For months, speculation has been building around one of the most eagerly awaited Budgets in recent memory.

Today, Rachel Reeves, the first female Chancellor of the Exchequer in British history, put the rumours to rest and delivered her inaugural Autumn Statement and the first Labour Budget in 14 years. Reeves outlined her plans to fix the foundations, stabilise the UK economy, promote investment, and foster growth – but at what cost?

Acknowledging the need for tough revenue-raising decisions to fill the so-called £22 billion fiscal ‘black hole’ left by the Conservative government, the Chancellor pledged substantial investments but warned that ‘given the scale of the challenge we face in our public services’ there will more hard decisions to come.

The Chancellor’s latest measures include tax rises worth £40 billion. Here are the key points and what they mean for you and your personal finances.

Despite intense media speculation on the run-up to this Budget no changes were announced in respect of restricting or removing pensions tax-free cash. It remains at £268,275 for most people.

The Chancellor announced that the income tax personal allowance and the majority of the thresholds will remain frozen until 2028 as set by the Conservative government but will then return to indexed increases. So, from 2028-29, personal tax thresholds will be uprated in line with inflation.

Frozen thresholds means that tax bands will stay the same, even as people’s pay goes up. So as wages rise, the amount of earnings that you pay tax on will increase. In the next few years, more and more people will find themselves starting to pay tax for the first time, moving into higher tax brackets and paying more tax on their income over time.

Labour will ensure that ‘the people who power our country receive the pension they are owed.’ As a result, Labour remains committed to the triple lock with spending on the state pension projected to rise by 4.1% in 2025-26 – a £470 increase for over 12 million pensioners in the UK.

Reeves confirmed that she will extend the inheritance tax (IHT) threshold freeze for a further two years to 2030.

However, she also announced that inherited pensions will be subject to inheritance tax from April 2027. Pensions are currently exempt from IHT and not classed as part of an estate when someone passes away. Reeves said this: ‘will close the loophole created by the previous government, made even bigger when the lifetime allowance was abolished, by bringing inherited pensions into inheritance tax from April 2027.’

Commenting on this announcement, David Murray, Head of Advice at abrdn Financial Planning states:

‘In just a year, and with a new government in office, the direction has shifted from the Tories pledging to half the rate of inheritance tax to Rachel Reeves announcing a series of measures that will impact the tax families will pay on the death of their loved ones across the country.

‘While the Chancellor has extended the threshold freeze for two years, the changes announced, including the addition of inherited pensions and business assets, will add a new complexity to estate planning and a higher tax bill for many. While these measures were an obvious target for the government, it raises concerns, particularly for those who have invested heavily into pensions to benefit from the IHT perks.

‘Inheritance tax sparks strong feelings, and I’d always welcome ways to simplify the system. While we want to close potential loopholes in the rules, we also want to avoid unfairly penalising people with unexpected taxes.’

Capital Gains Tax (CGT) is also set to increase – something that has been subject to intense speculation in lead up to this announcement. This tax is charged on profits which are made from selling assets such as a second home or investments, including shares.

The lower rate of CGT will rise from 10% to 18%, and the higher rate from 20% to 24%. The Chancellor also confirmed that the rate of CGT on carried interest will increase to 32% from April 2025.

Rachel Reeves revealed a surcharge on second homes, increasing by 2% to 5%. She also announced threshold adjustments for first-time buyers. From March 31, 2025, first-time buyers will need to pay stamp duty on property values over £300,000, down from the current threshold of £425,000.

Reeves confirmed, as promised in the Labour manifesto, that she will not increase National Insurance (NI), VAT and income tax for working people. However, she has increased employer national insurance – which the opposition has described as breaking their promise on not taxing working people.

As widely anticipated, the Chancellor will increase employers’ National Insurance Contributions by 1.2% to 15% from April, but the reduction in the threshold at which businesses start paying is quite significant – from £9,100 to £5,000. This measure is expected to raise £25 billion, according to her statement. ‘I know that this is a difficult choice,’ Reeves remarked. ‘I do not take this decision lightly.’ However, this decision is likely to spark considerable discussion among businesses.

According to Sunak, Labour specifically promised that they ‘wouldn't raise taxes on working people’ but instead have increased National Insurance, thus ‘breaking that promise’.

Reeves announced that the non-dom tax regime will be abolished and the ‘outdated concept’ of domicile will be removed from the tax system starting April 2025.

This change affects UK residents whose permanent home, or domicile, for tax purposes is outside the UK, meaning they do not currently pay UK tax on income earned abroad. She plans to introduce a new, residence-based scheme with ‘internationally competitive arrangements’ for those temporarily residing in the UK. According to the Office for Budget Responsibility (OBR) this package of measures is expected to raise £12.7 billion over the next five years.

Reeves reiterated she will introduce VAT on private school fees from January 2025. Furthermore, the government will soon introduce legislation to remove their business rates relief from April 2025.

In other more welcome news, the Chancellor confirmed fuel duty will be frozen and the 5p per litre discount will be kept for now. She’ll also cut the duty on draught beer by 1.7%.

If you have any questions or concerns about today’s announcement and how the changes may affect you, get in touch with your abrdn financial planner. They’re here to help you.

If you don’t already have a planner, getting professional financial advice can help get your affairs in order. While there’s generally a charge for advice services, this could pay for itself in the long run by way of improved returns on your money, tax savings and, importantly, peace of mind.

Find out how abrdn's financial planning services could help you make the most of the latest tax changes.

The information in this article should not be regarded as financial advice. Please remember that the value of investments can go down as well as up and may be worth less than was paid in.  Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment. Information is based on abrdn’s understanding in October 2024.