Posted 24.09.2024
The date of Labour’s first Autumn Budget is set for 30 October 2024. It has been made very clear that since the government identified a £20bn ‘black hole’ in the public finances, that we can expect a combination of both spending cuts and tax increases.
Despite reassurances from Labour that they will not be raising income tax, national insurance and VAT[1], which together account for most government income, there is growing anticipation and some apprehension about other potential tax changes.
We want to help you understand what some of the proposed changes could look like and help you navigate their potential impact on your financial wellbeing.
Labour Autumn Budget 2024: What we know so far
Increases to Capital Gains Tax (CGT)
Most of what we know is based on the Labour manifesto and whilst it was silent on wealth – Capital Gains Tax (CGT) and Inheritance Tax (IHT) – and investment taxes, there is speculation that changes to these areas could be announced in the Budget.
One of the most anticipated changes in the Autumn Budget is a potential increase in Capital Gains Tax (CGT) rates. Currently, CGT rates are lower than income tax rates, making it an attractive area for investors. Basic-rate taxpayers pay 10% on gains and higher-rate taxpayers pay 20%, with higher rates for property sales.
It has been suggested that the government may introduce CGT on disposal on death (in addition to IHT) – perhaps at a lower rate/s than lifetime rates.
Valuable reliefs such as Business Asset Disposal Relief could potentially be cut to bring in more tax, and this would affect anyone selling their business.
Action you can take
If you’re looking to dispose of assets, now might be a good time to consider doing so. A potential rate increase in the Autumn Budget could take effect immediately.
Most sales or transfers of gifts between spouses or civil partners are free from CGT. By transferring assets to them, you can take advantage of your combined CGT exemptions. It might also be sensible to stagger disposals of chargeable assets over two tax years to make use of two years’ allowances. In this tax year (2024/25) the amount would be £3,000.
It will, however, be dependent on your personal circumstances, and you may need to manage the reduction over time – which is why expert financial advice is very important.
Potential changes to Inheritance Tax (IHT)
Inheritance Tax is another target for potential tax increases, but it is important to note that nothing has yet been specifically confirmed on the subject.
IHT is usually paid at a rate of 40%. Individuals have a £325,000 Nil Rate Band (NRB) plus in many cases a Residential NRB of £175,000. Any unused allowances can be transferred to a surviving spouse, which means that most married couples who own their own home (and leave it to direct descendants) can collectively bestow up to £1,000,000 tax-free.
The Chancellor could reassess the exemptions for Inheritance Tax, including those related to pensions, agricultural land, and certain investments. The current gifting regime, which can help mitigate against Inheritance Tax, might also be subject to review.
Action you can take
Taking any pre-emptive action on mitigating Inheritance Tax should only be done if this is already part of your financial plan.
If you’ve already planned to make gifts, and Inheritance Tax is a concern, you may want to consider making the gifts before October 30th to benefit from any potential changes.
Depending on the asset you are considering gifting this could be sensible from an IHT and CGT perspective.
Pensions
The current pension system offers significant tax benefits, including tax-efficient growth within the fund, tax relief on eligible contributions, a tax-free lump sum upon reaching qualifying age, and complete exemption from Inheritance Tax.
The tax relief you can receive depends on your income tax rate. If you are a basic rate tax payer, you will receive 20% on your eligible contributions. If you are a higher rate taxpayer it’s 40%, and 45% if you are an additional rate tax payer, when claimed through the individual’s tax return. The rates are slightly different in Scotland, due to alternate tax bands.
While the government has so far not indicated any major changes to pensions, one area of speculation is whether they will introduce a flat rate relief on pension contributions. Although Rachel Reeves has stated, there is no plan to curb tax relief.
Moving to a flat rate would be good news for basic rate and non-taxpayers who would get an extra Government top-up every time they contributed to their pension. However, this would be at the expense of higher and additional rate taxpayers who would get a less generous top-up than at present.
Action you can take
There are still generous contributions available that allow you to pay into your pension and claim tax relief, this is set by your ‘Annual Allowance’.
In the tax year (2024/25), the standard Annual Allowance is £60,000 per year.
This covers the amount that you can pay into your defined contribution pensions and receive tax relief, including your contributions, your employer’s, and anyone else who might pay in on your behalf.
The maximum amount you can personally contribute and receive tax relief on is restricted to the higher of £3,600 and 100% of your relevant UK earnings.
The Annual Allowance also covers your defined benefit pension (if you have one), and is calculated differently, based on increases in the capital value of the retirement benefits.
Our regular review meetings with clients will always involve reviewing pension contributions, and we will, of course, advise accordingly if we feel you can take advantage of any tax reliefs.
Final words …
It is important to note that any speculated changes are not set in stone, but proactive planning is still really important, especially in the weeks leading up to the Budget. However, we strongly advise not to second guess what the outcomes might be and not to make any hasty decisions before speaking with your Financial Adviser about the implications.
Our focus remains on helping our clients build and maintain robust financial plans that are adaptable to changing circumstances.
If you would like to discuss these potential changes and their potential impact on your financial wellbeing, please book a call with one of our Advisers.
Looking ahead, we’ll be providing more detailed insights once we know the outcome of the Autumn Budget 2024.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
We have done our best to ensure that the data provided in the article above is as accurate as possible at the time of writing, but please be aware that the accuracy of this information is likely to change over time.
[1] https://www.gov.uk/government/speeches/chancellor-rachel-reeves-is-taking-immediate-action-to-fix-the-foundations-of-our-economy
[2] Economic update: A better short-term outlook for 2024: https://commonslibrary.parliament.uk/economic-update-a-better-short-term-outlook-for-2024/
