Autumn Budget 2024 – What could it mean for you?

The lead up to any budget announcement can create uncertainty, particularly when considering how your business and personal finances might be affected. Whilst no one has a crystal ball, understanding what could potentially change and taking time to examine all of your options before making any decision is crucial.

Stephanie Hurst, Corporate Tax Consultancy and Personal Tax Compliance Director, examines some of the potential changes that the new Labour government could be considering, what those changes might represent for you and your finances and what you could do now to prepare.

Capital Gains Tax – What changes could we see?
Capital Gains Tax Rate
Capital Gains Tax (CGT) is one of the lowest rates of tax in the UK. According to the Institute for Fiscal Studies (IFS), in an average year, CGT raises £15.2 billion in tax take, which represents 1.3% of all tax receipts.

As CGT is primarily a tax on wealth, changing the rate of tax could present an opportunity for the new Labour government to deliver on its promise not to raise taxes for working people. However, in the same vein, it also doesn't necessarily sit well with its plans to be a government which helps people to create wealth. It isn’t clear whether the Chancellor will choose to make any changes but some speculate that if the rate does change it could become more aligned with our current rates of income tax.

Whilst the rumour mill suggests that changes are coming, there is a possibility that they might not be immediate if the projected tax take for the year could plug a significant part of the £22 billion fiscal black hole.

From 6 April 2024 the CGT annual exemption was cut to just £3,000 which is one of the lowest tax free exemptions we have seen since the 1980s. In addition to this, due to the uncertainty of the budget and the potential for CGT rates and reliefs to change, many people have chosen to sell or liquidate their businesses or assets in recent months in an attempt to lock in the current tax rates.

Whilst the extent of the tax take resulting from the above may not become completely clear until the tax year ends on 5 April 2025 and liabilities become due, it wouldn’t be unreasonable for the Chancellor to have projected the possible windfall and may therefore choose not to make any significant changes to CGT at all. However, we shouldn’t rule out the possibility that certain CGT reliefs may be in the firing line.

Business Asset Disposal Relief
Business Asset Disposal Relief (BADR) is a key topic of discussion every year and this year is certainly no different. More entrepreneurs than ever are currently scrambling to sell or liquidate their businesses prior to this year’s budget.

According to the IFS, the abolition of BADR could raise around £1.5 billion which is a much lower tax take than some other measures that the Labour government could choose to implement. Abolishing this relief may also be considered publicly as an additional tax on working people, many of whom are start-up businesses and entrepreneurs who are helping to drive growth in the UK.

Property Disposals
Currently, if you own one home which you live in as your main residence, you are unlikely to be subject to any CGT if you sell the property at a gain due to the operation of Private Residence Relief. The government has specifically stated that it does not intend to impose CGT on the sale of homes but it has not ruled out other potential changes to property taxation such as an increased rate of tax for high value properties or the abolition of lettings relief for certain rental properties.

Any changes to the taxation of property disposals will need to be considered carefully by the Chancellor as they could discourage people from moving home due to the additional cost of doing so, resulting in disruption to the housing market – something the government is likely to want to avoid.

Capital Gains Tax - What should you consider?
The biggest piece of advice that I can give during this period is to take a step back and consider your options.

It’s really important that people don’t just engineer a disposal for the sake of it. Is the sale of an asset now for short term gain worth more than the value of holding that investment for the long term? Ask yourself if selling an asset now will move you closer to your long-term financial and family goals.

For those who are already in the process of selling an asset, it is worth examining your contract to see if it contains any conditions. In business sales in particular, we can often see contracts which include conditions that must be satisfied before a sale or purchase can complete. Depending on the situation, the disposal date for tax purposes can move to the date on which all of the conditions are met so if this date does not fall before the budget, you may not be able to lock in the current rates of CGT.

Ideally any contracts for asset sales should be completely unconditional but that's not always possible for a business or property sale. If you are in the process of selling anything, it’s worth making sure that you consider the tax point of your disposal with an appropriate adviser so that you can plan accordingly.

Inheritance Tax (IHT) – What changes could we see?
The UK rate of IHT is currently one of the highest rates internationally so it is difficult to anticipate any likely revisions.

There could be a number of changes made to the Nil Rate Band (which is currently set at £325,000) and the Residence Nil Rate Band (which is currently £175,000) which could affect the level at which an estate becomes subject to IHT.

Changes could take any number of forms such as the introduction of progressive IHT rates. At present, anyone with an estate in excess of the thresholds will generally be chargeable to IHT at a rate of 40% but we could potentially see a lower rate of IHT applicable to lower value estates. For example, someone with an estate worth £600,000 could pay IHT at 20% and someone with an estate worth £5 million or more could pay IHT at 40% or more.

More likely targets for the Chancellor could include IHT reliefs. At present, people can give away certain assets and cash in their lifetime and these are known as Potentially Exempt Transfers (PETs). If the individual making the gifts survives for the next seven years the gift may fall outside the scope of IHT completely. There is the potential for this timescale to be extended or for a limit on gifts to be implemented.

There is also some speculation over Business Property Relief (BPR) and Agricultural Property Relief (APR), reliefs which are valuable to business owners and the agricultural industry. These reliefs can exempt (in whole or in part) the value of qualifying assets from a charge to IHT.

Many taxpayers currently benefit from an IHT exemption on certain pension pots which can be transferred on death without incurring any tax charge. Although the Chancellor has very recently stated that she may not make any changes to the tax relief on making contributions to a pension fund, she stopped short of confirming whether or not any other changes would be made.

If the Chancellor did decide to limit IHT reliefs, according to the Institute for Fiscal Studies, this could raise £2 billion where BPR and APR is concerned and potentially only £0.5 billion in IHT if the pension rules were changed. This tax take isn’t hugely significant in the grand scale of things so it is difficult to say which area of IHT, if any, will be a priority for the government.

Inheritance Tax – What should you consider?
There isn’t a huge amount that clients can do to prepare for potential IHT changes that could be achieved quickly and without significant consideration. However, for those considering making gifts to family members, it is probably worth making those gifts before the budget to benefit from the rules as they stand.

Where BPR and APR is concerned, these reliefs will usually apply when a business or part of a business is transferred to someone else. There are a number of tax implications associated with this but there are also several commercial implications to consider. Is the next generation ready to take over your business? It’s worth stepping back to consider whether it is a wise long-term decision to be transferring part or all of your business now to try and save IHT.

Following the budget, once we know what changes we are facing, my advice would be to reassess your IHT planning. Consider whether the planning you currently have in place is still effective and reach out for business advice from a professional who will be able to guide you through your best options.

Pensions – What changes could we see?
We have already touched upon the IHT changes that could affect the transfer of a pension pot on death but could the Chancellor also change the immediate tax reliefs available on contributing to a pension and the benefits we could receive on retirement?

Despite previous speculation, the Chancellor has already announced in the last few days that the government will not be reducing the 40% rate of tax relief that higher earners receive on pension contributions, which is great news. The government has also previously confirmed that it does not intend to reintroduce the lifetime allowance. However, there are a few changes that could be made to reduce the cost of pension tax relief, which in 2022/23 sat at £48.7 billion – certainly not an insignificant sum.

One option could be to abolish the 25% tax free lump sum you receive when you withdraw your pension but this may not raise large sums in the short term. There is also a possibility that the pension annual allowance could be reduced which could have an impact on the overall cost to the government of providing pension reliefs.

An interesting option, particularly when considering the estimated tax take that could be raised, is the application of employer National Insurance Contributions on employer pension contributions. It is estimated that this could raise £17 billion which is one of the largest projected windfalls from any of the rumoured changes. However, an additional charge on employers could see a reduction in investment and potentially a reduction in the creation of new jobs, which could be detrimental to our growing economy.

Pensions – What should you consider?
It’s worthwhile reviewing your pension position with a financial adviser to make sure that you have made full use of your contributions, including anything that you may not have used in previous years. If you have not previously utilised your full pension annual allowance in the last three years this can potentially be utilised now.

If you haven’t maximised your contributions, and it would make financial sense to do so, consider boosting your fund before budget day. This also includes any business owners with a limited company as your company can potentially make employer pension contributions and obtain corporation tax relief in doing so.

Income Tax – What changes could we see?
The government has already pledged not to raise income tax but it will keep income tax thresholds frozen until April 2028 which creates fiscal drag. Over the next few years, as salaries rise, more and more taxpayers will move into higher tax bands and will pay more income tax. If this assists in plugging some of the government’s shortfall then it could extend the date to which thresholds are frozen.

At present, certain levels of bank interest are not subject to income tax and interest earned within an ISA environment is also generally tax free. The government could choose to reduce or remove the ISA allowance but doing this may not fit with its goal to help people to create wealth.

Income Tax – What should you consider?
If you haven’t already used your ISA allowance, and it makes financial sense to do so, look into your options before the budget to make the most of your investments.

Unfortunately, no-one can predict the contents of this year’s budget announcement but being better informed about your finances and speaking with an accountancy professional will put you in the best stead to navigate whatever changes come your way. The UK tax landscape is constantly evolving, so regardless of any new rules, we will always advise our clients to carefully consider if a decision is right for their long-term goals of building wealth and providing for their family in the next generation.

At Monahans we can provide you with advice and assistance as well as keeping you abreast with new policies and legislation, so that you can achieve your long-term aspirations. Get in touch with us today – we’d be happy to help.

To find out more information about potential changes, please visit the IFS website.

Stephanie Hurst