
Robert Marchant, partner, National Head of Tax, said: “The Chancellor talked of “restoring stability” and an “end of short termism”. Businesses need certainty in order to plan their investments and the Business Tax Roadmap needs to provide this to allow our businesses to grow. We know the corporate tax rate will be capped at 25% but that means little if there is constant change to the calculation of the amount on which tax is due. The Budget speech will get the headlines but the key detail that really matters for tomorrow could be in this document.
“We are heading to Scandinavia… Today’s Budget announced £40bn of tax increases likely pushing the UK’s tax burden ever closer to the levels of those in countries such as Denmark and Norway, which funds extensive public services and welfare benefits.
“The Government recently issued its Industrial Strategy which set-out 8 growth driving sectors and includes a desire to ’capture a greater share of internationally mobile investment’’. It is a document that contains a significantly more upbeat tone and could serve as a roadmap to economic growth. The hope is that the measures in today’s Budget, combined with the government’s day to day policy, is able to deliver on these objectives.
“The world’s worst kept secret is out. Tax rises in the order of £40bn have been announced, and, in my opinion if not directly, at least indirectly, they will be borne by everyone, including working people.”
Tax partner Rebecca Durrant said: “Today’s Budget by the new Labour Government and the first in 800 years delivered by a female Chancellor included some significant changes for private clients.
“The immediate increase in capital gains tax to 24% at the higher rate (18% lower rate) is surely less than many expected and there was small relief for businesses in that Business Asset Disposal Relief was protected at least in the short term on the first £1m at 10%, increasing to 14% and 18% in 2026 and 2027 respectively.
“The biggest blow will be to the change in business relief on inherited assets. Family businesses have been secure in the knowledge that on death 100% of the value of their businesses were protected from IHT but that will now change. For businesses valued at over £1m, only 50% of the value will be available for relief creating an effective rate of IHT of 20%. This withdrawal of relief will also apply to shares in AIM portfolios.
“In addition, the Chancellor removed relief from IHT on pension funds in their entirety from 2026. Again previously a significant tax free asset for beneficiaries.
“These changes mean that families will need to revisit their plans for intergenerational wealth protection. It will also change future succession strategies given that capital gains tax and IHT rates for business assets will be much more closely aligned.”
REAL ESTATE
Caroline Fleet, partner and Head of Real Estate, said: “From a real estate perspective, the industry will be buoyed up by the Government’s continued pledge to reform the planning process and recruit further planning officers. However, successive Governments have made such pledges and the industry will need to see real action on the ground.
“Business rates still remains unfit for purposes – the Chancellor has today announced extended reliefs for retail and hospitality businesses (capped at £110k per business), but this does not alter the fundamentals and the wider reform needed. For residential transactions which are subject to additional dwellings surcharge, there is a 2% increase in the rate from tomorrow. This means that the top rate of SDLT is now 19% and the gap from non-residential rates is now 14%. Establishing the exact nature of the transaction has become even more important.
“From an inheritance tax perspective, real estate has always been a difficult asset class – however the restriction on BPR and APR relief over £1m will be sorely felt by affected property developers and land owners.”
FAMILY AND OWNER-MANAGED BUSINESSES
Simon Warne, partner, Private Clients, said: “The widely-trailed increase in employers’ National insurance contributions has now been announced by Rachel Reeves. Family and Owner-Managed Business (FOMB) employers over across the UK tend to take such increases personally and will probably already have considered their response. It is difficult to see how future pay awards and employment levels will not be affected by this government-mandated rise in employment costs from a marginal 13.8% to 15.0%. The government has consistently told us more tax revenues are needed to set the public finances in order and so the announcement will have surprised few.
“In the short term FOMB businesses are likely to respond with some restrictions to pay growth outside of the mandated rises to National Living Wage to £12.21 /hour which will take effect from April 2025. Officially, unemployment remains low, indeed at a lower level than overall job vacancies, however behind the statistics there are stories of labour market dysfunction, skills shortages and younger applicants experiencing difficulties finding work.
“Business people are nothing if not resilient and looking ahead they are likely to build augmented employment costs into their business models and will continue to turn a profit, perhaps even taking some short-term pain in order to perhaps benefit from the ‘kickstart growth’ agenda in the medium term.
“With taxes now reset, albeit at levels approaching a post-war high, the challenge will now begin for the new Labour administration. Real-terms growth, perhaps in excess of official projections, will need to become a reality and Labour will need to demonstrate some sort of upside from the tax revenues invested; be that in housing, health outcomes or economic benefits felt by the majority.”
Simon Crookston, Corporate Tax and Partner, said: “The Chancellor announced she was looking to “invest, invest, invest” to rebuild Britain. Whilst the Government will be looking to invest, the Budget did not provide the foundations needed for the UK’s 5.6 million private sector businesses to invest in the same way. The combined increase in national minimum wage to £12.21 and the national insurance increase of 1.2% to 15% will ultimately affect jobs, wages and consumer prices.
“While the employment allowance increase is welcome for the 865,000 smallest businesses, the Chancellor’s approach will not provide the support and incentives that the majority of UK businesses are seeking to enable them to innovate and grow.
“It is a real shame that the Chancellor did not use her first Budget to announce a suite of incentives and investment reliefs to provide a real direct green boost for the UK’s 5.6 million private sector businesses as part of her “invest, invest, invest” strategy.
Nick Latimer, partner, Private Clients, said: “The SDLT surcharge on second homes will increase from 3 to 5% from tomorrow, and capital gains tax rates on non-residential property has increased by 4% from 10/20% to 18/24% from today. No changes in non-resident surcharge or corporation tax rates, and no further announcements regarding the planned abolishment of the furnished holiday let rules from April 2025. Business Asset Disposal Relief for developers will remain, although the 10% rate will be adjusted to 18% in the period to April 2026.
“Private commercial property investors will immediately feel the pain of an increase to the capital gains tax rates, although an increase of 4% four percentage points on the top rate is surely less than some had feared, and the top rate of tax for corporate investors will remain the same. The increased SDLT surcharge will further dissuade smaller scale residential property investment, and encourage larger property transactions that might benefit from the lower non-residential rates.
“There have been so many other possible changes that have been mooted in advance of this budget – including reform or reduction in the availability of main residence relief, abolishment of Business Asset Disposal Relief for property developers, or SDLT changes on mixed use. Many clients will be relieved that significant changes in these areas, at least for now, have been shelved. What is unknown is how the confirmed abolishment of the non-domiciled rules from April 2025 will impact on the high end residential property market.
“Overall, this change does add we will see further pain for the property sector, but with favourable reform to planning rules, we would hope that this increased pain is more than offset by opportunities and clarity/certainty of the tax position going forward and help spur the property market forward again after what has been a difficult period.”
