With a new Labour Government in place, the upcoming Budget has been a recent discussion point in the media.

Daily headlines such as, “Rachel Reeves’ Budget must rescue Britain from its growth trap” in the FT, and “Rachel Reeves considers raising Capital Gains Tax to 39%” in the Guardian mean there’s lots to speculate about. It’s going to be a hard job for the new Chancellor to balance to books and fill the +£20bn gap that has been widely spoken about and, whilst we have to wait until 30 October for the answers, here are our thoughts on how individuals and unincorporated businesses may be impacted by it.

Do I need to do anything ahead of the Autumn Budget?

Whilst no one knows what is going to be in the Budget, it is unlikely any changes are going to have such an impact that it will turn your long-term financial plan upside down. What may change is short-term opportunities and long-term strategies, such as how you draw an income or pass on your wealth. Personal tax rises feel inevitable in some form, however it’s clear that the government’s focus is also on reigniting the UK’s GDP through radical relaxations in planning and deregulation, also promoting innovation, so it’s anyone’s guess what’s heading our way.

Can taxes and rules be changed immediately following the Autumn Budget or will it be the new tax year before changes come into effect? 

Typically, many tax measures announced during a Budget come into effect from the start of a new tax year, which is 6 April for Income Tax following the point of Royal Assent later in the year. However, it is possible for tax changes to be made with immediate effect, for example to close down any loopholes or to change a rate of tax from midnight on Budget Day where it’s simple to do so without large scale legislative changes.

What are we expecting to be announced in the Autumn Budget? 

The Labour Party’s manifesto pledges somewhat limit what’s likely to happen in the Autumn Budget, ruling out tax rises on working people and not to increase VAT – so no increases in employee National Insurance (NI) or basic, higher or additional rates of income taxes are likely. This leaves in scope increases in Employer National Insurance and the tax rate applicable to dividends/rental income. Also, Capital Gains Tax and Inheritance Tax could be subject to rewrites. Following the winter fuel payments backlash, it’s doubtful that they’d want to hit pensioners again, so increasing Employer National Insurance could be on the cards as it’s paid by business and a small increase in rate across the UK workforce would bring in significant revenue.

We’re likely to hear more on tax changes proposed to the tax rules applying to non-UK domiciled individuals (non-doms) living in the UK. In particular, the rate of tax to apply for the temporary repatriation facility. There’s been a lot of press coverage about the Labour Party’s policies driving the wealthy and ultra-high net worth individuals out of the UK, so another balancing act will be required here from the Chancellor, Rachel Reeves. Similarly for Inheritance Tax and trusts, we expect to hear more of how they will include offshore trusts within scope.

A further definite for the Autumn Budget will be the Labour Government’s response to how they’ll tax certain returns earned by Private Equity businesses. 

Will the option to take tax-free lump sums from your pension be removed in the upcoming Autumn Budget?

We believe this is unlikely as it would be a hugely unpopular decision impacting a lot of voters, although it has been discussed widely in the press as a possibility and would be relatively simple to change. However, to do so could slow down the UK economy as individuals would choose to leave pension pots sitting and reduce spending or investing in other businesses.

Should there be changes to taking a tax-free lump sum, it could be a reduction to the amount you could take as a maximum. Currently the maximum tax-free amount is 25% with a limit of £268,275, unless protection to a higher entitlement is held, such as Fixed or Individual protection.

Should I make my pension contribution before the Autumn Budget?

Being able to pay into a pension will still be available post-Budget, but what may change is the amount you are allowed to pay in or the pension tax relief available. We were surprised when the annual allowance increased from £40,000 to £60,000 two tax years ago, coming into effect in 2023, so we view this as a potential place the new government could look to increase tax revenues. Reducing tax relief has been mooted many times but the practicalities of making this change would be incredibly challenging, so we see this as unlikely at this point especially mid tax year. 

So, should you pay into your pension prior to the Budget? Potentially, if this is something you have already planned to do this tax year and you are likely to fully use the current available annual allowance (£60,000) or the Carry Forward rules that allow you to look back and use unused allowances from the three previous tax years.

Do you think Capital Gains will now be taxed on death?

It is impossible to predict. The media are suggesting that the Labour Government are looking for immediate wins to improve public finances, and this type of aggressive change may expedite the encashment of portfolios that are liable to Capital Gains Tax and provide the necessary revenue required. However, this would also likely require a review of Inheritance Tax and so perhaps a change like this would more likely be done in tandem with a wider rewrite of the Inheritance Tax rules. These rules have been largely unchanged since 1986. 

There is further speculation that the Capital Gains Tax rate will be increased, perhaps in line with Income Tax. The last time the rules changed to apply income tax rates to gains, this was done (albeit by a Conservative Government) in tandem with the uplifting of allowable base costs to the value at 31 March 1982 (for assets held on that date). Historically, increasing taxes has not always increased the tax revenue and has in fact caused it to fall as individuals then tend to hold on to assets longer. Changes to tax rates and reliefs could still be on the cards though, so watch this space.

Is it all doom and gloom?

To fund better public services and generate growth, more tax revenue is needed if there’s to be no increase in government borrowing. Additional defence spending will inevitably be required over the course of this government to enhance the country’s security and support wars being fought in Ukraine and the Middle East. To balance this, there’s good news this week with inflation cooling for the first time in three years, which in turn could lead to a reduction in interest rates if this trajectory continues. In the short term though, Chancellor Rachel Reeves is speaking out about her need to fill the inherited “£22bn black hole” and that alone will not be enough, rather she will announce plans to find £40bn in her Autumn Budget later this month, when we will ultimately know what this means for us.

Keep up to date with our Autumn Budget 2024 insights

Find out more from our team of sharp minds as we bring you further Autumn Budget predictions on Corporation Tax and Specialist Tax. You can also visit our Budget Hub for further insights, including a break-down from the most recent Spring Budget.