Although not as hard-hitting as some analysts feared, the lower rate of capital gains tax (CGT) on assets such as shares still will rise from 10 to 18 per cent, and the higher rate will rise from 20 to 24 per cent. Rates on residential property will be maintained at 18 per cent and 24 per cent.

Inheritance tax thresholds, which is charged at 40 per cent above a threshold of £325,000 ($422, 000), will stay frozen until 2030; inherited pensions will be brought into inheritance tax from 2027, however. The treatment of inherited pensions means that, when income tax is also deducted from the remaining pot, the effective tax rate on an inherited pension is 67 per cent, a lawyer explains. Agricultural and business property business relief will also be reformed with assets over £1 million facing a 20 per cent rate. A 50 per cent relief will be applied in all circumstances on inheritance tax for shares on the Alternative Investment Market (AIM).

Individuals can claim up to 100 per cent relief on the inheritance of agricultural land if it is being actively farmed whilst business relief enables an individual to pass on a company or shares if it is unlisted with 100 per cent tax relief. Reeves said the IHT changes would raise £2 billion.

Hitting businesses, she has also raised employers’ National Insurance contributions (NIC) by 1.2 per cent, raising the levy to 15 per cent for firms from April 2025. She will reduce the secondary threshold – the level at which employers start paying National Insurance on an employee's salary – from £9,100 a year to £5,000, and increase the employment allowance from £5,000 to £10,500 in a boost for SMEs. This will raise £25 billion a year.

Reeves also confirmed the abolition of the resident non-domiciled regime from April 2025. She will raise air passenger duty on private jets by a further 50 per cent and introduce VAT on private school fees from January. The freeze on income tax and National Insurance (NI) thresholds will not be extended beyond 2028, but instead rise in line with inflation, in a bid to avoid hurting working people.

The main rate of corporation tax, paid by businesses on taxable profits over £250,000, will stay at 25 per cent until the next election. Reeves will also maintain incentives for electric cars and offer 40 per cent relief on business rates for the retail, hospitality and leisure industry in 2025/26.

The largest revenue-raising move was a rise in employers' National Insurance Contributions (NICs), a form of payroll tax. While not directly affecting HNW individuals, it will affect wealth management businesses themselves in terms of their own staff. 

Corporation tax was unchanged at 25 per cent, including full expensing for capital expenditure - a point relevant to HNW clients with operating companies, and investors owning them.

The market reaction was fairly muted yesterday afternoon. Sterling steadied after selling off, whilst gilt yields rose slightly, and the FTSE 250 rose, up 1.6 per cent and the AIM market up over 3 per cent.

Here are some reactions from wealth managers to the hikes.

Capital gains tax

Tiago Veiga, CEO at Aurum Solutions 
“Hiking the rate of capital gains tax is counterintuitive to the UK’s ambition of becoming an established global hub for technological innovation and fintech. What we need to be doing is creating an environment that enables businesses to generate wealth, and incentivise growth, not the opposite. The onus is now on entrepreneurs to drive even greater growth, so they can reap the same rewards. To do so, businesses should focus on proactively finding the tools they need to scale sustainably, and this starts with enlisting time and cost-saving solutions. Technology like automation can free up an enormous amount of resources for businesses to spend on revenue-generating activities, particularly for startups which may already have limited capacity. Against a backdrop of greater tax burdens, this will be key to business prosperity in the long run.”

Jason Hollands, managing director at Evelyn Partners
“Higher CGT rates combined with the steep cuts to the annual exemptions in recent years together make for a less investment-friendly tax environment and should focus minds firstly on the importance of utilising tax wrappers like ISAs and pensions, which protect investments from tax on both capital gains and dividends, and secondly on the use of annual tax-exempt allowances. This is especially important if you are married or in a civil partnership and can take advantage of both sets of allowances, and transfer savings and investments so they do not attract unnecessary tax liabilities.’ 

Nicholas Hyett, investment manager at Wealth Club
“The capital gains tax straightjacket has been pulled steadily tighter for years. Between 2022 and 2024 the tax-free allowance for CGT was cut from £12,300 to £3,000, and the decision to raise CGT rates across the board today will only make matters worse. Capital gains tax is only paid by a minority of, generally wealthier, taxpayers, which probably explains its appeal to the government. However, it also represents a tax on risk taking – since it’s only charged on gains from investments or setting up your own business. It’s a far cry from the growth focused, business friendly budget that was originally billed.

For investors facing higher CGT bills it may be worth considering investments in Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) qualifying companies. These government backed venture capital schemes, one of the few to avoid reform in yesterday’s budget, allow you to defer or reduce capital gains taxes as well as offering income tax relief of 30 to 50 per cent up front. These schemes will become even more important going forwards, not just for investors but for small companies that may find AIM less welcoming in future.”

Alice Shaw, wealth planner at Succession Wealth
“The CGT increase on asset sales/business sales could affect future retirement plans, meaning clients are working longer to some degree or saving more heavily. Salary sacrifice is now more attractive given that NI rates have increased.”

IHT

James Quarmby, founding partner, private wealth, at Stephenson Harwood

Quarmby wrote on his Linkedin page today about the "jaw-dropping" nature of a change to IHT that hasn't - yet - received much mainstream commentary. 

"So, if you die with any pension pot left then it will be taxed to IHT. This is regardless of whether you die before or after 75 years of age. Your pension trustees will be expected within 6 months of your death to calculate the IHT and pay it to HMRC. What’s left after that can be paid to your successors but if you were over 75 years old at death they will also be subject to income tax," Quarmby wrote. 

"Let’s take a £2 million pension pot (assume nil rate band used up already), so that’s £800,000 in IHT, leaving £1.2 million to pay to your heirs. They will pay 45 per cent income tax, a further liability of £540,000, meaning that your heirs are left with only £660,000 from a £2 million fund. That’s an effective rate of tax of 67 per cent. I’m sure `working people' all over the UK will be happy to hear this news," he added.

Claire Trott, divisional director, retirement and holistic planning, St James’s Place
"The Chancellor's decision to include pensions in the IHT calculations, alongside freezing to the allowances, will likely increase the number of estates that will pay IHT significantly above the current 6 per cent. The devil will be in the detail to determine if this includes only lump sums, or if it also includes benefits passed down by way of an income. In addition, we need to know how this will work for defined benefit pension schemes, if included, where individuals have no access to increased income to pay a charge. The delay in implementation of this change is welcome, allowing these questions to be resolved and giving individuals some time to plan."

Craig Ritchie, partner at GSB Wealth 
"It is good to have clarity on the Inheritance Tax nil rate band (NRB) continued freeze, although this will bite as more estates fall into the IHT brackets. The exposure of inherited pensions to IHT will reduce the attractiveness of pensions as a wealth transfer tool, changing the landscape for pensions. Bringing AIM stocks into the scope of IHT, even at a reduced rate, will have a negative impact on the value of smaller UK companies, decimating the viability of AIM as an IHT planning tool."

Anna Warren, tax director at Bentley Reid
“The Chancellor has headed the advice of the IFS and made changes to Business Property Relief (BPR) and Agricultural Property Relief (APR). This will have a huge impact on family businesses and farms, especially farms in more affluent areas of the UK. Individuals who may not have had to consider estate planning in detail will now need to plan well in advance to avoid having to dispose of assets on death. In addition, the chancellor announced that the late payment interest rate will increase, given there is only six months to pay IHT, this is likely to impact these individuals significantly.”

Will Stevens, head of financial planning at Killik & Co
“The pain of this budget will be felt by business owners – for those families and individuals who own medium-sized firms, they will not only be hit by a larger employer National Insurance bill, but also the longer-term prospect of having their business value taxed under the Inheritance Tax regime at 20 per cent on any value over £1 million, when they die and pass it on to future generations. While there are some exceptions for smaller business owners, those with larger businesses will certainly have a lot to think about.”

Mark Incledon, chief executive officer of Bowmore Financial Planning
“This is a blow for AIM. The government should have looked at maximising incentives for both companies and investors in the small cap market, not reducing them. Instead, they have chosen to make the AIM market significantly less attractive to investors. The AIM market plays a vital role in funding the UK’s growth sectors. Tax reliefs for AIM shares promote the smaller market to investors, allowing smaller companies to compete. Cutting these tax breaks will slow their growth. This will likely come back to bite the economy in the long run.” Bowmore said that the value of the AIM All-Share Index has fallen by £4.5 billion from the General Election until today , which indicates that these investments will still have a role to play in estate planning.  The major change as far as most families are concerned will be the inclusion of pension pots into the calculation of estates for IHT liability. This will change the estate planning wisdom for some retirees on how pension savings are used in retirement. This is because unspent pension savings are now more neutral compared to other assets from an IHT point of view so it is more likely that wealthy savers who have access to other savings will use more of their pensions during retirement."

Non dom regime

Marcelo Goulart, managing partner, First Alliance
“The overhaul in the non-dom regime is a colossal misjudgement and has exacerbated the damage that has already been done to the UK’s reputation as a prime jurisdiction for wealthy international people setting up homes and businesses. Eighty per cent of my clients have already left the UK or are taking steps to leave before 6 April 2025. Italy and Switzerland are leading destinations of choice. Tax stability is of paramount importance in attracting inward investment, whilst uncertainty (on which the UK already had a poor history) is one of the biggest pain points making a country unattractive for the wealthy.

“If we want London to remain a global financial capital, you cannot have this mindset that treats wealthy foreigners as leeches somehow. Either you make it more (not less) attractive for them to come and stay, or they will make Dubai, Milan, and Zurich their base, as appears to be the case and London will eventually fade into just the capital of England.”

Craig Ritchie, partner at GSB Wealth 
"The abolition of the non-domicile scheme and move to a residency-based scheme presents huge opportunities for UK expats, who intend to remain outside of the UK to pass on wealth free of UK IHT. For those transitioning back to the UK, there is an opportunity to take advantage of the generous four-year foreign income and gains (FIG) regime. The increase in additional stamp duty will further weaken the landlord/buy-to-let investment market and support investment into other traditional investment vehicles. It is likely that we will see Scotland and Wales follow with increases to their stamp duties."

Alexandra Loydon, St James’s Place 
“The government’s decisions to abolish the non dom status and end excluded property trusts in today’s budget may very well mark the end of high net worth (HNW) individuals settling long term in the UK, which could have an impact on the UK's high end property market. With today’s announcements being especially detailed, we strongly encourage those who think that they may be affected, to seek advice and guidance ahead of the published changes being implemented in April of next year.”

Employers National Insurance contributions

Rachel Winter, partner at Killik & Co
“The UK stock market has lost many great companies in recent years. Some have been bought out by overseas buyers who were taking advantage of weak sterling and an out-of-favour-market. Others have moved abroad voluntarily, seeking access to greater numbers of investors and more business-friendly environments. While today’s increase in employer NI contributions is a blow, the freezing of corporation tax rates is welcome news. The FTSE 250, which is a much more UK-focused index than the FTSE 100, has risen during the Budget speech.”

Bond market impact

Michael Browne, chief investment officer at Martin Currie, part of Franklin Templeton
“The markets are happy. Why? The trailing of high capital gains taxes has not happened. How? By raising the National Insurance contributions by 1.2 per cent but also dropping the level it starts to be paid from £9,100 to £5,000. But, under that is the Office for Budget Responsibility's (OBR) expectations there is a lower expected growth rate of higher inflation after 2026. The strain is being taken by not protecting spending departments who will be asked for 2 per cent productivity gains and just 1.5 per cent increase in budgets, where wage increases must be managed.

“This is what the gilt market is impressed by, and why the markets are not overly concerned. The move to a different calculation of public sector borrowing has been clearly anticipated and allows for £100 billion of capital investment over the next five years. With the long-term spending review in next spring, tougher decisions may be on the horizon. This budget is unlikely to deter the mix of overseas investors. Right now, the UK is affordable and offers stability.”

Matthew Amis, investment director, abrdn
“Large but not reckless would be the best way to describe the Chancellor’s Budget increases, which spanned spending, taxation and borrowing. At abrdn, we believe gilt prices can rise relative to peers, however they will struggle to fully unwind the ‘Budget premium’ built up over recent weeks – which saw UK government bond prices fall over fears of increased spending. Rachel Reeves has given the market some level of reassurance, with the tighter than expected stability rule and the increased tax haul. Even so, for her to balance the current budget in three years seems a hard task. Longer-term, the gilt market will struggle to look past the large increases in borrowing announced today. Investors will need to absorb an extra £142 billion of issuance over the next five years. The extra long gilt issuance is catching the market off guard.”