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At an insight day I attended in early November, students asked partners and associates about trends they should look out for. An overwhelming majority of them said the UK budget. The budget, announced on the 26 November, has been a focus of the media and lawyers for quite some time. Whether you want to advise companies, individuals or understand how it could impact you, this article will break down some of the key changes introduced by the budget. 

What's the budget?

In simple terms, the budget is the government's plan to manage the economy. It's a yearly statement outlining plans for things like taxes, benefits and public spending for the coming year.

Why does the budget matter to everyday people?

If you're working, the budget shapes how much tax you pay. And even if you don't currently pay taxes, it can still impact the public authorities you interact with: it determines, for instance, how much funding goes to the NHS or state schools, the type of benefits you receive and the limitations on them, and schemes that affect homeowners and renters. No matter what sector you work in or job you have, the budget will inevitably shape elements of your daily life.

Why does it matter to lawyers?

Beyond the fact that lawyers are also people who pay taxes, lawyers must stay up-to-date with the budget to understand how best to advise clients on navigating changes in public spending. There are two dimensions to this, depending on their client's profiles.

Lawyers with commercial clients – namely businesses – will advise on changes to tax rules on business sales and company disposals. They may also advise businesses that are looking to buy offices on the changing tax rates for properties, as well as rules around compliance with filing taxes.

Lawyers with individual clients will similarly advise on minimising tax liabilities, advising clients with property investments on their investment structures and portfolios, and inheritance and estate planning under new rules. This would primarily involve private client lawyers but could also touch areas of immigration law, family law, employment law and even property law.

What did the budget announce?

Change one: raising £8 billion in revenue by freezing tax thresholds until 2031

Tax thresholds are the income boundaries that determine how much tax you pay. 'Freezing' tax thresholds means the rates and the boundaries to which they correspond will not change until 2031. This sounds on the surface like it wouldn't do anything, but it's considered a 'stealth' method of raising revenue for that reason: as people's pay increases (which it'll for a bunch of reasons including adjusting for inflation and the cost of living, competing against other businesses in the labour market, and even promotions), they’ll enter new tax brackets and be taxed at higher rates. This extra money arising from these new incomes being taxed at higher rates will provide additional revenue for the government. This concept is called 'fiscal drag' – it allows governments to avoid the political uproar of announcing tax rises, while still obtaining the benefits.

Change two: higher rates of tax on dividends and savings income

Higher tax rates have, however, been imposed on dividends and savings income. Dividends and savings income are examples of non-labour income: money you make through dividends (if you're a shareholder or partner) or interest from pensions and investment funds. The budget has introduced a 2% increase on these types of income in order to raise £2.1 billion. This means that people who earn these types of income will pay tax at higher rates, generating more revenue for the government. 

Change three: raising revenue by announcing a lower cash Individual Savings Account limit for those 65 and under

An Individual Savings Account is a government-backed account that allows you to save or invest money without paying tax on the interest or returns up to a certain amount. This threshold was lowered by the budget, from £20,000 to £12,000 for under 65s from April 2027. Over-65s will retain the existing allowance.

Change four: changing salary sacrifice schemes for pension contributions

A 'pension salary sacrifice' is when an employee agrees to reduce their salary or sacrifice a bonus. In return, their employer pays the sacrificed amount into their pension. Currently, up to £60,000 worth of these contributions are tax-free. However, from 2029, tax relief will become limited to only the first £2,000 of contributions. This is expected to raise £4.7 billion through taxes from 2029 to 2030.

Change five: extending the freeze on nil-rate bands and the limit on property reliefs

The ‘nil-rate band’ is the threshold under which anything passing under a will is tax-free. It currently stands at £325,000. Similar to income tax freezes, this raises revenue by fiscal drag: as the value of estates goes up over time due to inflation, more estates will exceed this threshold and become subject to inheritance tax. Subject to specific criteria, agricultural and business properties worth up to £1 million combined can be partly or wholly exempt from tax liability. This threshold has also been frozen and will likely result in similar impacts.

Change six: introducing a cap on inheritance tax trust charges for historic trusts created by non-doms

A non-dom – or 'non-domiciled' – is a person who lives in the UK but whose permanent home (or 'domicile') is considered, for tax purposes, to be a different country. This status is determined by residence, not nationality. This means that their UK tax exposure is limited compared to a resident. The 2024 Spring budget, which came into effect this spring, abolished the non-dom regime – replacing it with a residence-based system. Under this new system, if someone creating a trust becomes a 'long-term UK resident', then foreign assets in their old property trusts that were tax-free under old rules now become subject to inheritance tax. However, the government has limited the total inheritance tax exposure to £5 million per 10 years for those legacy trusts.

Change seven: imposing new taxes on property

A higher-rate council tax charge has been introduced for properties valued over £2 million from April 2028. This is expected to raise £400 million in 2029/2030.

Change eight: exemption of stamp duty reserve tax

‘Stamp duty reserve tax’ is a tax charged on the electronic transfer of shares and other securities. To induce successful companies to list on UK stock markets, the government has also introduced a new UK listing relief. This relief provides a three-year exemption from stamp duty reserve tax on transfers of a company's shares in the three years following its listing on a UK stock market. It only applies to newly listed shares. This change might make London listings more attractive to global companies, which could result in more initial public offering (IPO) work and listing advice – meaning more work for corporate and capital markets lawyers.

Change nine: capital allowances

Capital allowances are a type of tax rule allowing companies to be taxed less when they invest in new machinery or equipment. This relief can be spread across several years. Whether this rule applies and how long relief can be claimed, depends on the type of equipment the company has invested in and when they've purchased it. The government has recently introduced a rule allowing companies to claim relief on 40% of the cost of equipment that’d otherwise be subject to relief at 18%, spread out over a few years. Similarly, that 18% relief rate that applies is now being reduced to 14% from 2026. This means that companies can claim a larger upfront tax relief in the same year that equipment was purchased, using the 40%. But it also means their tax savings in subsequent years will be smaller, since the long-term relief rate has gone down from 18% to 14%.

Advising commercial clients

Though the budget has no blockbuster rules directly impacting corporate, banking or private equity, the changes introduced – including changes to capital allowances and stamp duty reserve tax – may impact business clients' decisions. For instance, an international business may be induced to have its IPO on the UK stock exchange given the three-year tax exemption. Conversely, a UK-based company wanting to purchase new equipment may reconsider if the long-term relief is unlikely to be worth it, given the changes to capital allowance rules. Lawyers' expertise and strategy may be needed to advise clients on how and when to time asset disposals or purchases differently to minimise tax liability under the new rules.

Advising individual clients

Tax, employment and private client lawyers may see increased activity as they advise clients on wealth structuring, estate planning and pension scheme changes under the new budget rules. Wills and probate lawyers will have to take into account the nil-rate band freeze when structuring a client's will, immigration and private client lawyers must provide non-domiciled clients advice in line with the new rules, and all lawyers who advise on tax planning will have to update their clients on the freezes to personal tax thresholds and increases to dividend and savings tax rates.

No matter what area of law – if any – interests you, the Autumn budget is sure to affect both you and your clients. Keeping a critical eye on public developments like these can help you better inform your clients on strategies, decisions and the implications of their current tax setup.