Posted: 16 / 10 / 2024

Article by: David Evans, Head of Private Clients
Image: Renan Katayama, CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0, via Wikimedia Commons

The UK Budget 2024, scheduled for 30 October, is anticipated to focus on measures to address a £22 billion fiscal gap left by the previous administration, with many expecting the focus to be on wealth taxes rather than broad-based increases in income tax, VAT, or national insurance​.

We’ve summarised the main predictions as to what will be announced below. 

Potential changes to wealth taxes

Capital Gains Tax (CGT) is a key area under scrutiny. Experts predict that Labour may align CGT rates with income tax rates, potentially pushing CGT rates as high as 45% for additional-rate taxpayers​. This would have significant implications for those selling assets like second homes and business interests. 

Labour could also reduce the annual CGT exemption, already slashed from £12,300 to £3,000 under the Conservatives​.

Clients are worried about Business Asset Disposal Relief (formerly known as Entrepreneurs Relief) being scrapped. I personally can’t see a complete removal of this relief, considering it has been around in various guises for many years. Tightening up the qualification criteria would be a more realistic possibility. 

Interestingly, it has been suggested by some that raising the rate of CGT by 10 percentage points could actually decrease the overall CGT revenue by £2bn by 2027!

Changes for Inheritance Tax (IHT)?

For Inheritance Tax (IHT), there is speculation that Labour may raise tax rates or tighten reliefs. Changes could include taxing gains on inherited assets at the point of death, a move dubbed the “double death tax,” which could add CGT liabilities to the estate’s IHT bill​. There’s also talk of including pension pots within the estate for IHT purposes, a measure that could affect wealthier individuals​. Other changes could include reducing the Nil Rate Band and the Residence Nil Rate Band. 

Are pension reforms on the way?

Pension Reforms: Labour may introduce a flat rate of tax relief on pension contributions, potentially between 25% and 30%, to simplify the system and raise revenue. This would benefit basic-rate taxpayers but reduce relief for higher earners​. Moreover, the long-standing 25% tax-free lump sum on pensions could be reduced, though full removal is unlikely due to public opposition​. A more realistic possibility is a reduction to the cap of pension savings at which 25% can be taken tax free.

How will the housing market be affected?

Housing Market: The Budget is expected to address housing affordability. Labour might extend the current stamp duty relief for first-time buyers, or introduce a mortgage guarantee scheme to encourage lenders to offer lower-deposit deals​. However, the threshold for 0% stamp duty is set to revert to £300,000 in March 2025​.

Other Tax Areas

Fuel duty may see an increase as the temporary 5p cut introduced by the Conservatives could be reversed. 

What isn’t changing?

The following are direct quotes from the Labour Party Manifesto which give some clues as to what won’t change:

“We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”

“Labour will cap corporation tax at the current level of 25 per cent, the lowest in the G7, for the entire parliament, and we will act if tax changes in other countries pose a risk to UK competitiveness. We will retain a permanent full expensing system for capital investment and the annual investment allowance for small business.”

In recent days we have seen rumours that employers national insurance may be increased, and that the manifesto pledge reference to national insurance was actually limited to employees national insurance.

Overall, the focus will be on plugging the fiscal gap, potentially with minimal direct impact on income tax, VAT, or National Insurance for the general public, in line with Labour’s manifesto promises. We also wait to see whether any of the announcements will be effective immediately, or rather come into effect from 6 April 2025.