With the new budget just released, clients are understandably already questioning its impact. Unfortunately, for many, the response is probably one of disappointment or even frustration as overall there is a £40bn hike in taxes, with a significant proportion of funding falling on the shoulders of businesses.
Key Budget changes affecting business owners
- Capital Gains Tax (“CGT”): The lower rate of CGT will increase from 10% to 18%, and the higher rate from 20% to 24% on the sale of shares – but Business Asset Disposal Relief to £1 million has not been scrapped as some had feared, which is good news. The lower rate will rise to 14% in April 2025 and 18% in 2026 – the higher rate increase comes into effect from today. Overall, these are large increases, but we feel they are not going to drive people to Portugal yet as they are less than was expected.
- Private Equity: Costs will rise for private equity firms as carried interest CGT charges will increase to 32% from 20% in April 2025. This may slow valuation growth or reduce valuations.
- Employer’s National Insurance Contributions: Employers’ National Insurance (“NI”) will increase by 1.2% to 15%. There is also a reduction in the threshold at which employers start to pay NI to £5,000 from £9,100. For those operating on tight margins, this increase in NI is likely to prompt a re-evaluation of salary structures and potential pay rises.
- Minimum Wage: The Government will hike the National Living Wage by 6.7% to £12.21 an hour, which Reeves said would be “worth up to £1,400 a year for a full-time worker”.
- Venture Capital (“VCTs”): VCTs could also become more attractive as there is tax relief on the input of funds, tax-free dividends and no CGT on realisation.
- Inheritance Tax (“IHT”): An extension of the IHT threshold freeze for a further two years to 2030 represents a continued erosion over time.
- Pensions: Pensions will lose the IHT protection they previously achieved.
- Capital Investments: Investment of £20bn of funding the “growth industries of the future” in the science sector.
Under Pressure Budget
Our clients are self-made business owners who have invested significant personal resources – often by remortgaging homes or borrowing from friends, to build and drive their businesses. They have worked relentless hours, not only to support themselves but to provide jobs. These new policies place further pressure but are probably balanced given the poor state of UK Plc’s balance sheet. Whilst we do not set policy, we can move quickly to adapt to changes. By fostering a growth mindset and focusing on strategic adjustments, we can help our clients navigate the challenges of this tough ‘under pressure’ budget. We will update more as the press releases follow.
Contact us
If you would like more information about the services we offer or case studies on our recent deals, please visit our website at https://avondale.co.uk. Alternatively, if you would be interested in a free consultation with one of Avondale’s experienced M&A advisors, please call us at +44 (0)1737 240888, email us at av@avondale.co.uk or fill out the attached form and we will get in touch straight away.
