John Healey’s first Budget as Chancellor my not have been the most radical in recent years, but new commitments on tax relief for entrepreneurs, lighter than expected tax increases on banks’ profits, and an additional two per cent tax on income from property and savings are notable changes for HNWs and their advisers.
The two per cent increase on tax from property and savings income is layered on top of another two per cent increase brought in by Rachel Reeves in last year’s budget and, accordingly, was mentioned by nearly every adviser Spear’s spoke to. ‘It’s an additional two per cent on top of a two per cent that I think we all forgot about,’ said Robert Brodrick of Paynes Hicks Beach.
Overall, Brodrick said, for entrepreneurs and HNWs, this was a ‘relatively neutral’ Budget which could have been much worse.
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‘None of the things people were most worried about have come to pass: no exit tax, no wealth taxes, and no meaningful changes to inheritance tax, so up to a point, people can take comfort from what has been announced.’
Relief for new founders
Healey’s speech included specific measures aimed at entrepreneurs and founders, most notably a new ‘founder’s relief’ – a 10 per cent capital gains tax rate on lifetime gains up to £10 million for founders.
Phineas Hirsch, a private client partner at Payne Hicks Beach, said it was ‘a very positive move to support entrepreneurs’, but added ‘we will need to see the detail of how it works and what the qualifying criteria are, especially as the threshold for Business Asset Disposal Relief (BADR) is halved to £500,000, potentially rendering it largely ineffective.’
Dawn Register, head of specialist tax services at BDO, told Spear’s she was ‘particularly positive about’ the policy, and that BDO and other advisers ‘had suggested it would be a really good idea’.
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‘This was always going to be a cautious budget, and it’s certainly a limited and focused budget on entrepreneurs,’ she told Spear’s.
Savills’ head of residential research Lucian Cook was less enthused: ‘There is a lot of concern in government about attracting wealth to the UK. This measure reads as a direct response to that, but others will say this measure is offset by the reduction in the threshold for what used to be called entrepreneurs relief [Business Asset Disposal Relief] from £1 million down to £500,000.’
Banks get off lightly
An uplift in the corporation tax surcharge on banks’ profits had been expected with increasing resignation by the sector, but was ultimately increased from 3 per cent to 6 per cent, which still does not bring it back up to the 8 per cent it stood at before being cut in 2023.
Bank shares jumped after Bloomberg reported just hours before Healey took to his feet in the Commons, that the surcharge increase would be temporary and smaller than expected. NatWest was up almost 4 per cent, and Lloyds 3.75 per cent higher, in addition to their earlier gains.
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‘Amid the global economic storms, I am looking to our banks to help fund breathing space for British families, and so banks will pay an extra 3 per cent on the bank surcharge. This will be time limited to pay for immediate support on energy bills, starting in January, ending 15 months later,’ Healey said.
Surcharge on property and savings
Cook also criticised Healey’s announcement that he would raise the rates of tax on income from property and savings by a further 2 per cent from April 2027.
‘It effectively means you have a 4 per cent surcharge in tax on any rental income for assets held in personal income,’ he told Spear’s. ‘That is going to test some people’s resolve as to whether they want to continue to hold those assets.’
Becky Fatemi, executive partner of Sotheby’s International Realty, said the policy was another example of a government initiative that would hurt the UK: ‘Nothing particularly damaging was announced today other than the tax rise of 2 per cent on income from property, but there was nothing to get excited about either.’
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‘The worst state we can be in is an uncertain one, and that’s still where we are after this budget,’ she told Spear’s.
As announced at last year’s Budget, the government will introduce legislation to establish the High Value Council Tax Surcharge, an additional charge on residential properties worth £2 million or more. The changes are set to take effect from April 2028.
‘There was a risk of seeing further bands added to the council tax surcharge, so that that did not happen will come as a relief to some UHNWs,’ Cook said.
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HMRC and LLC changes
‘From the perspective of internationally mobile wealthy individuals, families and entrepreneurs, my overriding reaction to this Budget is not alarm, but disappointment at an opportunity missed,’ was Winston Taylor private client head Damian Bloom’s assessment.
‘The decision not to increase the main capital gains tax rates is also welcome. But avoiding a further deterioration in competitiveness is not the same as making the UK more competitive on the unstable global stage,’ he said.
Miles Dean, who leads the international tax practice at Andersen, agreed and added: ‘For high earners and high-net-worth individuals, the Budget is notable less for what it contains and more for what it fails to address – the absence of meaningful measures to encourage investment and entrepreneurship is disappointing.’
Healey put forward changes to HMRC funding, to ‘improve compliance and stronger powers to collect overdue tax from those who can clearly afford to pay but ignore repeated contact’, he told the Commons.
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Other changes included plans to modernise the tax treatment of investment by foreign sovereigns, and a measure to resolve what Healey called ‘the question of VAT for larger taxed companies, ensuring they play by the same rules no matter where they’re located’.
Brodrick told Spear’s that one of the most significant changes was, in fact, not mentioned by Healey during his speech, but was included in the subsequent literature published afterwards.
‘Buried deep in the notes is a response to a consultation of US investors in LLCs,’ he said. ‘Broadly speaking, individual members who are UK residents will be able to claim credit in the UK for foreign tax payable by investors in relation to the profits of the entity in question, and will be able to get credit in the UK where previously credit has not been available.’
This is particularly welcome news for US citizens living in the UK, Brodrick added.
