Labour Autumn Budget 2024 - What could we expect?

What we do know

Prior to the election, Labour committed to:

• changes to the taxation of non-domiciles, although without certain rules,
• charging VAT and business rates on private schools,
• increasing stamp duty on residential property purchases by non-UK residents.

But it has ruled out:

• increases in tax for ‘working people’ i.e. headline rates of income tax, NICs and VAT, and
• increasing corporation tax above 25%

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What has there been speculation about?

In his Rose Garden speech on 27 August, Keir Starmer referred extensively to a “black hole” in the country’s finances and that things would have to get worse before they get better. He also referenced that the biggest burden would be borne by those with the broadest shoulders. Most of what we know is based on the Labour manifesto and whilst it was silent on wealth - Capital Gains Tax (CGT) and Inheritance Tax (IHT) - and investment taxes, there is speculation that changes to some of these areas could be announced in the Budget:

• IHT relief change
• higher tax on capital gains and changes to CGT exemption
• higher taxes on investment income
• pensions tax relief changes
• pensions tax free allowance changes
• Business Assets Disposal relief changes

The speculation is founded on the acknowledgement that tax increases may be necessary to meet Labour’s commitment to address the fiscal challenges.

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Pensions

Labour’s manifesto commits them to ‘undertake a review of the pension landscape’ which suggests that there will be no immediate changes to the annual allowance or the availability of tax relief.

We have seen speculation regarding the removal of(or restriction on) tax free cash, although this hasn’t come from the government who have stated that they don’t intend to change tax free cash on pensions.

And again, there is talk of flat-rate tax relief, although Rachel Reeves has stated that there is no plan to curb tax relief or for an immediate reinstatement of the Lifetime Allowance

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Capital Gains Tax

Given the warnings of tax increases likely in the Budget, there is understandable concern that changes to Capital Gains Tax (CGT) may be introduced. CGT speculation has meant that one particular question is increasingly being asked: can CGT be changed mid-year?

The precedent of a new Chancellor making a midyear change to CGT rates post-election already exists when George Osborne raised the CGT rate in his June 2010 Budget following the Conservative’ selection victory.

For individuals and trusts, CGT is generally accounted for on a tax year basis, so a mid-year change causes none of the disruption that would be associated with income tax (or NIC) mid-year tweaks. Even residential property sales have a 60-day period for reporting/payment (although this special treatment did not exist in 2010).

The other question mark over an in-year change is whether more tax might be raised by deferring the change to 6 April 2025. So if the Chancellor wants to raise revenue as quickly as possible, waiting to enforce from April 2025 could deliver more in the short term

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Business Assets Disposal Relief

One of the major triggers of CGT is the sale of business assets. Currently, up to £1m of gains from the disposal of an interest in a qualifying business would be taxed at the lower rate of 10%. And whilst this could feature in the statement, it’s not thought to be a major target given the generally accepted importance of encouraging small businesses.

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IHT

The forewarning of tax increases countered by the promise to not impact working people has understandably led to speculation regarding to inheritance tax (IHT) changes. But exactly if, what and how is not yet clear.

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ISA allowances

We’ve seen no speculation on ISAs as yet.

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Wealth Tax

With the government’s self-imposed constraints on income tax, NIC and VAT - and the potential limits on the amounts that could be collected from IHT and CGT increases – it’s perhaps unsurprising that there is some talk of the introduction of a separate Wealth Tax.

The government has not expressed any indication that this is part of their plans but recent union and media speculation has raised the subject. The National Union of Rail, Maritime and Transport Workers (RMT) has called for “reforms to taxation, introduction of wealth taxes, and a redistribution of wealth” (congress.tuc.org.uk, September 2024).

A wealth tax could be a complex tax to create for a variety of reasons though, not least of all due to the challenges of asset valuation and liquidity to pay the tax.

While we can never be certain about what might be in the Budget and especially this year, most expect Wealth Tax to remain on the side-lines, despite the latest rumblings. More likely is higher taxes on capital in the form of CGT and IHT, as has been widely forecast. And indirect wealth tax on residential property, through a reform of council tax is a possibility.

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Next steps

We know that uncertainty and speculation can be unnerving, but it’s important to remember that change – to your aspirations, your personal circumstances and legislation - is constant. As a result, it’s important that your financial plans are reviewed regularly to ensure that they remain on target to meet your objectives and are maximising any tax allowances available to you. Please do reach out to your Partner over the coming weeks and months if you wish to speak with them or need reassurance on any aspect of your finances.

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The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested. The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is generally dependent on individual circumstances.