The new Labour Government has painted a very dour picture of the country’s financial position and it is expected that the new Chancellor, Rachel Reeves, will implement sweeping changes to the tax regime in an effort to increase the tax receipts into the Treasury. 

Whilst the details of the planned changes are not yet known, it is anticipated that pensions and Capital Gains Tax will be areas of particular interest for the Government. 

Accordingly, there are some planning tips that we wanted to recommend ahead of the forthcoming Budget in case any of the announcements that are made are to be effective immediately. 

Pensions 

Among other rumours, there is the prospect that the Chancellor will make employer pension contributions subject to Class 1 Secondary National Insurance (NI) charges.  This would mean that pensions made by employers as remuneration to their employees would then have an NI charge (13.8% at the time of writing) applied on top of the amount contributed.  Currently, such payments are exempt from NI charge and so they have been a beneficial tool for business owners for tax efficient profit extraction and remuneration. 

Whilst we do not know for certain that this change will be implemented, given the anxiety surrounding the tax matters pertaining to the pension regime it may be beneficial for owner-managed businesses to consider accelerating lump sum employer pension contributions so that they are made before 30 October 2024.  This would mean that any detrimental changes applying after that date would not apply to contributions made beforehand. 

Equally, for individuals who make personal pension contributions (particularly for those making lump sum contributions), having the amounts deposited within the scheme ahead of the Budget would be an advisable pre-emptive move to reduce exposure to any removal or restriction to the tax reliefs that currently apply. 

However, if you are considering increasing your pension contributions before the Budget, there has also been talk of abolishing the 25% lump sum and the Inheritance Tax (IHT) exempt status for pension funds which may make putting more into a pension less attractive for tax purposes.  It’s important to speak to your pensions advisor before taking any action as personal circumstances vary. 

Capital Gains Tax 

Another area that has been subject to much speculation concerns Capital Gains Tax (CGT).  CGT is payable on gains arising on disposals of chargeable assets, and this would also include gifts of assets made to family members for little or no consideration.  This is because in such circumstances, the market value of the asset is determined to be the proceeds received on the disposal regardless of any consideration given. 

Rumours have been rife within the press about increases to the rate of CGT applicable on such disposals, and the potential to align them with income tax rates.  The current rates of CGT are 10% or 20% (depending on the income levels of the individual making the disposal), with higher rates of 18% and 24% applying where the asset disposed of concerns residential property.  It is entirely possible that the Chancellor will increase these rates (up to 40% potentially), so there is a tax benefit to making disposals before 30 October 2024 in case the rumoured changes are enacted. 

It needs to be stressed that transactions should not be entered into purely for tax reasons.  The overriding commerciality of the transaction needs to make sense on its own terms and so we would not encourage individuals or business owners to make decisions based purely on rumour or speculation about tax changes.  However, if you are already considering selling an asset, or making a gift of an asset, there are benefits to completing the transaction before the Budget to make the most of what is expected to be the most favourable rate of CGT for some time to come. 

For further advice on any of the points covered in this article, please contact your usual Moore adviser.