Date posted: 12th Aug 2024
The date for the first new government Budget has been set – 30 October 2024.
We will of course be digesting the changes and feeding this back to our people, clients and professional network through both newsletters and face to face presentations on 31 October 2024 (watch out for the invite coming soon to your inbox!)
Labour’s manifesto
Labour pledged not to raise tax on working people – so no increases to income tax, national insurance and VAT should be announced otherwise it would be a serious reversal of a manifesto pledge and essentially undermines them from day one.
The manifesto did plan to change the tax status of private schools, making them liable to charge VAT and pay business rates, as well as tackling the non-dom “loophole” whilst also making sure energy companies are paying higher taxes on deemed mega profits.
In addition to the above, we would expect an announcement in relation to the taxation of “carried interest” which is common in the private equity industry. At the moment, those subject to tax on carried interest, pay capital gains tax (CGT) at 28% and the Government are likely to look to change the legislation so that this payment is taxed at income tax rates of up to 45%.
We already know that the Government will follow through on their predecessor’s commitment to end the favourable tax treatment of furnished holiday lets. However, with changes already announced in relation to these properties, from 5 April 2025, taxpayers may be preparing to take advantage of the time lag between now and the changes being implemented. The Government will be aware of this and could bring in some anti-forestalling rules with immediate effect from 30 October 2024, to prevent taxpayers accessing more favourable treatment between 30 October 2024 and 5 April 2025.
What can we expect?
The speculation is rife in the press, but everyone should be geared for some form of tax increase.
Other rumours and possible changes are:
- Reducing the point at which the “60% tax trap” is encountered at income of £100,000, to say £75,000. Whilst not directly raising income tax rates, this would raise income tax.
- Reducing the point at which the 45% tax rate starts. Again, this would not be a rise in the tax rate but would raise income tax.
- Increasing CGT rates. Commonly viewed as a “rich man’s tax”, CGT is payable on the profit between the sale price of an asset and the cost of the asset (in very simple terms). So, you may encounter CGT on the sale of a second home, buy to let property, share portfolio or a business. Currently the highest CGT rates are 28% in cases involving carried interest, 24% for residential property and 20% for sale of businesses, commercial property, shares etc. Much different to the 40/45% income tax rates.
- Business asset disposal relief (BADR) is the relief that gives you the ability to access the 10% CGT rate on the sale of business, of your company shares and furnished holiday lettings. Could we see this relief reduced or even abolished completely? Alternatively, could we see a less generous holding period (currently the period you hold the asset only needs to be two years – other criterion do need to be met….) introduced or could we see the re-birth of taper relief which existed prior to 2008 and essentially reduced or tapered the amount of gain subject to higher rates of tax, should the CGT rates be aligned with income tax rates.
- Reviewing the pension tax relief regime. This could involve cutting the amount that you can save into pension and obtain tax relief (unlikely to be popular with NHS doctors in final salary pension schemes), reintroducing the lifetime allowance or simply reducing the amount of tax relief given on pension contributions and introducing a flat rate of relief. The latter is likely to be given some serious consideration as the tax relief associated with pensions is believed to be higher than the defence budget but the UK pension system is so complicated, it will take a huge amount of legislation to correct matters and at the moment, the Government is believed to be short of people that can draft legislation. The only way that they could achieve something quickly would be to say that no-one gets any tax relief for pension contributions from their salary, and they have to apply to HMRC for a say flat 25% pension tax credit based on the amount of contributions made. That is fraught with massive mis-compliance and would put more strain on HMRC.
- Whilst the manifesto states that the current rate of corporation tax would be retained, could we see a widening of the banding system to indirectly increase corporation tax by forcing more companies to pay tax in the 26.5% band. As Tesco say, every little helps.
- Abolishing indexation allowance for companies. Indexation allowance stopped at December 2017 but is intended to eliminate a portion of the profit on the sale of a capital asset (such as land and buildings or shares) which only arises due to inflation. Such as measure does not exist for individuals (it was scrapped in 2008), so could corporates face the same issue?
- Currently no CGT is charged when someone passes. Instead, their assets are potentially subject to inheritance tax (IHT) and for the recipient of the assets, the assets base cost is uplifted to market value, for CGT purposes. However, where IHT reliefs apply such as business relief and agricultural relief, this potentially gives a dual tax advantage, so could the CGT uplift be abolished?
- Business and agricultural reliefs are valuable IHT reliefs but there are rumours circulating that these could be capped or restricted in some way.
- Simply investing in a vastly under-resourced HMRC, who take a considerable amount of time to reply to simple correspondence, let alone crack down on tax avoidance.
I think it is fair to say, there will be “tax rises”, in whatever guise, announced on 30 October 2024.
Important thought…
Some changes could be implemented with immediate effect from 30 October 2024, so there may only be a short window to undertake a review of your tax position, ahead of budget day.
Sadly, all I can do is speculate and we won’t know the outcome until the Chancellor speaks to the nation on 30 October 2024. However, if you are concerned about how, you may be impacted, the time to contact our expert team. is sooner rather than later.
