Budget Update

Expectations were high for Rachel Reeves’s second budget with farmers making their views clear by planning a tractor protest in Westminster coinciding with the speech. The hope was that this would highlight the concerns over the Inheritance Tax reforms announced in the previous budget.

Inheritance Tax Concession

There was a small concession in relation to those reforms in that the £1 million business and agricultural property 100% relief threshold will be transferable between spouses. This does avoid the need for the assets to be transferred away on the first death. Prior to this concession, the first spouse to die would have had to pass £1 million of assets to the next generation to secure the relief, whereas now a plan to pass between spouses on the first death and then down the generations on the subsequent death is possible whilst still securing the whole £2 million of relief on the second death. This was not the level of change that was hoped for but, if nothing else, it was a move that reduces a bit of administration in the form of re-writing wills to secure the maximum relief.

Income Tax Increases

Aside from this there was little to celebrate. Although at least there were none of the anticipated changes to the headline rates of Income Tax on employment and self employment, National Insurance, Corporation Tax, and VAT rates that were in some pre-budget predictions.

Thresholds were frozen for a further 3 years until April 2031 which does mean that more and more people are pulled into higher rates and, in spite of previously saying there would be no increase to Income Tax rates, a significant change was the creation of separate tax rates for property and savings income.

Dividend tax will increase by 2 percentage points from April 2026, whilst Income Tax on savings income will increase by 2 percentage points from April 2027, and also from that date the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%. These changes are said to help narrow the gap between tax paid on work and tax paid on assets, where National Insurance does not apply. In addition, from April 2027 the Income Tax ordering rules will be changed so that the tax-free personal allowance must be used against employment, trading, or pension income first which removes any tax planning opportunities that could have been used there.

High Value Council Tax Surcharge

The other main change was the introduction of a High Value Council Tax Surcharge taking effect in April 2028. This will be an added charge on owners of residential property in England worth £2 million or more. The Valuation Office will identify the properties subject to the charge during 2026, and the charge will be administered alongside existing Council Tax.

The rates start at £2,500 per year for a property in the range of £2 million to £2.5 million and increase up to £7,500 a year for a property valued over £5 million. There is to be a support scheme in place for those who might struggle to pay the charge, and a range of reliefs and exemptions are to be consulted on for property tied to a job or held in complex ownership structures. As this is based on the Council Tax structure it is anticipated that values will apply to houses only and it is to be paid by the owner rather than the occupier.

Employee Increases

For those employing staff, the increase in minimum wage rates continues to push costs upwards. It was noted that the minimum wage rate has already increased by 40% in the 5 years from 2020 to 2025, and it will now rise an additional 50p an hour from £12.21 to £12.71 from April 2026, with those in the 18 to 20 year old age group receiving an 8.5% increase to £10.85 per hour and 16 to 17 year olds receiving a 6% increase to £8.

For those employing apprentices aged 22 to 24 there will be a small saving in that the 5% co-investment payment charged to small and medium businesses is to be removed. This means that training under 25-year-old apprentices will be free.

Plant and Machinery Allowances

A further measure which was hidden in the small print reduces the rate of capital allowances on plant and machinery purchases, with the writing-down allowance on the main pool of plant and machinery dropping from 18% to 14% per year. The Annual Investment Allowance of £1 million remains in place though, so this reduction will mainly impact businesses with a pool of historic expenditure.

What Else…...?

Other points that could impact our clients include:

•  Dairy based drinks such as pre-packaged milkshakes are being added to the sugar tax from January 2028, which may impact the sales of these products.

  
  

• English mayors are to gain powers to introduce tourist taxes which will be an additional administrative burden for those in hospitality and potentially reduce competitiveness. Hopefully the permanently lowered business rates for retail, hospitality and leisure businesses will help though.

  
  

• EV mileage tax of 3p per mile for electric cars and 1.5p for plug in hybrids from April 2028 is an additional operational cost to bear in mind for any business considering the transition to electric vehicles. However, there is a one-year extension to the 100% first year allowances for businesses buying zero emission cars and charge point infrastructure to April 2027.

  
  

• There is an extension of the temporary 5p fuel duty cut until the end of August 2026. It will go up with inflation after that, having been frozen for over a decade.

  
  

• The ISA cash limit is restricted to £12,000 from April 2027 with the balance of £8,000 having to be invested into stocks and shares. The whole £20,000 will still be available for over 65-year-olds.

  
  

• From April 2029, there will be a £2,000 cap on the amount that can be put into a pension and shielded from employer and employee national insurance contributions through salary sacrifice. Contributions above that level will be taxed in the same way as other employee pension contributions.

  
  

• The two-child limit for universal credit and tax credits is removed from next April

Choices

Rachel Reeves made ‘Choices’ the theme of her speech and it is of some relief that her choices were far less drastic than predictions had indicated. However, the hope for reforms to the Family Farm Tax becomes less and less likely as the April 2026 change date approaches, restricting the choices that our farming clients have for their future. Fortunately, there were no restrictions added to life-time gifting nor capital gains tax holdover relief, which were anticipated, so it is worth remembering, that all challenges and problems are there to be overcome.