When is the budget taking Place?
There is unlikely to be much to celebrate when Rachel Reeves delivers her first Budget on the 30th of October.
Speculation is rife regarding the likely targets for tax changes and increases. We have listed a few of the more persistent predictions below. But note, these are just predictions, and there will no doubt be “surprises” when the Budget details are released.
Personal Taxes and Pensions
Labour has pledged not make any main rates of Income Tax and National Insurance (NI) tax changes, but other routes to increasing the Government’s income from personal taxation may be impacted.
The chancellor has already committed to freezing income tax rates and other thresholds until 2028 so more individuals will be pulled into higher rate and additional rate bands through fiscal drag assuming continued wage inflation; this threshold freezing could be extended. Pensions, in particular, are expected to be a focus. For example:
There are discussions around reducing the tax-free pension lump sum from its current level (£268,275) to a lower amount, which could raise around £2 billion annually.
Flat-rate pension tax relief, replacing the current marginal rate system, may be introduced, which could save the government around £5 billion but would negatively affect higher earners.
Employer pension contributions could also face National Insurance charges, which may lead employers to offer less generous pension schemes.
Capital Gains Tax (CGT) and Inheritance Tax (IHT)
CGT rates could be increased, with some speculation suggesting they may be aligned with Income Tax rates, raising the top rate from 20% ignoring the higher rate of 28% already applicable to residential property and carried interest) to as much as 45%. This would significantly impact higher earners and business owners. Another option is introducing a "double death tax," where assets are taxed both via CGT upon death and subsequently through IHT.
Regarding IHT, Labour might change the tax rate above the current 40% or reduce the £325,000 nil-rate band. Alternatively they could abolish the Residence Nil Rate Band and increase the main Nil rate band to £500,000 per person (£1 million per couple) which would be a welcome simplification at relatively low cost. Pension pots, currently excluded from IHT, could also be brought into the fold.
Business Taxes
While Labour has ruled out large changes in business taxes, some changes are expected. For example:
National Insurance Contributions (NICs): A rise in employer NICs from 13.8% to 14.8% is a possibility, potentially raising £8–9 billion for the Treasury.
Carried Interest and Energy Profits Levy: Reforms to the taxation of carried interest, particularly affecting private equity, and an extension to the Energy Profits Levy are likely to be part of the Budget.
Other Measures
Fuel Duty: For the first time in 13 years, fuel duty may be increased, partly as a move to promote the adoption of electric vehicles. This tax was cut by 5p by the conservative government however, reports are suggesting that new labour government is expected to increase this tax in the 2024 autumn budget.
VAT on Private Schools: Labour has committed to imposing VAT on private school fees starting in January 2025, a measure that could generate additional revenue but has sparked debate.
Overall, the October 2024 Budget is shaping up to include difficult decisions as Labour looks to tackle the fiscal deficit, with changes focused on wealth and asset taxes, pensions, and potentially significant tweaks to business taxation policies.
However, it is essential to note that while these predictions are grounded in current analyses, the actual Budget may include unexpected measures or deviations based on evolving economic conditions and political considerations.
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