The Budget has landed and reactions are already rolling in. To help cut through the noise, this piece from Nick Haines of Hazlewoods looks at the decisions behind the headlines and the issues they raise. With deep experience in tax and a central role in the firm’s growing presence in Wales, Nick brings a clear perspective on a Budget that will shape the year ahead.
With a £30 billion black hole, up from the £22 billion the Chancellor claims she inherited from the previous government, it was inevitable that tax was going to rise, and so it did. It had been anticipated that spending was also going to be cut, but according to the policy decisions released after her statement, spending is actually increasing, mainly due to the removal of the two-child benefit cap which is estimated to cost a further £3 billion per year which is anticipated to benefit 69,000 children in Wales.
The policy decisions indicate the tax increases do not raise enough to plug the gap, unless the economy grows, yet raising taxes tends not to stimulate economic growth.
The largest tax raiser came from the freezing of income tax and national insurance thresholds for a further three years to 2030/31, anticipated to raise £13.3 billion per year by that point.
To make the tax system even more complicated than it is already, new rates are being introduced for property, savings and dividend income. For property and savings income, the tax rates across all levels will be increased by 2%, giving rise to 22%, 42% and 47% rates, whilst dividend rates increase by 2% for only basic and higher rate taxpayers, resulting in rates of 10.75% and 35.75%, maintaining the 39.35% for additional rate taxpayers. Quite why the additional rate taxpayers were excluded from the increase is unclear, particularly given the Chancellor’s view that the wealthy should pay more.
These changes will come in phases, with dividend tax rates increasing in April 2026, whilst property and savings rates won’t increase until April 2027.
And for those who own a valuable property, a high value council tax surcharge will be introduced from April 2028, ranging from £2,500 for houses valued at £2 million, to £7,500 for those valued over £5 million. Given the vast majority of those houses will be in the South and London specifically, it seems to be a tax on geography, not necessarily wealth. In addition, many will have inherited the properties so may not actually be cash rich, although there will be consultation in the future on whether relief will be available.
Those who sacrifice some of their salary in exchange for additional employer contributions into their pension scheme will be faced with an annual cap of £2,000 before they will be subject to national insurance. A, perhaps, odd decision, when it should be promoted to save for your retirement, rather than rely on the government.
On top of that, if you want to invest your full ISA allowance of £20,000, you can no longer do so fully in cash, with £8,000 being ring fenced for stocks and shares. However, if you are over 65, you are still entitled to a full £20,000 cash allowance.
There was some brief relief in that, having listened to various lobbying, the £1 million business property and agricultural property relief allowance will be transferable between spouses, when the new rules come into force in April 2026, bringing it in line with the nil rate band and residential nil rate band regime.
Several investment announcements were made for Wales, including an additional £505 million for the Welsh government under the Barnett formula. Two AI growth zones will be established in Wales, expected to create around 8,000 new jobs, supported by a £10 million investment in semiconductors. £445 million will also be invested to enhance connectivity across Wales, including significant upgrades to Cardiff Central Station.
More bad news for those who wish to sell their company shares to an employee ownership trust will no longer be able to do so tax free, instead incurring an effective 12% capital gains tax rate, which applies with immediate effect.
And for those that own electric vehicles, a new tax per mile is to be introduced from April 2028 of 3p per mile for pure electric, and 1.5p per mile for hybrid vehicles.
Announced before the Budget was the increase in national living wage by an inflation busting 4.1% for over 21s, 8% for those aged 18-20 and 6% for those between 16 and 18, boosting further the 160,000 individuals in Wales who benefited from the increases in April 2025. With unemployment on an upwards trajectory this, combined with the previous increase in employer’s national insurance and the day one rights for employees, makes it look likely that it will keep rising.
The Chancellor was keen to promote the UK as the place to do business, improving the reliefs available under incentive schemes such as the EMI employee share option arrangement, or the Enterprise Investment Scheme and Venture Capital Trust opportunities. However, with so many other taxes seemingly forever on the rise, it is questionable whether that really is the case.
The constant squeeze on the higher earners and wealthiest in the country may well come back to haunt her. The abolition of the non-domiciled regime resulted in many of the wealthiest leaving the country and those top earners that remain have the means to be able to follow suit. Given the top 10% of earners in the UK contribute 60% of the tax receipts, the government needs to be careful to make the UK a place people do not feel persecuted for being successful.
Whilst unlike the Grinch, the Chancellor has not stolen all the presents from under the tree, many will feel as though she’s had a good rummage around. With Labour’s support dwindling by the day, she will be praying for a Christmas miracle that, somehow, her announcements and future predicted improvements in public services will give everyone the feel-good factor. The jury (if one still exists) is most definitely out on that.
