UK Budget Reaction: Chairman’s Views
It’s Thanksgiving in the US today, but there has been little of that sentiment here in the UK following the Budget Statement yesterday.
The headlines from Chancellor Rachel Reeves statement are:
- Increases in minimum wage and various state benefits from April 2026
- Cash ISA limit for under-65s to be reduced to £12,000pa from April 2027.
- Additional 2% tax on ‘unearned’ income from April 2026 (dividends), April 2027 (rents and interest)
- ‘Mansion’ tax on houses worth over £2m from April 2028
- Pension salary sacrifice schemes to be cut from April 2029.
- Lifetime ISAs to be scrapped but replaced.
- Electric vehicle tax per mile from April 2028.
- Business assets IHT (introduced in last budget) now transferable to spouses
- Income tax, VAT exemption and IHT bands frozen
Unusually, from a planning point of view, there is plenty of time to digest these changes and act accordingly. The only ‘immediate’ change is the application of an extra 2% tax on dividends from April 2026, the others generally apply from 2027 or later.
There are also some points which didn’t make the headlines but may affect certain groups.
- Reduction in Venture Capital Trust investment income tax relief (30% to 20%) from April 2026.
- Capital gains tax relief on sales to employee ownership trusts restricted to 50%
MHW Chairman David Atherton said…
“This budget clearly increases the tax burden on savers and companies, but was no worse than expected. The Chancellor had the option to increase income tax generally and reduce national insurance by the same amount, but did not do that, instead adding an additional 2% on income that doesn’t attract NI, rents, interest and dividends, which amounts to the same thing, but apparently is politically different, although one wonders how freezing allowances for three more years is ‘not increasing tax on working people’.
This extra tax is a reminder of the 1970s Investment Income Surcharge, and the danger is that a 2% surcharge can easily become a 5% surcharge, which is exactly what we saw in Buy-to-Let stamp duty last year.
Nevertheless, and quite unusually, most of these changes are delayed by a year or more, giving people chance to do some planning. The only ‘immediate’ major change is the extra 2% tax on dividends. Avoiding the increase by taking dividends before next April has to be balanced against the date tax is payable.
ISA and pension saving is of course at the core of what we do at MHW, and we have plenty of time to make revised calculations to optimise our clients’ financial plans.
In particular, the changes to VCT investment relief will require careful scrutiny, as will the reforms to sports image rights announced earlier this year. The latter is of particular importance to MHW given our dedicated Sports Planning Department, led by Curtis Anderson.
It was notable that the stock markets, sterling and even government bonds were slightly up yesterday, showing that large investors were fairly comfortable about the changes. The key takeaway is the delay in implementing all these changes, a welcome change from last year’s budget.”
