Predictions for the October Budget 2024
Labour's first budget
This October, the UK will see the new Labour government share its first budget. Chancellor Rachel Reeves announced that the budget will take place on Wednesday, the 30th of October 2024, and will be accompanied by a statement from the Office of Budget Responsibility (OBR). This first budget under the new government is an important milestone for the Labour Party as it is the first opportunity to introduce its election policies to the general public. There is already much speculation about the changes that may be introduced in this budget, and being aware of the potential changes may help you plan ahead for any changes.
Prime Minister Sir Keir Starmer has already said the budget will be “painful” and has warned that there will be unpopular policies, such as tax rises, that are necessary to bring Britain back on the right path. In their election manifesto Labour promised not to raise working taxes but this still leaves scope for increases in other taxes such as Inheritance Tax, Capital Gains Tax, pension relief aiming at addressing the £22bn deficit in public finances.
We have outlined some of the potential changes that may be announced and how they may affect you. Staying abreast of news about potential changes may help you to plan for the future and anticipate changes that will affect you.
Overview of Potential Labour Policies in the 2024 Budget
Both taxpayers and businesses are watching the upcoming Autumn Budget closely. Many people are wondering about Labour’s plans for taxes and public finances.
We will not know the details until the Chancellor speaks. However, there are talks about some possible changes. These could include raising taxation on capital gains and inheritance and changing pension tax relief. This year’s Autumn Budget is very important for UK taxpayers. as it shows how Labour will deal with the UK’s financial issues in the next tax year.
Downing Street has already made announcements, the biggest of which is the proposed addition of VAT to private school fees in England, which will come into effect on January 1st, 2025. The October Budget will contain more legislative changes that are likely to affect individuals, and staying abreast of what may be changing will help in planning for the future.
Potential Changes to Capital Gains Tax (CGT)
There has been much speculation regarding changes to Capital Gains Tax in the October 2024 Budget. Labour may seek to align the CGT rates with Income Tax, which would constitute a large difference in the tax rates of individuals who benefit from capital gains. Currently, CGT is charged at 10% for basic rate taxpayers and 20% for higher or additional rate taxpayers, with higher rates of 18% and 24%, respectively, for gains on disposals of residential property that are not covered by main residence disposal relief.
If Labour align CGT rates with Income Tax rates, there will be a large increase in the amount of tax due to HMRC from the disposal of capital assets; this is likely the largest potential change to CGT rates that we may see. There is also potential for the changes to be purely for different types of asset. Creating different rates for different assets such as residential property, investments and business assets may be a less drastic change but will affect individuals differently depending on the portfolio of assets that they hold and are looking to sell.
How Business Asset Disposal Relief may be affected
Business Asset Disposal Relief (BADR), formerly Entrepreneurs Relief, is a relief on CGT tax for the first £1,000,000 of qualifying gains whereby you only pay 10% CGT rather than the higher rate of 20%. This relief applies to sole traders or business partners who hold more than 5% ordinary shares in a business for over 2 years or employees and office holders of trading companies.
Labour may make changes to this by either lowering the lifetime allowance from £1,000,000 or by removing the relief altogether. This is likely concerning news for any business owners who were planning on selling their business. Unfortunately, we will not know the full details of any changes until the budget is announced, but it is likely that any changes to BADR will not be positive for business owners.
Inheritance Tax
With the new Labour government, people are curious about how Inheritance Tax (IHT) might change. Since this is not a working tax, it is a likely candidate for change. Under current legislation, IHT is charged at 40% on parts of an estate above £325,000 with a further allowance of £175,000 for passing on your residence to children or grandchildren. Changes to IHT would likely be to raise the rate from 40% or curb the relief currently available on some assets.
Due to inflation, more estates are having IHT charged on them. Speaking to a financial advisor to plan ahead for IHT is recommended and they will be able to advise you on giving gifts and planning for the future. There is likely little to be done to minimise the liability arising from IHT but keeping a close eye on the October Budget and any announced changes will enable you to ensure your plans are the best they can be.
Potential changes to pension tax relief
Pensions are another area in which Labour may choose to raise further tax revenue. Currently, there’s tax relief for individuals who draw down their pensions as income and allowances for lump sum payments received from pensions. Chancellor Rachel Reeves may look to change the limits of these reliefs in order to raise more tax revenue for the government to help address the budget deficit.
The changes that are currently most widely discussed are a reduction in the lump sum allowance and changes to the treatment of an individual’s pension contributions upon death. This would reduce the amount of tax-free payments you can receive from pension pots. This change would be at odds with the Government’s attempts to boost long-term savings and may cause significant distress to those who rely on pension income.