Rachel Reeves 2024 Autumn Budget - How Might It Affect You?
While the precise details of Rachel Reeve’s first budget will be kept under wraps until October, there are two things we do know.
Firstly, the government needs to plug a £22bn shortfall in its accounts and, secondly, chancellors tend to make the most biting decisions at the start of a new parliament in the hope that voters will have forgotten about them by the next election.
With Reeves already stating that difficult decisions need to be made, and with a commitment not to increase income tax, national insurance or VAT rates, speculation is rife over what to expect in the autumn budget. Here are some of the most expected changes.
Rise in capital gains tax
Capital gains tax (CGT), which is charged on the profits from asset sales, may increase, with the chancellor said to be considering raising the rate to match income tax. This would see the top CGT rate rise from 28% to 45%, bringing in nearly £17bn a year for the exchequer. Additionally, CGT rates on share sales could be increased to equal dividend rates, which would raise £7.5bn a year.
Inheritance tax changes (IHT)
With only about 4% of estates paying IHT, there are several changes that the chancellor can make to raise income. While estates left to spouses and civil partners are currently exempt, for other estates, IHT is taxed at 40% for anything over £325,000 (or £500,000 if children or direct descendants inherit your home). To increase income, the chancellor can raise the IHT rate, lower the tax-free allowanceand ditch gifting allowances and reliefs, such as the business and agricultural property reliefs. Additionally, the government could apply both IHT and CGT to estates, increasing the aggregated tax rate to 54%.
Pensions
As the new rules governing Winter Fuel Payments have shown, any changes that affect pensioners are likely to be contentious. While Reeves has already given her commitment to the state pension triple lock, there may be changes elsewhere, with a two-stage pensions review currently underway.
One potential change is to pension tax relief. At present, savers get tax relief on their pension contributions linked to their income tax rates – 20% for basic-rate taxpayers and 40% and 45% for higher and additional rate payers. There is some expectation that relief for higher and additional rate payers could be reduced to 20% or even scrapped altogether, raising billions for the government. The Institute for Fiscal Studies, meanwhile, has examined the possibility of a 30% flat rate, a move that would raise £2.7bn from higher rate payers while encouraging lower rate payers to invest more in their pensions. Other options for the chancellor include changes to the 25% tax-free cash that pensioners can withdraw or scrapping the exemption that pension savings have from IHT.
Other changes
Various other changes are also being anticipated in the Autumn budget. These potentially include changes to council tax by scrapping housing bands and replacing them with a 0.5% tax based on a home’s value; a rise in fuel duty rates, which have remained unchanged since 2011; and a reduction in the first-time buyer stamp duty exemption threshold from £425,000 to £300,000. Additionally, Reeves may adopt the Conservative plan for a British Isa that would give savers an extra £5,000 per year tax-free allowance, provided it was invested in British companies.
One change we know to expect is that VAT will be added to private school fees. This will come into effect on 1 January 2025, together with the closure of a loophole that would have enabled parents to avoid the charge by paying fees in advance. The government has also announced the abolition of non-dom status from the start of the next tax year.
With a £22bn hole in public finances, Rachel Reeves has little option but to increase tax revenue. While the measures mentioned above are possibilities, no one will know for sure what her plans are until she is at the dispatch box on 30 October. However, if you are likely to be affected by any of the expected changes and wish to discuss your options, the team at Wilkinson Woodward are here to help.