Rachel Reeves’ Autumn Budget, delivered on Wednesday 26 November, outlined the government’s latest tax and spending priorities. Our private client tax and wealth experts have analysed
James Kipping, head of private client tax at MHA gives his first reaction to the announcements and their potential impact on private clients.
"This long awaited and widely trailed (and now leaked) Budget held few surprises.
Backing off from the more fiscally sensible rise in income tax that was briefly trailed earlier in the month Rachel Reeves was forced into a hotchpotch of tax rises which might have pleased her backbenchers but will not play well in Middle England who will bear the brunt of the income tax rises.
This is a tax rise for Pensioners. It does partially balance out the inequality between the taxation on earned and unearned income, although it adds more complexity.
"Is it now the time for a longer-term plan to merge NIC and Income tax? This would arguably reduce the inequality in the tax system and enhance tax revenues other than from working people."
"If this was designed as a Budget to save the Chancellor’s career it might well have succeeded but at what cost?"
Higher tax on non-labour income
"From April 2027, a 2p tax raise across the board for those that have income from their savings and property income, and a 2p raise to dividends in April 2026, with no mention of pension income"
"Reeves anticipates this won’t impact 90% of people, but it will impact the holiday-let industry, landlords, investors and business owners. The rental market serves a purpose, holiday lets drive local tourism and investors and business owners will be discouraged from taking risk."
For those investors that are looking to best navigate these tax changes – funds in ISAs, still at £20,000 contributed a year, pay no tax on profits, and above the allowance there are ways in which tax on investment profits can be deferred to a later date (where tax may be lower), or onto another individual that has a lower marginal rate of tax. Such investments can be complicated in nature, and Independent Financial Advice should be sought. Reeves again nodded to the VCT and EIS industry that offers savers other tax benefits at the expense of higher risk, for investing in smaller business looking to scale up.
Comments on the consultation on entrepreneurship
"Entrepreneurs’ need a secure, competitive tax framework, not just for their business, but to encourage them to be based in the UK for their own personal, and their investors tax position. With the proposed changes to BPR, it will not be in their interests to hold and grow that business for a lifetime – they will want to sell it, then you come to - why would they do that and be based in the UK at current rates when they do?"
The last few months of leaked rumour after leaked rumour – even if much of it turns out to be temperature testing – does nothing but create inertia – not growth. Clarity on a tax framework, intention and a strategy for growth is what is needed.
Given the Chancellor in her short lineage has increased CGT for Entrepreneurs’ and decided to make IHT apply to the majority of their life’s work – perhaps that may be a good place to start the consultation?
ISA Reform Is About Influence, Not Income
"Cuts to Cash ISA allowance doesn’t raise the Governments tax take, its about trying to make people invest that wouldn’t have done otherwise."
ISA Reforms from April 2027 - £12,000 ISA allowance to use for cash or investments, with an additional £8,000 allowance for investments only. Over 65s will be allowed to use the full £20,000 ISA allowance however they choose.
Based on limited tax raises, this isn’t driven by fiscal responsibility and is trying to change our behaviour - the OBR leaked budget suggests this cut this only raises £0.1bn a year. As well as further unnecessary complexity, this is something that makes it harder for those saving for a home, in a market already punishing for first time buyers. While Reeves is correct to suggest that long term, you should expect better returns by investing, investing can be complicated, isn’t without risk and isn’t appropriate for those who don’t want their capital at risk. Why not better educate UK savers on the benefits of investing, make investments easier to access and close the Financial Advice gap - I think that much more could then be done to drive investment. The US doesn’t have an equivalent of an ISA allowance, and yet retail investors drive money into the US economy.
A mixed bag Budget
"There were some measures that may help household spending budgets such as a freeze on regulated transport fares and prescriptions, higher National Living Wage, pension and universal credit increases. Also the removal of the two child limit for child allowance. This will have the biggest impact on lower income households."
Whilst there was no increase in income tax, there is not enough to impact the confidence of middle income households which already feel under pressure. This may ultimately mean that the reported reduction in footfall in 'bricks and mortar' establishments is unlikely to reverse any time soon.
From a retailers point of view, the increased labour costs (many in the sector are on lower wages) and business rate increase will squeeze margins and limit the ability of many businesses to offer discounts. The small changes to lower income households on its own is therefore unlikely to motivate greater spending.
Autumn Budget Hub
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