Rachel Reeves has delivered her inaugural budget speech to the House of Commons, featuring several anticipated announcements alongside unexpected developments. This article explores the implications for various groups highlighted in the chancellor’s statement.
High Earners
Income tax brackets will be reset in 2028 to align with inflation. Reeves indicated that prolonging the threshold freeze would “have hurt working people and taken more money out of their payslips.” The “stealth tax” implemented by the previous government in 2021 has already forced taxpayers to pay considerably more.
With the current freeze, projections suggest that by the 2027-28 tax year, 14% of taxpayers (approximately 7.8 million) will be subject to the higher 40% income tax rate, a dramatic increase from 3.5% (around 1.7 million) in 1991-92.
This adjustment also positively affects over 8 million pensioners subject to income tax, with many relying heavily on their annual tax-free allowance of £12,570, which hasn’t been updated since 2021.
Low Earners
More than 3 million individuals in lower-paid roles will experience a 6.7% increase in wages starting in April. The national living wage for employees over 21 years old will rise from £11.44 to £12.21 per hour, representing an increase nearly four times higher than the inflation rate of 1.7% as of September.
Additionally, younger workers will see an even steeper wage boost, with the national minimum wage for those aged 18 to 20 going up by 16.3% from £8.60 to £10.00 per hour—the largest recorded hike. In contrast, workers aged 16 to 17 and apprentices will see an 18% increase in their minimum wage from £6.40 to £7.55 per hour.
Carers
Carers will be allowed to earn more before their carer’s allowance, which is about £4,259 annually, is affected. Currently, individuals providing care for one person for a minimum of 35 hours per week can claim the allowance if they earn less than £151 weekly after tax. However, there are criticisms over the very low earnings cap, which has made many carers reluctant to report overpayments.
Reeves announced that eligible carers will now be able to earn up to £10,000 per year, equivalent to 16 hours of work at the new national living wage, without losing any allowance. This represents an additional £45 per week, potentially extending access to the benefit for around 60,000 more carers. Reeves also pledged to eliminate the abrupt cutoff for carers losing their allowance.
Pensioners
The state pension will continue to follow the triple lock principle, ensuring it rises each year according to the highest of inflation, wage increases or 2.5%. From April, the state pension will increase by 4.1%, augmenting the full new state pension by £473 annually to £11,976. About 9 million pensioners who retired before 2016 will see their older state pension rise from £8,814 to £9,175 in April.
While benefits for those of working age will rise only in accordance with September’s CPI inflation rate of 1.7%.
Drivers
Fuel duty, which applies to petrol, diesel, natural gas, and other fuels, will stay frozen, having not increased since 2011 after a reduction of 5p in 2022 to assist with living costs. Today, fuel duty stands at 52.95p per litre, generating about £25 billion annually for the Treasury. Reeves confirmed the continued 5p reduction will extend past March 2025.
For non-drivers, the cap on the bus fare will rise from £2 to £3 and remain at that level until the end of 2025.
Electric Vehicle Owners
Tax advantages for electric vehicles will remain, although the taxable rate for company cars will increase from 2% to 9% by the 2029-30 tax year, with higher rates set for more polluting vehicles. The government plans to extend the disparity in vehicle excise duties (road tax) between electric and non-electric vehicles.
Owners of electric vehicles registered after April 1, 2025, will pay a starting road tax of just £10 for the first year until 2029-30. Conversely, rates for heavier polluting vehicles are expected to double by 2025-26.
Pubs
The alcohol duty on draught beer is set to decrease by 1.7%, effectively lowering the price by “a penny from pints in pubs,” according to the chancellor. Nevertheless, duty on non-draught items will rise in accordance with the retail prices index (RPI) starting in February.
Additionally, businesses in retail, hospitality, and leisure sectors will receive an extension on business rate relief, which was initiated during the pandemic, lasting until 2026. Reeves announced a new lower rate will be introduced for these sectors, with guarantees of avoiding a sudden cessation when the discount period comes to an end next year, offering 40% relief on business rates for 2025-26 capped at £110,000 per business.
Identifying the Losers
Inheritance Tax
Beginning April 2027, inheritance tax will be applied to pensions, marking a significant shift for savers intending to pass their retirement savings to heirs. Previously, pensions weren’t included in estate calculations for inheritance tax. The IFS estimates this change could generate £200 million this year, increasing to £400 million by 2029.
The existing tax-free thresholds allowing individuals to pass on £325,000 free of inheritance tax—with a rise to £500,000 for main homes—will now remain frozen until 2030 instead of the expected 2028 unfreezing.
Investors
Those selling shares and other assets will face a higher capital gains tax (CGT) starting April. The tax rate on profits will rise from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher-rate individuals. The rates applicable to sales from second homes and buy-to-let properties will stay constant at 18% and 24%, respectively, while the annual CGT-free allowance of £3,000 remains unchanged.
Furthermore, business asset disposal relief will become less favorable, incrementally rising from the current 10% to 14% in April 2025 and reaching 18% by April 2026.
Landlords and Second-Home Owners
The additional stamp duty on second homes will increase by 2 percentage points, affecting transactions from midnight forward. For properties exceeding £40,000, the added stamp duty is applicable on second homes, holiday rentals, and buy-to-let properties.
Typically, homeowners incur stamp duty above £250,000. Individuals purchasing a main residence for £300,000 face a 5% stamp duty (amounting to £2,500). Conversely, buyers of second homes don’t benefit from this allowance and will now pay 5% on up to £250,000 and 10% beyond that, leading to a total bill of £17,500.
This additional charge has generated over £10 billion for HM Revenue & Customs since its establishment in 2016.
Employers
Employers will see an increase in tax obligations, with national insurance contributions set to elevate by 1.2 percentage points—rising from 13.8% to 15% by April 2025. Additionally, the earnings threshold for employer contributions will reduce from £9,100 to £5,000, which could yield an increase of £25 billion annually for the government.
However, the employment allowance, which assists smaller businesses in lowering their national insurance expenses, will increase from £5,000 to £10,500. The chancellor noted that this adjustment would exempt 865,000 employers from paying national insurance next year.
Private Schools
Starting in January 2025, private school fees will be subject to a 20% VAT charge, which is expected to add approximately £3,100 annually per child, according to analysis by Quilter. Additionally, private institutions won’t qualify for charitable business rates relief starting in April 2025. These policy changes aim to save about £9 billion over the duration of the current parliamentary term.
Non-Doms
The non-domiciled tax regime that permitted foreign residents in the UK to avoid taxing overseas income will be eliminated come April. Instead, a new “residence-based scheme” will establish “internationally competitive arrangements for those relocating to the UK,” as stated by Reeves. This reform, accompanied by a transition phase allowing foreign income and gains subject to a lesser 12% tax rate over the next three tax years, is expected to raise £12.7 billion in revenue over the next five years.
Farmers
Business and agricultural relief allowing for the tax-free passing of farmland or major business shares has undergone significant alterations, becoming less generous. From 2026, these reliefs will merge and impose a cap so that a maximum of £1 million in agricultural assets can be transferred without tax implications. Anything exceeding this threshold will incur a 20% tax. Critics suggest that the £1 million limit does not adequately represent current land values or encompass agricultural buildings and houses.
Smokers
Smokers and vapers will experience increases due to the implementation of a new vaping tax and an elevation in tobacco duties. A “flat rate duty” on vaping liquids will be introduced in October 2026.
Continuing with the annual plan to increase tobacco duties by the rate of RPI plus 2%, rolling tobacco specifics will see a 10% rise this year.
First-Time Buyers
Many first-time buyers were left disappointed due to a lack of additional support measures. There were calls for enhancements to the Lifetime Isa to facilitate home purchases. Currently, savers can contribute £4,000 annually to receive a 25% government incentive for first-time home acquisitions, but the maximum property price has remained stagnant at £450,000 since 2017, despite substantial housing inflation.
No mention was made regarding an extension of stamp duty relief, which currently allows first-time buyers to pay no duty on properties valued up to £425,000, a threshold reverting to £300,000 starting in April.