What does the Spring Statement mean for you?

The Chancellor’s Spring Statement focussed on the Government’s plans for the economy. Following the major tax changes in the Autumn Budget it was feared there would be further revenue raising measures introduced. Although there were no new announcements, there are several forthcoming changes that could impact your finances. We’ve outlined a summary of the key points below for you:

Inheritance Tax  

There were no further changes announced in relation to Inheritance Tax. The standard tax-free allowance of £325,000 and the extra £175,000 available on your home if left to a ‘direct descendant’ remain frozen until April 2030.

The headline grabbing announcement in the Autumn Budget was the decision to limit the protection from Inheritance Tax (IHT) when passing on farms and qualifying businesses. Currently Agricultural Property Relief (APR) and Business Property Relief (BPR) can reduce or eliminate any Inheritance Tax payable regardless of value.

From April 2026 the combined value of APR and BPR that qualifies for 100% relief (meaning that no IHT is payable) will be limited to £1m per person. APR and BPR will be restricted to 50% relief on any value above £1m, meaning that half the value will be free of IHT, while the balance will be included in the IHT calculation.

This is one of the biggest changes to Inheritance Tax for a generation and will have a significant impact on farmers, landowners and business owners. It’s important to take advice on the new rules and how they impact you and your family.

National Insurance

There were no changes to the rates of National Insurance payable by employees and the self-employed.

If you are an employer the increase in Employer National Insurance from 13.8% to 15% will bite from 6th April 2025. The threshold from which employers pay National Insurance per employee will fall from £9,100 to £5,000 from the same date. All employers will be able to deduct an increased Employment Allowance of £10,500 from their National Insurance bill.

If you are an employee or Director of your own limited company, this will make it more attractive to take profits through an employer pension contribution, which is normally free of employer’s National Insurance.

Similarly, it may be more attractive to reward employees via employer pension contributions or employer provided life insurance (known as Relevant Life) rather than pay.

Pensions

Although there were fears that the many tax advantages of pensions would be trimmed back, they were left untouched.

As previously announced, the proposal to include any unspent pension funds in the Inheritance Tax calculation on death from April 2027 will mean that many more families will be dragged into the Inheritance Tax net.  

Despite this change, pensions remain one of the most tax efficient ways to invest. In addition to tax relief on what you pay in, any growth is free from UK Income Tax and Capital gains Tax. Up to 25% of your fund can be taken as a tax-free lump sum (capped at £268,275 unless you have protection).

If you think you may be impacted by this change, it’s important to take advice before making any decisions.

ISAs 

Despite press speculation that Cash ISA limits would be scaled back there were no changes announced. The ISA allowance remains at £20,000 per adult and £9,000 per child each tax year.

The continued freeze on the tax-free Income Tax Personal Allowance, Dividend Allowance, Savings Allowance and Capital Gains Tax exemption makes it more important than ever to take advantage of your ISA allowance to protect income and gains from tax.

Income Tax - Frozen Allowances  

There was concern that the Chancellor would extend the freeze on tax-free allowances beyond the previously announced date of 2028. The continued freeze on the allowances results in ‘fiscal drag’ meaning that as incomes rise a growing number are moving into higher rate tax bands or being caught in tax traps, paying more as a result.

*Consumer Prices Index to January 2025

Moving into the 40% Income Tax band, has other consequences, it means that the amount of tax-free interest you can enjoy from your savings accounts (if held outside an ISA) drops from £1,000 to £500 each tax year. Similarly, if your spouse or civil partner is a non-taxpayer and you currently benefit from part of their tax-free Personal Allowance through the Marriage Allowance, once you cross into the 40% Income Tax band you will no longer be able to claim.

The good news is that making payments into a pension can help you stay out of the 40% tax band and preserve both a higher Savings Allowance and your ability to claim Marriage Allowance.

If your income exceeds £100,000 for every £2 over, you lose £1 of your tax-free Personal Allowance, at £125,140 you lose it all. This results in an effective tax rate of 60% on earnings between these amounts. If you add in an additional 2% National Insurance contribution this means that only £38 of every £100 earned between these amounts ends up in your pocket.

Pensions can also help mitigate this problem for those with earnings or profits over £100,000.     

How did the markets react?   

UK Government bond markets, which were again under pressure leading up to the Spring Statement, breathed a sigh of relief after the Chancellor finished her speech and updated gilt supply numbers were announced.  The remit for 2025-26 was slightly below expectations and included less longer maturity debt than expected. Sterling and UK equities were little changed as the halving of growth forecasts by the Office of Budget Responsibility (OBR) for 2025 was widely expected. Longer-term OBR forecasts for higher growth were met with cynicism amongst investors, given they have continually been overly optimistic. With record levels of debt, higher interest costs than most other developed world economies and low growth it would be unsurprising to see further speculation around adjustments in tax policy before the October budget.