Chris Etherington, tax partner at RSM UK: “It would be easy to categorise this Budget, and the last, as having a focus on wealth redistribution, rather than wealth creation. Those feeling the most pain, however, may be younger workers hoping to get ahead.

“The announcement of a “mansion tax” could substantially reduce the amounts that families can pass down the generations if the tax is deferred or paid as it arises using some form of equity release. Some may also be anxious that the tax could be expanded to more properties in the future if it proves to be a successful revenue raiser for the Exchequer.

“Given the challenges in introducing a wealth tax, it is no surprise to see higher taxes introduced on the income from wealth. That might give some pause for thought in making gifts if individuals are more reliant on investment income. We might also see more taxpayers seek refuge in ISAs as a result, ensuring they fully utilise their allowances.

“When combined with the changes to inheritance tax announced last year, it means that those hoping for some help from the bank of mum and dad may be sorely disappointed.

“The playing field for Millennial and Generation Z taxpayers may be levelled down at the same time as the rungs of the ladder to accumulating wealth become harder to reach. Indeed, it may feel like salt in the wound to some to learn that they are actually worse off as a result of the Chancellor sticking to her manifesto pledges of not raising income tax rates on workers.

“At RSM UK, we’ve undertaken some modelling of the position, comparing the tax payable as a result of freezing thresholds and allowances for three years, to an income tax rate rise of 2% across all tax bands for workers.

“We have also assumed that salaries will go up by 3% over the three years from 2028, inflation goes up by 2% per annum and that a 2% rate increase in all income tax rates would have been accompanied by a 2% cut in the main rate of National Insurance contributions (NICs), as was rumoured ahead of Budget day.

“On that basis, we calculate that a worker on a salary of £50,000 in 2028 would be worse off by around £1,700 over the three years to 2031.

“That is driven by the fact that such a worker would be pulled into the higher rate tax net, along with another 4.8m taxpayers in 2031 as the Office for Budget Responsibility estimates. Not only that, but those with student loans will find they face 51% of their earnings much sooner than they may have expected as they quickly accelerate towards the higher rate tax threshold. That is made up of 40% higher rate income tax, 2% higher rate NICs and 9% student loan repayments.

“In effect, the Chancellor has maximised her income tax receipts with a double whammy of hitting savers with an increase in tax rates, while pulling workers and others into higher rates of tax. The veneer of keeping income tax rates level can be quickly scratched off.”

The Government has announced an immediate change to capital gains tax (CGT) relief on disposals to employee ownership trusts (EOT), reducing the relief from 100% to 50%. That means CGT at 12% instead of 0% previously. However, other benefits remain in place.

Chris Etherington, comments: “The reduction in tax relief on the sale of businesses to Employee Ownership Trusts is likely to slow the pace of change to this ownership model, just when it had started gaining some real momentum. The government’s reasoning seems solely based on the rising cost to the Exchequer.”

Despite the reliefs being in place since 2014, business owners have become more interested in this ownership model in the last five years. This has been aided by some high-profile examples of successful employee-owned businesses, proving the concept to others.

It is, however, clear that tax incentives have played a part in the take-up of employee ownership, particularly following the changes to Entrepreneurs’ Relief in 2020.

Clearly any tax relief needs to be balanced against the economic cost to the Exchequer and it’s possible the forecasts may have come as a surprise to Treasury officials. Before this change, forecasts indicated the relief could cost £2 billion by 2028/29, which is around 20 times higher than the original estimates when the measure was introduced. In short, it would seem the Government believes the current level of relief being claimed is unsustainable and has acted to curb its fiscal impact.

“It is perhaps surprising to see the Government act so swiftly to reduce the relief, before it has been able to fully assess its impact on the economy, given that employee-owned businesses can have higher levels of productivity.”

Although the relief has been reduced, selling to an EOT continues to remain a highly attractive succession route for both shareholders and employees:

an effective maximum 12% CGT rate on a disposal of shares to an EOT, an opportunity to withdraw from a business on your own terms, tax free bonuses for employees, whilst also offering cultural benefits to businesses.

Research consistently highlights the positive impact of employee ownership, including that employee-owned businesses can outperform others by 8 to 12%. It is also widely considered that employers with employees with a stake in the business feel more motivated and committed, driving stronger engagement. Finally, employee ownership is linked to higher job satisfaction, a stronger sense of purpose, and improved organisational culture.