Autumn Budget predictions 2024

Published 12 Aug 2024

Rachel Reeves has confirmed that Labour will have to raise taxes in a bid to claw back some of the Government's £22bn debt, with changes announced in the 30 October Autumn Budget and possibly effective from this date too.

As part of their manifesto, Labour pledged that it would not raise “working taxes” with Reeves reiterating that she would not increase National Insurance, Income Tax, Corporation Tax or VAT however she did not rule out changes to Inheritance Tax (IHT), Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT) or the reformation of pensions taxation.

Reeves also confirmed that VAT on private school fees will be applied from 1 January 2025 with any payments made in advance of this or the January terms being taxed from 29 July 2024 onwards.

Labour has confirmed that it will go ahead with the Conservative’s plans to abolish the furnished holiday lettings (FHL) regime with effect from April 2025.

Further changes to the non-domicile regime, first introduced by the Conservative Government, were also announced with Labour confirming that the proposal for a four-year Foreign Income and Gains (FIG) regime will remain unchanged however it will not implement a 50% reduction on foreign income for individuals who are not non-domiciled and currently subject to the remittance basis. We await details of the introduction to a rebase rate on foreign assets, plans for a Temporary Repatriation Facility and the end of the use of Excluded Property Trusts.

It is important to note that the Government are looking to increase HMRC activity in a bid to identify tax liabilities and raise funds for the exchequer. HMRC has announced that it will recruit an additional 5,000 staff to bolster the management and scrutiny of tax compliance - what is not yet evident is what sectors and risks HMRC will really hone in on.

From current experience, we believe HMRC will continue to undertake a greater number of audits in relation to employer compliance, National Minimum Wage and VAT, with focussed scrutiny also being applied to IR35 and R&D. In short, if an organisation has not had a review for the past five years, they should expect one shortly.

What other changes we could see in the Autumn Budget

Capital Gains Tax (CGT)

To some extent, CGT has already been squeezed with the reduction to the Annual Exempt Amount (AE), increases in CGT rates applied to residential property, and the reduction in Business Asset Disposal Relief (BADR) for disposal of trading businesses.

Therefore, increasing the CGT rate now seems most likely. The worst-case scenario would be the alignment of CGT rates with Income Tax, we could also see an introduction of different tax rates for different assets including residential property, investment and business assets.

If we do see an increase in CGT rates, we also expect this to be coupled with an increase in the Business Asset Disposal Relief (BADR) on selling your trading business from £1m. Labour could also increase the tax paid on dividends.

Another unlikely move from Labour could be the removal of Principle Residence Relief, which applies to disposals of an individuals only or main residence in the UK, it could, however, be replaced with a rollover mechanism or the introduction of a cap. Typically the home is a protected asset so this would signal a significant change from the new Government.

On death, Labour could remove the CGT uplift from assets that qualify for relief from IHT including Businesses, Agricultural Property, transfers to spouse etc. If this were to happen, Labour would need to consider how this is introduced without forcing the breakup of businesses (and similar assets) on death to pay the liability.

Pensions

Labour has confirmed that it will not reintroduce the Lifetime Allowance (LTA) however it could consider a flat relief on pension contributions (as opposed to linking this to tax rates). This has been discussed for many years so seems unlikely.

A more likely scenario is the reduction of the Lump Sum Allowance (LSA) and addressing the taxation of pensions on death. Following the abolition of the LTA, the LSA is no longer linked to any wider legislation and therefore the Government could easily reduce the amount of tax-free cash individuals can take from their pensions.

The taxation of pension death benefits has long felt anomalous –receiving tax relief on contributions; tax-free investment growth and then passing the funds on tax-free on death. Given the level of wealth stored up in pensions, we expect that the Labour may seek to tax pension funds on death moving forward.

Inheritance Tax (IHT)

The number of estates paying IHT has increased significantly over the years due to inflation and frozen thresholds. It is therefore no surprise that any changes introduced will raise concerns. Some of the areas the Government could look to remove are Business Relief on AIM assets, limiting Agricultural Property Relief to working farmers, or changing the seven-year gifting rules.

By and large, there is little to plan for here. For those already planning, it’s worth considering how you make use of the current gifting allowances sooner, rather than later.

Business Property Relief (BPR)

There have been rumours of a significant change to BPR, a valuable IHT relief for business owners, which could now be capped at £500,000 per person. This would be a drastic move from the current system, where BPR can provide up to 100% relief on qualifying business assets (typically shares in a trading company).

Capping BPR could have a catastrophic impact on business owners, the most damaging being the possibility that business assets may need to be sold to fund the tax bill. The Government will need to consider how they balance the need for increased tax revenue with the importance of supporting business continuity.

An alternative to setting a cap may be to tighten criteria on what can be considered ‘qualifying’ for BPR purposes, specifically excluding certain activities, or the ability to hold certain assets within the business, resulting in the need for the business owners to consider separating trading activities and what could be considered ‘investment assets’ into different entities.

A Business tax roadmap has been promised within six months of Labour being elected into Government so whilst we do expect changes, these are unlikely to be implemented immediately, giving individuals, families and businesses hopefully time to plan.

Wealth tax

A wealth tax would be a very complex taxation to introduce and would be very different to the UK’s current approach to tax. However, it shouldn't be completely ruled as there are examples of this being introduced in other countries.

Payrolling benefits in kind

The Conservative Government previously introduced a change to the mandating of payrolling benefits in kind from April 2026 onwards however, we are still awaiting Labours to plans on the future of P11D filing and payrolling in general.