Since the 2024 Budget was unveiled, the reaction from Scotland’s business community has been both interesting yet unsurprising.

Chancellor Rachel Reeves highlighted the ‘difficult choices’ arising from the past 14 years, positioning Labour as fiscally responsible while also being committed to growth and protecting the most vulnerable. This balance reflects the ongoing challenges the UK Government faces as it navigates economic uncertainty.

It was valuable to join a discussion with Moray Chamber of Commerce in November to explore the impact of the Budget, hearing directly from local businesses from across the North East region – views which are echoed across the country. What is clear is that the announcement has set the stage for a complex interplay of challenges and opportunities for both businesses and personal finance.

As the Government strives to stabilise the economy, various measures introduced in the Budget will have far-reaching implications, particularly in taxation, investment, employee management and, most notably, inheritance.

One of the key announcements was the decision to maintain the corporate tax rate, full expensing allowances and research and development incentives. This stability offers a reassuring framework for businesses navigating a testing economic landscape and provides some stability for growth and investment decisions. The self-employed also received a welcome reprieve with no changes to National Insurance (NI) contributions, further bolstering confidence in entrepreneurial ventures. However, the looming increase in employer NI contributions presents a significant cost and financial challenge for businesses.

Employers now face a dual challenge: the immediate impact of increased NI contributions and the negative effect this has on future wage rises and recruitment. Given the Government's stated priority of increasing employment rates, this feels more like an obstacle than an accelerator to growth.

Sectors that were hardest hit by the COVID-19 pandemic, such as hospitality, leisure, tourism, and retail, will likely feel further pain from these costs, forcing some businesses to make tough decisions.  While it is positive that the higher rate of national minimum wage applying to adults will also increase to £12.21 per hour, this will add another layer of cost for employers to absorb.

From a personal finance perspective, the Budget's adjustments to capital gains tax (CGT) rates have increased immediately from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher-rate taxpayers.  Whilst a rise in CGT was anticipated, the resulting rise is not quite as severe as first feared but will ultimately lead to some businesses and individuals having to sharpen their pencils and revisit calculations on future investments and disposals.

The lifetime limit for Business Asset Disposal Relief will also remain at £1 million but the rate will increase from 10% to 14% in April 2025 then 18% in April 2026.  The silver lining to this is that this staggered adjustment gives people time to think ahead and start planning now.

In terms of inheritance tax (IHT), substantial changes too are on the horizon. The reduction in relief for agricultural and business property, which previously enjoyed 100% relief, poses a significant challenge for family-owned businesses. Many business owners, whilst asset-rich but cash-poor, now must find the funds to cover likely large IHT bills. This potentially will lead to a situation where families have to sell a stake in the family business or for those in the agricultural sector, sell off valuable land in order to finance the liability due to HMRC. This will significantly change the direction of succession and retention of family assets built up by many generations.

Additionally, reforms to pensions will be introduced in April 2027. Unused pensions left in someone’s estate will lose their current IHT tax free status which will most likely influence how individuals manage their pots during lifetime. This shift could prompt different financial behaviours, with individuals potentially withdrawing funds from their pensions to spend, raising concerns about the long-term impact on both individual finances and market stability, particularly in the UK markets in which UK pension pots invest.

Understanding the challenges and opportunities is intrinsic to financial success and our team of trusted advisers at Johnston Carmichael are here to help assist you in navigating this new landscape and planning for your future. To discuss how you are impacted, don't hesitate to contact me at scott.dunbar@jcca.co.uk.

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