Impact of the Budget on Individuals and Their Finances

Chancellor Rachel Reeves has unveiled a Budget containing numerous announcements spanning taxation, government expenditure, wages, and pensions. Many of the measures outlined could directly impact individuals and their financial situations, and this summary details those implications. Across the UK, minimum wages, which are paid by employers, are set to increase in April. This includes the apprentice rate, applicable to individuals under 19 or those over 19 in their initial year of an apprenticeship, which will also see a rise from £6.40 per hour to £7.55. While these percentage increases are less substantial than those of the preceding two years, the current rate of price inflation is also lower. Further details on minimum wage adjustments are available here. In addition to the increased expense of minimum wage payments, many employers will be required to contribute more significantly to National Insurance (NI) for a larger proportion of their workforce. Employee contributions to NI will remain unchanged. However, businesses have indicated that the additional financial pressure on employers could potentially reduce opportunities for job creation or wage increases. Some enterprises might also opt to increase prices to offset these costs. The cap on single bus fares for numerous routes across England is scheduled to increase from £2 to £3 in 2025. In contrast, single bus fares managed by Transport for London in London will stay at £1.75, and those in Greater Manchester will remain at £2, due to distinct funding arrangements in these urban areas. The freeze on fuel duty, which has been in effect since 2011, is set to persist. Furthermore, a reduction of 5p per litre in fuel duty has been prolonged. Inheritance tax (IHT), currently levied at 40%, typically applies to the portion of a deceased individual’s assets exceeding a £325,000 threshold. This threshold has been extended until 2030. Currently, pension savings are excluded from this calculation; however, starting April 2027, inherited pensions will be included. This change is anticipated to subject a greater number of estates to inheritance tax, particularly due to unspent pension savings at the time of death. The government projects that an additional 10,500 estates will incur inheritance tax in 2027-28 as a consequence. Previously, certain exemptions permitted specific asset types, including farms and family business assets, to be excluded from inheritance tax calculations. Nevertheless, new regulations effective from April 2026 will mandate that some tax be paid on assets valued over £1 million. Capital gains tax (CGT) is levied on profits generated from the sale of appreciating assets, such as secondary residences or investments. The Chancellor has declared an increase in CGT rates: from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher rate taxpayers. These adjusted rates will align with the current property rates, which are not changing. Tobacco tax will see an increase of 2% above the rate of inflation, with hand-rolling tobacco facing a 10% increase above inflation. Additionally, a flat duty rate of £2.20 per 10ml will be imposed on all vaping liquid starting October 2026. The tax on non-draught alcoholic beverages will rise in line with the higher Retail Price Index (RPI) measure of inflation, while the tax on draught alcoholic drinks will be reduced by 1.7%. Stamp duty for the acquisition of second homes, buy-to-let residential properties, and residential properties by companies in England and Northern Ireland is set to increase from 3% to 5% starting Thursday. Analysts suggest this change might influence landlords’ inclination to acquire additional properties. A reduction in the availability of rental properties could, in turn, lead to higher rents for tenants in existing homes. A widely debated Labour policy has been officially confirmed: Value Added Tax (VAT) at the standard rate of 20% will be applied to private school fees starting January 1, 2025. The precise additional cost for parents of privately-educated children will be determined by the policies of individual schools. Furthermore, it is considered highly improbable that parents will be able to circumvent these increased fees by making advance payments. The Chancellor verified that benefit payments will increase by 1.7% in April, aligning with inflation. Universal credit, the most frequently claimed working-age benefit by seven million individuals (38% of whom are employed), will see its standard allowance for a single person under 25 rise by an estimated £5.30 per month to approximately £317. For a couple over 25, the increase is projected to be £10.50, bringing their monthly allowance to £628. The overall amount of universal credit received is highly dependent on individual circumstances. Recipients of universal credit who have outstanding debts to the Department for Work and Pensions will repay these at a reduced rate. A comprehensive review of health and disability benefits was announced by the Chancellor. Carers will be permitted to earn a higher income before their allowance is affected. The maximum earnings threshold is set to increase from £151 to £195 per week. The state pension will increase by 4.1% in April, in accordance with average earnings. However, the Chancellor had previously stated that a government cut would result in millions of pensioners no longer receiving their winter fuel payment, which is valued at up to £300. The current freeze on income tax thresholds, which determine the different rates of income tax, will proceed as planned. Despite earlier speculation about a potential extension of this freeze, the Chancellor dismissed such notions, confirming that thresholds will increase in line with prices starting from 2028. Until that time, any increase in earnings could potentially push individuals into a higher tax bracket or result in a larger percentage of their income being taxed than anticipated. Scotland operates its own distinct income tax rates. For individuals whose earnings do not reach the income tax threshold, Value Added Tax (VAT), which is applied to goods and services purchases, might have a more significant impact, and this tax remains unaltered. Individuals who evade tax payments will incur a higher interest rate when settling their outstanding tax liabilities.