Matthew Moynes, Director of Investor Relations
It has been hard to escape the apprehension surrounding Labours first budget in 14 years. Various predictions have flooded the media for months and personal financial preparations have been made based on conjecture and speculation in attempt to dilute the impact of anticipated tax adjustments. Labour attempted to set the tone early, relentless with their message of an inherited £22bn ‘black hole’ in the UK’s public finances. Public expectations were being managed. Difficult decisions were inevitable. The ruling out of austerity was a welcomed relief for many, however this would have to come at the expense of the taxpayer. There are a limited number of viable options available to a Chancellor when attempting to control and reduce a material deficit. The UK’s first female Chancellor had a tricky fiscal landscape to navigate, unveiling a tax-raising budget of this scale was never going to be popular. Rachel Reeves started this campaign by highlighting the apparent failings of the previous Government and the rebuild required. A rebuild starting with £40bn of additional raised taxes.
Early foundations for this Autumn Statement were laid when the Chancellor introduced plans for new fiscal rules ahead of this Autumn Statement, changing the way debt is measured. In short, the adjustments to these self-imposed rules will allow the Treasury to borrow more for long term investment, whilst taxes are used to pay for day-to-day spending. The aim here is to stimulate long term economic growth whilst simultaneously balancing the budget. Time is needed to measure the success of this approach.
The Labour manifesto promised to leave the three main revenue-raising taxes alone, Income Tax, VAT and National Insurance. Ostensibly, the Autumn Statement delivered on this pledge. However, a continued freeze on income tax thresholds means the impact of fiscal drag continues to burden the British public. This is when working wages rise in line with inflation, but tax thresholds remain static. The result is taxpayers being pushed into higher tax brackets. Accurately labelled a ‘stealth tax’, fiscal drag has been a consistent revenue generator for the Treasury over recent years and one that the British public is growing increasingly weary of. The new Chancellor appeared to recognise this fatigue and promised to lift the income tax threshold freeze in 2028. Beyond this date thresholds will increase in line with inflation. This will be a welcomed change for many, however fiscal drag will continue to impact workers until 2028. Coincidentally aligning with the next general election.
The Prime Minister Kier Starmer has consistently warned that those with the ‘the broadest shoulders’ will bear the biggest burden. Shoulders rarely feel that broad when pressure of this scale is potentially applied. Another challenge is accurately identifying this demographic. The Labour Party believe Capital Gains Tax (CGT) is an effective filtration method, in particular gains earned from the sale of stocks and shares. As a result, the Chancellor confirmed Capital gains tax paid on profits from selling shares will increase from 20% to 24%, with the rate on additional property sales remaining static. The lower rate of 10% CGT applied to people selling their own businesses will also be raised to 18%. These increases are not as dramatic and drastic as many anticipated and some even feared, with the Chancellor instead choosing to lean more heavily on business taxes to make up the additional £40bn in tax generate revenue, in particular employer National Insurance contributions.
Inheritance Tax is always a topic which attracts significant attention ahead of most budgets, and this Autumn Statement was no different. Many speculated that that the 100% inheritance tax relief attached to shares purchased on the LSE Alternative Investment Market (AIM) when held for 2 years would be entirely eradicated, and feared this could potentially collapse the already struggling junior market. The Chancellor’s actions were not as severe as many suspected, nevertheless material changes have still been enforced. As of April 2026, the ‘effective rate of inheritance tax’ will be 20% for shares held on AIM. This is a 50% reduction in the current relief available.
Many will feel that the Chancellor kept expectations sufficiently low ahead of this seminal budget, allowing her to over deliver in areas which attracted a lot of speculation and concern. Despite this approach, post Rachel Reeves’ first Autumn Statement, personal tax liabilities will be higher than ever for a lot of individuals.
In a high tax landscape, the EIS and VCT product range remains a stable and reliable source of tax relief. Both schemes have been recently extended for a further ten years to April 2035, which passed through Parliament as part of the Finance Act 2024. The new Chancellor used the Autumn Statement as an opportunity to identify the critical role the EIS and VCT schemes play in creating a positive environment for UK entrepreneurship. EIS and VCT schemes continue to stimulate a flow of capital to early-stage, high growth UK companies and drive greater overall economic expansion. Offering tax free capital growth, 30% income tax relief on the value of the investment, and in the case of the VCT, tax free dividend income, the EIS and VCT remain credible and dependable tax efficient investment products, helping to offset some of the increased demand on higher rate taxpayers. It is also important to remember that EIS qualifying shares continue to attract 100% inheritance tax relief when held for longer than 2 years, a huge benefit soon to be revoked from the Alternative Investment Market.