Autumn Budget round-up for partners and professional firms
Professional practice firms can breathe a sigh of relief as they and their partners have not been singled out in Rachel Reeves’ first Budget.
Perhaps one of the most important changes announced that will be particularly challenging is the hike in the rate of interest levied on late paid tax at 9% from 6 April 2025. This was not anticipated and does seem rather steep.
It is important therefore that partners and firms manage cashflow effectively and avoid the levy.
However, there is an untended consequence, as it will impact those partners and firms affected by basis period reform. There will be an added pressure to ensure that estimated taxable profit shares are not understated. We explore this in our recent article.
How will this impact firms?
However, like all businesses they will feel the impact as a result of the increased employers National Insurance contributions (NIC) that will be payable from 6 April 2025 in the two-pronged attack. Firstly, the reduction in the employers NIC threshold to £5,000 and secondly in the increase of the rate of employers NIC to 15%.
The increased employers NIC for an employee on £30,000 and £60,000 is £866 and £1,226 respectively.
If you have a global workforce, there are further changes that may affect your firm. We explore this in our recent commentary on Mobility Tax.
Annual investment Allowance remained at £1 million, which enables firms to continue investing in the workplace and receive tax relief in the year in which the assets are brought into use.
How will this impact partners?
There had been much talk of increases in the Capital Gains Tax rates and there was concern that they could be aligned to income tax rates. However, the rates were increased to 18% for basic rate taxpayers and 24% for higher rate taxpayers from 31 October 2024. The rate for the disposal of residential properties remains unchanged at 24%.
Business Asset Disposal Relief formerly known as Entrepreneurs Relief also remained intact, however the generous rate of 10% on the £1 million lifetime limit will increase to 14% and then 18% from 6 April 2025 and 2026 respectively.
The nil rate band of Inheritance Tax (IHT) remained as it has done for many years at £325,000. However, two changes were made which will impact families:
- Business property relief will be restricted to 100% relief for the first £1 million, reducing to 50% thereafter, i.e. an effective rate of 20% from 6 April 2026. It is not unusual for individuals to invest in AIM portfolios as these benefit from business property relief.
- Inherited pensions will fall under the IHT remit from 6 April 2027. This will need to be considered in your financial planning strategy.
The evitable was confirmed that VAT on school fees from 1 January 2025, this will clearly impact on disposal income and will be prohibitive for some families and will put pressure on state schools. See our insight on VAT on school fees.
An increase in the Stamp Duty Land Tax surcharge applicable on residential properties from 3% to 5% from 31 October 2024 will impact those acquiring second homes, buy to lets and replacing their main residence before selling their current main residence.
There was confirmation that the non-dom regime will be abolished from 6 April 2025 but now we have more information.
To discuss these points in further detail, please get in touch with Nicky Owen, or your usual Crowe contact.
