In its first Budget since coming to power, and the first Labour Budget in more than 14 years, the new government has communicated its intent to address a “£22 billion black hole” with a raft of “painful” yet necessary changes to the tax regime.
Dale Swift, senior tax planning manager at Champion Accountants, anticipates several tax relief changes or withdrawals will factor into chancellor Rachel Reeves’ announcement on 30th October.
The Labour government has already announced plans to levy VAT on private school fees, effective from 1st January 2025 – a move likely to impact the budgeting and savings outlook for many parents and grandparents into the new year.
Labour’s election manifesto promised not to raise certain taxes for workers, including National Insurance, Income Tax, and VAT. While we won’t have a clear picture until the Chancellor’s announcement, we anticipate these rates will remain unchanged. However, significant changes to the UK’s tax system could still occur in other areas.
Some areas that could be targeted include:
Pensions: Pensions contribution relief could be restricted, particularly for higher and additional-rate taxpayers. A potential change is implementing a flat tax relief rate, which would decrease the relief for higher-rate and additional-rate taxpayers, including many high-net-worth individuals (HNWIs). Additionally, there is consideration of reintroducing pensions into the estate for Inheritance Tax (IHT) purposes.
Pension lump sums, which currently allow for 25% of the total pension pot to be received tax-free, may also face changes. Removal or amendments to this relief may be under consideration.
Capital Gains Tax (CGT): The current CGT rates are 10% for basic rate taxpayers and 20% for higher rate taxpayers (18% and 24% for residential property). However, there is the possibility of raising these rates to align more closely with Income Tax, such as increasing them to 15% and 30%.
This potential amendment to CGT rates has already triggered a spike in transactions, and this upward trend is expected to continue through the end of October.
Business Asset Disposal Relief (BADR): This allows qualifying business owners to pay 10% CGT on the first £1 million of gains, but potential changes could include increasing the tax rate, adjusting the £1 million limit, or tightening qualification criteria.
Inheritance Tax: IHT was not included in Labour’s manifesto, so it is feasible that this area is another target for reform. From an IHT perspective, those wishing to take advantage of the current tax regime may want to utilise their annual exempt gifts before October 30th, and catch up on last year’s allowance if it has not already been used.
Another adjustment that may be in store is the removal of the CGT uplift on inheritance. This would mean that instead of resetting the asset’s value to its market price at the time of death, heirs would pay CGT on the full gain since the asset was originally acquired. This could result in a higher tax liability when selling inherited assets.
If you are likely to be affected by this year’s Budget and would like to discuss your affairs, get in touch with Dale Swift at dale.swift@championgroup.co.uk or call Dale on 0161 703 2500.
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