Key takeaways

The main changes relevant for employers and employee share plans are:

• The rate of Employer NICs will increase from 6 April 2025 from 13.8% to 15%. The threshold at which employers pay Employer NICs will also decrease and so employers will start paying it when employees earn above GBP 5,000. In order to offer some protection for small businesses, the government has increased the Employment Allowance from GBP 5,000 to GBP 10,500 and expanded it to apply to all eligible employers. This means that eligible employers will only start paying Employer NICs when their Employer NICs bill rises above GBP 10,500.
• No increases to the headline rates of income tax and Employee NICs. Income tax thresholds will continue to be frozen until April 2028.
• From 30 October 2024, the main rates of CGT will rise to 18% and 24% respectively, up from the current 10% and 20% respectively.
• The tax rate on carried interest will increase to 32% from April 2025. From April 2026, carried interest will be brought within the income tax framework, i.e. at an individual's marginal income tax rate, but a 72.5% multiplier will be applied to qualifying carried interest to reduce the amount subject to the marginal income tax rate. Assuming that the individual is a 45% taxpayer, this means that the effective tax rate will be in the region of 32%. Further reform to the taxation of carried interest regime is expected (to apply from April 2026).
• The lifetime limit for Business Asset Disposal Relief (BADR – formerly Entrepreneurs' Relief) will remain at GBP 1 million. However, the rate of BADR will increase from 10% to 14% from April 2025 with a further increase to 18% from April 2026. This means it remains beneficial compared to the 24% CGT rate but not as beneficial as the current 10% differential.
• Fully electric company cars will continue to benefit from lower benefit in kind charges up to April 2030. Hybrid company cars with emissions of up to 50g of CO2 per km will have a lower benefit in kind charge than other vehicles, but not as low as fully electric cars from April 2028.
• From April 2026, recruitment agencies (or, if no recruitment agency is involved, the end client business) will be responsible for accounting for PAYE on payments made to workers supplied via an umbrella company.
• The tax regime for non-UK domiciled individuals will be removed from April 2025 and replaced with a residence-based regime. Overseas workday relief will be retained and reformed accordingly and increased to a 4-year period. The need to keep the income offshore in order to benefit from overseas workday relief will be removed.
• National Living Wage will increase to GBP 12.21 per hour from April 2025. The National Minimum Wage for 18-20 years olds will increase to GBP 10 per hour.
• Unused pension funds and death benefits payable from a pension will be brought into a person's estate for IHT purposes from April 2027.

In more detail

The rise in Employer NICs will impact employer costs, including salary, benefits and non-tax advantaged share plans.

The increase in CGT will impact employee shareholders with lower paid employees having their tax rate increased disproportionately. There was no mention in the budget of any relief for employee shares and so any shares held by employees outside of a tax-protective wrapper will be impacted by the rise in CGT rates. This comes on top of the recent decrease in annual CGT allowance, which currently stands at GBP 3,000 p.a. This means that when employees sell shares, including those acquired from employee share plans, they will need to pay CGT at an earlier point and now at a higher rate.

The requirement to operate PAYE on payments made to workers provided by umbrella companies will add administration to recruitment agencies and potentially end client businesses. This reinforces HMRC's view that end clients should know the supply chain when they engage labour.

The removal of the requirement to keep funds offshore in order to benefit from overseas workday relief and the extension to four years is likely to be welcome. Companies will need to review the position of their mobile employees and may mean that this becomes available for employees temporarily in the UK with non-UK duties even if those individuals are paid into a UK bank account.

On the same day as the budget, HMRC also responded to the consultation on Employee Ownership Trusts (EOTs) and Employee Benefit Trusts (EBTs). From 30 October 2024, in order for an IHT exemption to be available for an individual transferring shares to an EBT, any shares must have been held for two years prior to transfer to an EBT. In addition, for an EBT to qualify for IHT exemption, no more than 25% of employees who are able to receive income payments from an EBT should be connected to the participators of the company and any individuals connected to a participator may not benefit from an EBT for the lifetime of the EBT.