autumn budget 10 downing street

The date of Labour’s first Budget is set for the 30th October 2024 and has sparked significant anticipation regarding potential tax rises for both individuals and businesses.

In a statement made yesterday (29th July 2024), Rachel Reeves, The Chancellor, warned that the Treasury’s finances were in a worse state than expected, a standard ploy used when a new government comes into power. The question is, what is this narrative trying to prepare us for?

Key announcements made today:

How to tackle £22bn budget shortfall ‘covered up’ by Tories

Chancellor Reeves compared the Treasury’s current predicament to a “black hole” caused by unfunded spending commitments made in the Spring Budget by her predecessor, Jeremy Hunt. Despite Reeves agreeing to Hunt’s spending plans, the Office for Budget Responsibility (OBR) and the International Monetary Fund (IMF) have flagged a substantial fiscal gap, estimated at £30bn, necessitating either tax increases or spending cuts.

In a May 2024 interview, Reeves pledged that if Labour won the election “no additional tax rises” would be introduced beyond those previously outlined. The Labour Party also made election pledges to not increase Income Tax, National Insurance or VAT (other than possibly putting VAT on some items that have previously been exempt, such as private school fees).

So, what options remain for Reeves to bridge this £22bn gap?

Spending adjustments

The government has already postponed major infrastructure projects to cut costs and may introduce further measures, such as means-testing winter fuel payments.

A new spending review this year will outline departmental budgets and reforms for the next three years. Public sector pay rises above inflation, not accounted for in the budget, are likely to widen the ‘black hole’ by approximately £9bn.

Other significant expenses include compensation for the Post Office Horizon scandal, the blood contamination scandal, and the Women Against State Pension Inequality (WASPI) campaign, along with potential bailouts for failing water companies and local councils.

Potential Tax Increases

Anticipated tax hikes in the autumn budget may target various but peripheral areas of the tax law. The focus may shift to Capital Gains Tax (CGT), Inheritance Tax (IHT), Stamp Duty, Fuel Duty, Council Tax, or Business Rates. There is also rumour about further changes to pension contribution reliefs which we expect at the very least news of a “review” to take place.

Below is a summary of the rumours doing the rounds. However, we have to state that there is no guarantee of what will be in the budget itself. The period between a budget announcement and the budget itself is usually spent with the Government leaking different ideas to see which prove the most unpopular – they then quietly remove them from the plans and the budget is then left with a path of least resistance. Of course, politicians often love to surprise us on the day…

Capital Gains Tax (CGT)

There has been speculation for about five years that that CGT rates may be aligned with income tax rates, similar to the 1989 reform by then-Chancellor Nigel Lawson. This could take effect from 6 April 2025, although an earlier implementation might be considered to pre-empt asset disposals at current rates.

Another suggestion includes removing the rules allowing for asset value uplifts for CGT purposes upon inheritance post death.

Valuable reliefs such as Business Asset Disposal Relief (BADR) could also be cut or amended to bring in more tax which would affect anyone selling their business. This could trigger more solvent liquidations prior to the change.

As no party has had the courage to make this change in the past five years, even in the pre covid majority that the conservatives had, it remains to be seen if this will be worthwhile for the government now. Ultimately CGT isn’t a big earner for the exchequer, but every little helps!

Inheritance Tax (IHT)

While Labour has previously indicated no plans to alter IHT, it has not ruled out changes. Potential adjustments could include closing or reducing IHT exemptions for agricultural and business assets.

IHT is renowned for being highly emotive and increases in IHT are a vote loser even by people who have no risk of their estate ever paying IHT. Recent years have also reported record levels of IHT income for the government.

Any tinkering with IHT always results in greater complexity. We will be watching for what headaches might be coming our way and how any changes may affect anyone.

Pension Tax Relief

Reeves may consider reducing higher rate tax relief on pension contributions, potentially introducing a flat rate regardless of income. There is also speculation about reducing the 25% tax-free lump sum available from pension pots over time.

Any changes to the pension regime will be highly controversial and many think that changes to contributions or the lump sum are unlikely to take place over night. But pension rules can be complex, which means there is much that can be tinkered with that is hard to write headlines about purely because they are hard to understand.

VAT on Private Education

A new document issued yesterday outlines the following changes:

  • VAT on school fees will start from 1 January 2025
  • Anti-forestalling measures on fees pre-paid from today (29 July 2024) for terms starting in January 2025 onward, making them subject to VAT
  • Removal of charitable Business Rates relief from April 2025

Other Tax Changes

Adjustments to the taxation of non-domiciled individuals and furnished holiday lets will take effect from April 2025, with further refinements expected.

Labour’s manifesto and media interviews with Reeves include commitments such as:

  • No tax increases for working people
  • Raising £5bn annually by tackling tax avoidance
  • Maintaining current tax thresholds to ensure fiscal drag
  • Imposing a 45% tax rate on private equity bosses’ carried interest
  • Keeping corporation tax rates stable until 2029
  • Continuing Full Expensing and the Annual Investment Allowance
  • Publishing a “roadmap” for business taxation within six months of the election

As always, we will keep you updated as and when announcements are made, and we will be providing a full, detailed summary of the Autumn Budget on the day.

If you have any questions on anything announced, email us enquiries@a4g-llp.co.uk.

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