Everything you need to know about the Budget

Labour delivered their first Budget in 14 years today, with Chancellor Rachel Reeves delivering her spending and tax plans to parliament. While much of the news had been leaked in advance some rumours failed to materialise entirely, others were simply scaled back. Here we’ll look at all the changes that might impact your finances – for good or for bad.

Inheritance tax on pensions

Going into the Budget, there were fears of pension tax relief and tax-free cash being culled that have proven unfounded. However, one change that was announced is how pensions are treated on death. Savers may no longer be able to pass pensions on to beneficiaries tax-free on death from April 2027, the Chancellor announced.

Under current rules, defined contribution pensions can be inherited tax-free if you die before age 75 and are taxed in the same way as income if you die after age 75. But Labour has announced plans that inherited pensions will count towards inheritance tax on death.

Applying any new tax on death will come with substantial challenges, which is why the changes aren’t being brought in until 2027, with a consultation period on how the rules will work having been opened. A major obstacle centres around how to treat people who have made decisions about their retirement pot based on the pensions death tax rules as they are today. Anyone who made larger contributions into their defined contribution pension to make the most of the existing rules will also now be wondering what could happen to their pot when they die. If all of a sudden that money became subject to a new pensions death tax, those people would, understandably, feel like the rug had been pulled from under them. We need to await more detail on this change.

Capital Gains Tax increased

The Chancellor has increased Capital Gains Tax rates, increasing the tax burden for investors and business owners. Basic-rate taxpayers will see the biggest increase, from the current rate of 10% up to 18%. Higher rate taxpayers will also see an increase, albeit smaller, from the current 20% up to 24%. The rates for selling a second property remain unchanged.

More small shareholders are now liable to Capital Gains Tax as a result of the previous government’s decision to cut the annual Capital Gains Tax allowance from £12,300 to just £3,000, meaning it’s not just wealthy investors hit by the tax. The increase to rates will happen immediately rather than being delayed until April next year – presumably to stop some investors embarking on a fire sale of assets ahead of the rule change.

Stamp duty rates changed

The cost of buying a second (or third, or fourth...) property will increase as a result of changes in the Budget. Anyone buying an additional property other than their main residence already faces an additional stamp duty surcharge that's 3 percentage points higher. But Labour has now extended this to 5 percentage points. The change is effective immediately, coming in from 31 October. The move is expected to raise an additional £310m in tax by the 2029/30 tax year.

Income tax bands frozen until 2028

Labour will continue with the Conservatives plans to freeze income tax bands until 2028, but they will not extend that freeze – as had been rumoured before the Budget. It means that people won’t see an increase in the tax thresholds over the next few years. But from April 2028 the thresholds will once again increase with inflation. However, there’s not a huge reason to rejoice as we’re still left with the legacy of the deep freeze on income tax bands. That six years of frozen thresholds can never be reclaimed, meaning that we’ve all missed out on chunky increases to tax bands during a period of high inflation and wage growth.

Inheritance tax changes

The Chancellor announced a number of changes to inheritance tax (IHT). The first was to extend the freeze on tax-free allowances for the death tax. The amount people can pass on free of IHT will continue to be frozen for two more years until 2030.

Everyone can pass on up to £325,000 before any IHT is due, although this IHT nil rate band has been at this level since 2009. The residence nil rate band (RNRB) has been available since 2017 and gives a boost of up to £350,000 per couple if they leave a property to their direct descendants. Had both bands been uprated with inflation rather than being frozen in 2020, a couple could pass on an estate worth over £1.5 million by the time the freeze is due to end in 2030.

Inheritance tax has also been altered for business owners and landowners as the tax benefits of both Business Property Relief and Agricultural Relief are made less generous. These tax breaks are intended to reduce the tax bill for anyone leaving a business or land as part of their estate.

From 6 April 2026, full IHT relief will be available on the first £1 million of business or agricultural assets, but the rate of relief will be slashed to 50% on assets above this limit. Agricultural and business property relief (BPR) combined saved wealthy families from paying IHT on around £4.4bn of assets in 2021/22, making it the second most valuable of all of the IHT reliefs.

The other change will mean that unquoted stocks are not as tax efficient as they previously were. Currently investments in ‘unquoted’ shares listed on smaller markets like AIM are free of inheritance tax if left in an estate and if the shares are held for at least two years before death. However, the rate of relief has been cut to 50% across the board, making it less attractive.

British ISA is scrapped

The Chancellor confirmed that plans for a British ISA have been scrapped in today’s Budget. The proposed British ISA would have handed savers an additional £5,000 of tax-free investing allowance on top of their usual £20,000 ISA allowance. Put simply, the government said it “will not proceed with the British ISA due to mixed responses to the consultation".

Child benefit changes scrapped

Labour has scrapped plans to assess eligibility for child benefit on household income, undoing the Conservatives’ reforms which attempted to simplify the system and stop cliff edge cutoffs penalising single-earner families.

In its last Budget in March this year, the Conservatives announced plans to base eligibility for child benefit on a couple’s income. However, it didn't introduce the change straight away, saying it would consult and then implement in two years’ time. This left the door open for Labour to scrap the plans, and it has done just that.

Labour say the move would be too costly. Currently you’re eligible for full child benefit if you earn up to £60,000, but Labour say changing the system to base child benefit on a household income of £120,000 would cost £1.4 billion by 2029/30. It means the system that hits single earners will remain. Currently, a sole earner on £80,000 gets no child benefit while two workers each on £59,000 get the full benefit.

Labour says it will make it easier for families is that child benefit overpayments can be repaid through someone’s tax code from next April – improving the admin side of child benefit.

Triple lock confirmed

This was a move announced ahead of the Budget, but confirmed in the announcement: the state pension will rise by 4.1% from next April. It means the single state pension will increase from £221.20 per week, or £11,502 per year, to £230.30 per week, or £11,975 per year. The increase was pegged to the average increase in earnings, as it was higher than inflation or the fixed 2.5% also included in the triple lock.

Of course, it had already been announced that many pensioners will lose their Winter Fuel Payment, meaning they will lose the £200 benefit this winter, partially offsetting the increase.

Want to hear more analysis of the Budget and how it impacted investment markets? Listen to the AJ Bell Money & Markets podcast.