30 October Budget: A tax checklist to watch
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There is a lot of media attention on the upcoming Autumn Statement due on the 30th October 2024. The Chancellor, Rachel Reeves, has confirmed that tax rises will be arriving in this budget. The question, of course, is which taxes will be targeted?
The UK has dozens (perhaps over one hundred) different taxes. So, accurately guessing which ones may be changed in the Autumn Statement is impossible. However, certain taxes are more likely to be targeted for reasons of political expediency (they are less costly to the voter base) and revenue raising potential.
Below, our Grantham financial advisers highlight some of the key taxes to watch on 30 October. To discuss your own taxes and financial plan with us, please get in touch to arrange a no-obligation financial consultation at our expense:
01476 855 585
info@casfin.co.uk
Capital gains tax (CGT)
In early 2024, Labour went on record to state it has “no plans” to raise CGT. However, it was not explicitly ruled out in its pre-election manifesto. Analysts are divided on the likelihood of a CGT change in October.
A previous Conservative government in the 1980s equalised CGT rates with income tax rates when Lawson was Chancellor. There are also many options open to the government to change the system, such as CGT on additional properties and the Annual Exempt Amount.
Inheritance tax (IHT)
In 2024-25, IHT is typically charged at 40% on a deceased individual’s estate when its value exceeds £325,000 (There is an additional £175,000 allowance for main residences, which applies per person). There are many financial planning “tools” to mitigate this, however, such as the nil rate band (NRB) and tax-free gifts.
IHT is raising more revenue each year for the government (£7.5bn is forecasted for 2024-25). Labour could target various reliefs – e.g. the aforementioned £175,000 residence nil rate band (RNRB) or the “tapered” rate of IHT for gifts. However, changing the system would be very cumbersome and difficult.
Council Tax
Darren Jones – Chief Secretary to the Treasury – has expressed frustration about the UK’s “out of date” council tax bands. One idea is from Fairer Share, a left-leaning campaign group, which argues for a “proportional system” that shifts responsibilities to landlords instead of tenants. The present system is based on 1991 property values, despite house prices rising dramatically since then.
Employer pension contributions
At present, employers are required to contribute at least 3% of an employee’s salary to their workplace pension (under the auto-enrolment rules). Employer contributions are currently exempt from National Insurance (NI).
However, the government may be tempted to change this rule to try and raise £16bn in additional tax revenue. Politically, it is attractive because the cost would fall on business owners (a smaller voter base than workers). However, the result could be lower profits for firms, which would conflict with Labour’s stated goal to grow the economy.
Pension tax relief
The Chancellor, Rachel Reeves, has previously called for a “flat rate” of pension tax relief. Tax breaks on pensions are very costly to the Exchequer (about £66bn), and this reform could save £10bn per year for the public purse.
Of course, the question is whether this is politically palatable for the government, which will want to be careful about alienating wealthier public sector workers (e.g., experienced teachers). This suggests that the previous target—employer pension contributions—is more likely.
Alcohol duty
The UK’s rules about alcohol duty have changed considerably since 2023, marking the biggest update to legislation since 1979 (e.g. Small Producers Relief). Many voters currently support increasing alcohol duty to help the NHS cope with the cost of alcohol-related harm.
Increasing the duty could raise an additional £800m for the government next year. The government could also be tempted by its desire to address the UK’s high number of workers who are signed off on long-term sickness. However, care will need to be taken to avoid excessive harm to bars and pubs, which employ roughly 470,000 people.
ISA reforms
Currently, an individual can save up to £20,000 into their ISAs each tax year and receive tax-free dividends, capital gains and interest. There is no total limit on how much someone can save in ISAs over a lifetime.
The Resolution Foundation has argued for a lifetime “cap” on ISAs at £100,000, so the tax breaks target those without high disposable income. However, ISAs have generally not been touched by Chancellors since their introduction in 1999 – perhaps due to their mass appeal.
A wealth tax?
This idea has enjoyed moments of popularity in Europe over recent years. However, only three countries have committed to it – Norway, Spain and Switzerland. It seems that, in practice, wealth taxes collect little revenue and impose high administrative costs.
It is worth noting that Labour has not promised an annual levy on people’s wealth over a certain threshold.
Invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
Nick Lawson
Chartered Financial Planner
Nick joined Castlegate in 1994 and is the firm’s longest serving Financial Planner
Email: nick.lawson@casfin.co.uk
