On 30 October, the Labour Party will deliver its first Budget since 2010. Rachel Reeves will be taking to the dispatch box as the first female Chancellor in the role’s 800-year history. Yet the tone is unlikely to be celebratory.
Having spoken at length about the £22 billion “black hole” left by the outgoing Conservative government, Reeves, and her boss at No 10, have promised that they won’t shy away from the “tough decisions”. You need only look at the recent changes to the winter fuel allowance for proof of their seriousness.
While some changes have already been made, and the party’s manifesto pledges remain in place, other announcements remain a mystery. There has, though, been plenty of speculation.
So, keep reading for a closer look at some changes we might see in the Budget and what, if anything, they would mean for you.
Forecasters agree that some tax changes are imminent
Possible Inheritance Tax changes
Rumours about Inheritance Tax (IHT) tweaks surface with surprising regularity, but 30 October could spell real change.
The UK’s “most hated tax” is already providing record receipts for the Treasury, a result of the last government’s threshold freezes. Reeves, though, might go further.
HMRC figures confirm that IHT accounted for £6.8 billion of the Treasury’s tax take for 2023/24. And yet the tax is paid by less than 4% of estates.
Back in April, the IFS confirmed that abolishing certain reliefs applied to agricultural property and businesses could save around £400 million and £1.4 billion a year, respectively.
Other possible changes, with wider implications, might include:
- Increasing the rate at which IHT is paid
- Lowering or scrapping the nil-rate and residence nil-rate bands
- Scrapping HMRC’s gifting allowances or changing IHT reliefs.
Any of these changes could have huge implications for your estate planning. Be assured that we’ll be watching the Budget closely and we’re also on hand to provide advice or reassurance.
Capital Gains Tax is in the spotlight
Current rules around when Capital Gains Tax (CGT) applies, and the rate you pay, can be complex.
Payable on the gains you make from selling or transferring ownership of certain assets, you usually pay CGT on the value of profits that exceed the “Annual Exempt Amount”, which currently stands at £3,000.
The rate you pay depends on the assets you dispose of (sell) and your tax bracket. You’ll usually pay:
- 10% if you’re a basic-rate taxpayer (or 18% on profits from the sale of a residential property that isn’t your main home)
- 20% if you’re a higher- or additional-rate taxpayer (24% for a residential property that isn’t your main home).
One much-mooted change that the chancellor might make is to align CGT rates with Income Tax.
Under this regime, you could find your profits taxed at 40% or even 45% if you’re an additional-rate taxpayer. The Guardian reports that this could raise around £10 billion.
If you’re thinking of making asset disposals in the near future, these changes (if they arrive) could have a huge impact. Get in touch if you’d like to discuss potential next steps.
Pensions are also in the firing line, though the triple lock is safe
The new government’s promise to honour the triple lock will see the full new State Pension increase by around £460 a year. But pensions aren’t completely off the hook.
Pension tax relief could change
Pension tax relief is added to the contributions you make to your pension. And while it is automatically applied at 20%, higher- and additional-rate taxpayers can claim additional relief via self-assessment.
Back in 2023, Standard Life found that high earners had failed to claim around £1.3 billion in tax relief between 2016 and 2021. And yet, Corporate Adviser confirms that tax relief still costs the government around £48 billion a year.
Some forecasters have suggested that Rachel Reeves may announce a single rate of relief, possibly at 30%. This change would amount to a £2.7 billion a year saving (according to a report from The Week back in July).
Tax-free cash entitlement
Pensioners’ entitlement to 25% tax-free cash as a pension commencement lump sum on annuities has been in place since 2006. The flexible options introduced as part of Pension Freedoms legalisation also allow for a 25% tax-free element.
But could that be about to change?
Speculation is rife that the Budget may include changes to limit pensioners’ entitlement to tax-free cash. Reeves might opt to permit tax-free cash only once a certain level of guaranteed income has been secured. Likewise, she might opt for a cap, say at £100,000, after which no further tax-free cash can be taken.
This could have huge implications if you have plans for large purchases in the early stages of your retirement. However, any changes would need to be included in a bill – likely the 2025 Finance Bill – and won’t become law until sometime in 2025. Additionally, governments to date (both Labour and Conservative) have always introduced lump sum protection on existing accrued benefits when they’ve made changes to pension lump sums.
There’s no need to rush into decisions just yet. Watch this space!
Get in touch
Stay tuned for our Budget update, which will be sent out after the announcement, helping to break down the changes.
And remember, whatever the chancellor announces, we are on hand to offer help, advice, and reassurance, so get in touch if you have any questions. Please contact us at info@janesmithfinancial.com or call 01234 713131.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate estate planning or tax planning.
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