Autumn Budget 2024: What to expect
“There is a budget coming in October and it’s going to be painful.” Prime Minister Keir Starmer has given his strongest hint yet of tax rises to come in the 2024 Autumn Budget.
In his first major speech from 10 Downing Street, the Prime Minister warned there would be tough choices ahead as the Labour government tries to plug a £22 billion “black hole” in public finances, saying “those with the broadest shoulders should bear the heaviest burden.”
All eyes will be on Chancellor Rachel Reeves when she delivers the Autumn Budget on Wednesday 30 October 2024. The statement will be accompanied by an economic forecast from the Office for Budget Responsibility.
What we know so far
The new government has publicly committed to “addressing unfairness” in the tax system and made a pre-election pledge not to increase VAT, Income tax or National Insurance.
The Treasury statement at the end of July confirmed some of Labour’s plans, including the abolition of the non-domicile tax regime, removing the tax advantages for landlords offering short-term holiday lets and introducing 20% VAT on private school fees across the UK from 2025.
While we can only speculate about further details of the forthcoming budget, it’s expected that tax increases will feature.
One option when it comes to personal taxation is to target wealth, in the form of investments, pensions and the generational transfer of assets.
Capital gains tax (CGT)
One of the main possibilities is a rise in CGT rates to align them more closely with income tax rates, especially for higher earners. Currently, tax on capital gains is levied at a lower rate than income tax. Equalising these rates may be a tempting revenue-raising measure. There are also discussions around reducing or removing existing exemptions and allowances, such as Business Asset Disposal Relief, which could impact business owners and entrepreneurs.
Inheritance tax (IHT)
The Chancellor has not ruled out a potential increase in rates of IHT and there are a number of ways in which changes could be introduced. There’s the possibility that the main 40% rate of IHT, which is imposed on properties above the tax-free threshold of £325,000, could be raised. The government could look at modifying some of the reliefs and exemptions such as those which apply to pension assets, agricultural land, charitable donations and qualifying investments. The current gifting regime, which allows IHT to be avoided completely if a gift is made more than seven years before someone’s death, may also be reviewed.
Pensions
It is widely anticipated that Labour will announce changes, with their manifesto promising they will “undertake a review of the pensions landscape”. Income tax relief on pension contributions could be reduced, and compulsory employer pension contributions increased. The ability to take a 25% tax free lump sum from a pension pot could also be reduced or removed, and it’s possible that the Lifetime Allowance, which caps the total amount that can be saved in a pension tax-free, could be reintroduced.
Planning ahead
With the Autumn Budget just around the corner, it might be tempting to try and pre-empt the announcement. While it’s important to be flexible and adaptable, we would advise against making major financial decisions based on speculation. If you have any questions about how tax changes might impact you, contact our experts on 01763 261366 or email info@hflfinancial.com.