What to expect in the Autumn Budget?

Overview‍
‍

As the new Labour Government prepares for its inaugural Budget, it is anticipated that tough decisions will need to be made. Speculation is rampant regarding potential changes to pensions, Capital Gains Tax, Inheritance Tax, or even the introduction of a Wealth Tax to generate revenue. Given the uncertainty, it’s essential to regularly review your financial plans.
‍
With the new government's first Budget set for 30 October, hints and theories about possible inclusions in the statement are starting to surface.

The implications of any changes remain unclear, and unless there are significant leaks beforehand, details won’t be available until the Budget is unveiled. However, staying informed about speculation is beneficial.
‍
‍

What We Know
‍

Before the election, Labour committed to several tax changes, including:

• Adjustments to the taxation of non-domiciles, albeit with unspecified rules
• Implementing VAT and business rates on private schools
• Increasing Stamp Duty for residential property purchases made by non-UK residents

However, they have ruled out:

• Tax hikes for "working people," which includes increases in Income Tax, National Insurance Contributions (NICs), and VAT
• Raising Corporation Tax beyond 25%
  
  ‍

Speculation on Changes
‍

In his Rose Garden speech on 27 August, Keir Starmer discussed a significant "black hole" in the country’s finances, suggesting that conditions might worsen before improvement. He indicated that those with greater financial means would bear the largest burden.

Much of the speculation stems from Labour's manifesto, which notably did not address wealth taxes such as Capital Gains Tax (CGT) or Inheritance Tax (IHT). Nonetheless, changes in these areas are speculated to be part of the upcoming Budget:

• Adjustments to IHT relief
• Higher CGT rates and modifications to CGT exemptions
• Increased taxes on investment income
• Changes to pensions tax relief and tax-free allowances
• Modifications to Business Assets Disposal Relief

This speculation is grounded in the understanding that tax increases might be necessary to tackle Labour’s fiscal commitments, reports from the Institute of Fiscal Studies and the Fabian Society have raised an eyebrow
‍

Pensions
‍

Labour’s manifesto promises to "review the pension landscape," implying that immediate changes to annual allowances or tax relief may not be forthcoming. While there has been speculation about potential restrictions on tax-free cash, the government has clarified during their campaign, at least, that they do not intend to alter this aspect of pensions. Additionally, discussions about flat-rate tax relief have emerged, though Rachel Reeves has confirmed no immediate plans to restrict tax relief or reinstate the Lifetime Allowance.

Capital Gains Tax
‍

With anticipated tax increases in the Budget, concerns about potential changes to CGT are growing. A key question being raised is whether CGT rates could be adjusted mid-year. Historical precedent exists, as George Osborne raised CGT rates in his June 2010 Budget following the Conservative victory.

For individuals and trusts, CGT is typically assessed on a tax year basis, making mid-year changes less disruptive compared to Income Tax adjustments. Moreover, residential property sales have a 60-day reporting/payment period, a feature not available in 2010. Another consideration is whether delaying changes until 6 April 2025 might generate more revenue in the short term.
‍

Business Asset Disposal Relief
‍

CGT is notably triggered by the sale of business assets. Currently, gains up to £1 million from qualifying business disposals are taxed at a lower rate of 10%. While this may be addressed in the Budget, it’s not expected to be a primary target given the recognised importance of supporting small businesses.
‍

Inheritance Tax
‍

The speculation surrounding potential tax increases and the promise to avoid impacting working people has led to discussions about possible changes to IHT. However, specifics regarding any adjustments remain unclear.
‍
‍

ISA Allowances
‍

Currently, there has been no speculation regarding changes to Individual Savings Accounts (ISAs).
‍
‍

Wealth Tax
‍

Given the government's self-imposed limits on Income Tax, NIC, and VAT, along with potential restrictions on the revenue from IHT and CGT increases, discussions about a separate Wealth Tax have surfaced. Although the government has not indicated any plans in this direction, recent union and media discourse has reignited the topic.

The National Union of Rail, Maritime and Transport Workers (RMT) has called for reforms, including the introduction of wealth taxes and wealth redistribution. However, establishing a Wealth Tax poses significant challenges, particularly regarding asset valuation and liquidity.

While it's impossible to predict the exact contents of the upcoming Budget, expectations lean towards increases in capital-related taxes like CGT and IHT, as well as potential indirect wealth taxes through reforms to Council Tax.
‍
‍

Next Steps
‍

Amidst uncertainty and speculation, it’s vital to remember that change—whether in your personal situation or in legislation—is a constant. Regularly reviewing your financial plans with a financial adviser will help ensure they align with your objectives and maximise available tax allowances.

Tax levels, bases, and reliefs can change at any time and are typically dependent on individual circumstances.

‍