Tax changes under Labour: What could we expect to hear in the Autumn Budget 2024?
As the UK political landscape shifts, the rumour mill has been mounting about the tax reforms Chancellor Rachel Reeves might unveil in her first Autumn Budget on October 30th. This is what we know so far:
Key Points from Labour’s manifesto
- No increases in “working taxes”: Labour pledged not to raise National Insurance, Income Tax, Corporation Tax, or VAT.
- VAT on private school fees: Set to be applied from January 1, 2025, with advance payments taxed from July 29, 2024.
- Furnished holiday lettings (FHL) regime: Labour will proceed with the Conservative plan to abolish this from April 2025.
- Non-domicile regime: The proposed four-year Foreign Income and Gains (FIG) regime will remain, however, it will not implement a 50% reduction on foreign income for individuals who are not non-domiciled and currently subject to the remittance basis.
- HMRC expansion: An additional 5,000 staff will be recruited to enhance tax compliance management and scrutiny. We believe HMRC will undertake a greater number of audits in relation to employer compliance, National Minimum Wage and VAT, with focused scrutiny also being applied to IR35 and R&D. If an organisation has not had a review for the past five years, they should expect one shortly.
But beyond what has been announced, concern about increases in Capital Gains Tax (CGT), changes to Inheritance Tax (IHT) and Pensions, along with murmurings of a possible Wealth Tax are growing.
Potential changes in the Autumn Budget
Capital Gains Tax (CGT)
An increase in CGT rates is expected, with the worst-case scenario expected to be an alignment with income tax rates. There is also the possibility that the government will introduce varied rates for different asset types, including residential property, investments, and business assets.
If CGT rises, we expect this to be paired with a possible increase in the Business Asset Disposal Relief (BADR) when selling a trading business. Dividend tax rates could also rise as we are now broadly aligned with standard rates of income tax, with the basic rate band being the obvious exception.
While less probable, changes to Principal Residence Relief aren’t entirely off the table. This relief applies to disposals of an individual’s only or main residence in the UK. It could, however, be replaced with a rollover mechanism or the introduction of a cap. Normally the home is a protected asset so this would be a significant change, but there is a precedence of this being implemented in other countries.
On death, Labour might consider eliminating the Capital Gains Tax (CGT) uplift for assets that currently qualify for Inheritance Tax (IHT) relief. This could directly affect businesses, agricultural property, and spousal transfers, among others. However, if implemented, the government would need to carefully plan to avoid unintended consequences. Specifically, they’d need to ensure that families aren’t forced to sell businesses or other significant assets merely to cover the tax bill upon the owner’s death. This balancing act will be crucial to maintain economic stability and family legacy while still achieving tax reform goals.
Pensions
Labour has confirmed they won’t reintroduce the Lifetime Allowance (LTA), however, they might consider a flat relief on pension contributions (as opposed to linking this to tax rates). However, this has been debated for several years now so seems unlikely.
It is more likely we see a reduction in the Lump Sum Allowance (LSA) to address the taxation of pension death benefits. Following the abolition of the LTA, the LSA stands alone, unconnected to broader pension regulations. This makes it simpler for the Government to potentially decrease the amount of tax-free cash individuals are currently permitted to withdraw from their pension.
Taxation on pension death benefits has long felt inconsistent – with tax relief on contributions, tax-free investment growth and then passing the funds on tax-free on death. Given the substantial wealth stored in the pension arrangements across the UK, we expect this to be an area of focus.
Inheritance Tax (IHT)
An increasing number of estates have been subject to IHT in recent years due to inflation and frozen thresholds. Therefore, any changes to IHT will be met with scrutiny. Some of the areas the Government might look at include removing Business Relief on AIM assets, limiting Agricultural Property Relief to working farmers, or altering the seven-year gifting rules. For those already planning, it’s advisable to consider utilising current gifting allowances sooner rather than later.
Business Property Relief (BPR)
Business Property Relief (BPR) also faces potential significant changes. Rumours suggest a cap of £500,000 per person, a drastic shift from the current system where BPR can provide up to 100% relief on qualifying business assets. Alternatively, the criteria for qualifying assets might be tightened. This would be a drastic move and while changes are likely, they’re not expected to be immediate, allowing time for planning. IHT Business Relief changes could impact business legacy – Forvis Mazars – United Kingdom
Wealth tax
The introduction of a wealth tax, while complex to implement, shouldn’t be completely ruled out. There are examples of such taxes in other countries, and it remains a possibility in the UK.
As these proposals are still subject to change, individuals and businesses should stay informed and seek professional advice to navigate the potential impacts of these tax reforms. If you have any questions about tax and the potential changes, please get in touch.
Join our Budget 2024 events
Join our tax experts for their analysis of the Budget and what the announcements mean for you and your business.
- For Professional services firms only
-
-
- Date: Thursday 31 October
- Time: 17:00-19:30
- Location: The Terrace, 3 Wellington Place, Leeds, LS1 4AP
-
- All other businesses and individual clients
-
- Date: Thursday 31 October
- Time: 08:30-10:30
- Location: Forvis Mazars, 3 Wellington Place, Leeds, LS1 4AP
- Register here
—
