Following on from the eventful Budget in the Autumn, Rachel Reeves will deliver her Spring Statement on 26th March 2025. The Autumn Budget introduced £40 billion in tax increases, so we are all hoping for less of a ‘splash’ this time and given the governments comments that there will be only one fiscal event a year, there are hopes that no more tax increases are coming. However, the economic forecasts, inflation numbers and general position of government spending seems to indicate there is a little room (if any) for any favourable announcements.
There has also been less speculation leading up to the statement this time, which is welcome given the impact predictions had on individuals who tried to make decisions based on what was to come with mixed results, such as withdrawing lump sum pensions.
So, what do we think will be announced and more importantly what would we like to see announced given we spend all our time helping individuals and business with planning?
Table of Contents
What may be announced?
The Autumn Budget saw some of the biggest changes to the tax rules for some time which we are seeing have a real impact on individuals and businesses. The Spring Statement is unlikely to reverse these, but there is scope to ease the pressure in key areas.
Employment NICs
The increase to Employers’ National Insurance from 13.8% to 15% (along with reducing the threshold when it is paid to £5,000) was big. This has incurred a significant cost to a lot of businesses, with profits forecasted to be significantly reduced or wiped out in many businesses. It has hit certain sectors very hard such as hospitality and retailers, added to the impact of minimum wage increases, we are seeing price increases to consumers to deal with this which adds to the inflation issue.
Ideally, this is something the government will look at to ease the impact, such as increased Employment Allowance or higher starting threshold. Verdict, hopeful for changes but if they come in, likely to be only slightly adjusted (certain sector reliefs).
Inheritance Tax (IHT)
Everyone has seen the protests that farmers have been undertaking on the new IHT rules. Arguably the bigger impact is businesses being subject to IHT (above £1 million threshold) from April 2026 and pensions being subject to IHT from April 2027. These will have much bigger impacts and will likely go a long way to cementing IHT as the UKs most hated tax (according to surveys).
The government have launched a consultation on pension IHT, so we do not expect any movements there. The government has held firm on business/farmer IHT position so far but may consider if the £1 million allowance is too small and increase it (hopefully).
Tax rises?
We hope not, but if these were going to be considered, the easier wins for the government would be higher dividend taxes and/or high capital gains taxes. Both are lower than income tax rates and could be used to bring in more funds. We would certainly not be impressed with dividend taxes being increased as they are effectively already subject to corporation tax before the dividend is paid, which could create a high effective tax charge.
If the Government looks at increasing Capital Gains Tax, one would hope they bring in some form of inflation allowance to make sure the actual value increase is being taxed instead of the de-valuing of the pound.
ISAs
A lot has been said about ISAs in the press. It is hoped the rules are not changed as the government has spent years simplifying this regime and it would be a shame to go backwards. Studies have also shown that lowering the cash ISA limit will not necessarily mean more funds going to investments (and if they did, not necessarily in the UK).
There has not been much other speculation in the press (which is a good thing) and therefore, we have included some areas we would like to see changes to create a more positive tax system (although perhaps some are unlikely).
Changes we would like?
Remove tax cliff edges
These are the very high marginal tax rates that apply due to child benefit claw backs and income between £100,000 and £125,000 (60% tax rate). Given the amount of individuals we know that look to keep income levels below these thresholds, such actions must be costing the exchequer a lot of tax.
Removing these cliff edges would mean a simpler system and a system where individuals do not lower earnings or stop working to avoid the extremely high tax rates. This is extremely unlikely to happen but would be very beneficial for all in the long run.
Inheritance Tax on SMEs
The new IHT regime for businesses does need further thought. £1 million threshold is too low and 20% tax rate above this is high and is affecting businesses growth plans with older owners. Many businesses we work with have commented ‘why grow when it will be taxed’.
Some may think 20% tax of growth is not a high tax rate, but this is not the reality. A business is generally valued on a multiple of profits, with the general rule being 5 times profits (some industries have much higher multiples such as software or insurance companies).
If a business adds £100,000 profit, it can add £500,000 to £1 million to the valuation. If this is taxed at 20%, that is 1-2 years profits going to pay IHT instead of being invested in the business. Will the business be able to afford to pay the IHT and keep going and employing people?
Fortunately, businesses that work with us are able to use effective planning mechanisms to mitigate IHT here, but it is an extra burden on the SME community who we want to concentrate on growing and hiring more people. We would ideally like the government to rethink introducing this for SMEs or at least, the threshold should be increased to say £5 million to remove the lower end of the SMEs that hire up to 20 people.
Get in touch
Worried about how the Spring Statement could hit your bottom line? Talk to Ian Timms, Tax Partner, to find out exactly what you can do about it.
