As the UK Autumn Budget looms just days away, speculation is rife about potential changes that could significantly impact taxpayers and businesses. Chancellor Rachel Reeves is set to deliver the first Autumn Budget under the new Labour government on 30 October 2024. Despite initial warnings from Prime Minister Keir Starmer about "painful" economic decisions, recent announcements suggest a softening stance, creating uncertainty among analysts and taxpayers.
Peter Fenyves, our London-based business development manager, attempts to cut through the noise and highlight the most pertinent issues that might affect Hawksford clients.
Potential changes and speculation
Labour has previously assured the public that "working taxes" – National Insurance, income tax, and corporation tax – will not be raised. However, questions remain about potential changes to inheritance tax, capital gains tax (CGT), stamp duty, and pensions. Only in recent days, the prime minister refused to rule out National Insurance rises, with businesses concerned that a rise hitting employers – rather than employees - could severely impact recruitment and job creation.
Recent announcements and their impact
Several recent announcements have caused concern among families and investors:
- The introduction of VAT on private school fees starting in January 2025, announced outside of the Budget in July 2024, could result in many parents being priced out, placing additional strain on the state education system.
- The abolition of the Furnished Holiday Lettings regime, announced in the Spring Budget, may prompt second homeowners to reevaluate their investments.
Inheritance tax and the non-dom regime
Inheritance tax and the non-dom regime have been under scrutiny leading up to the Budget. Some speculate that changes could trigger an exodus of wealthy families and businesses from the UK, although as recently as last week, the Labour government had indicated a softening of measures.
Reeves initially refused to rule out inheritance tax changes, causing concern among family businesses. Trade body Family Business UK subsequently warned that removing business property relief could force one-fifth of family firms to close or liquidate their businesses to pay tax charges.
As for the non-dom tax status – which allows UK residents tax benefits if their permanent residence is elsewhere – the government initially indicated it was committed to 'closing the loophole' and removing inheritance tax protections for non-doms. However, it now looks possible that this could be watered down, with forecasts suggesting that the measures would not boost government coffers as much as had been originally thought.
Capital gains tax and pension reforms
There are predictions that CGT could be hiked to match income tax rates – with some suggesting this could be applied immediately from 30 October. However many pundits see this as being highly unlikely, and Prime Minister Starmer has indicated that speculation has been ‘wide of the mark’.
Last week, pension tax reforms were a major focus of speculation – despite the previously mentioned assurances in respect of pensions being outside the scope of changes. Rumours circulated about potential "raids" on pension tax relief and reductions in the maximum tax-free lump sum that savers can withdraw. However, more recent reports suggest that the Chancellor may have abandoned plans to overhaul higher-rate taxpayer relief.
Reasons for optimism?
While the fiscal picture painted in recent months has been somewhat bleak, there are still reasons to be optimistic. At the Labour conference last month, Reeves vowed there would be “no return to austerity”, while recent figures show that UK inflation fell more than expected to 1.7% in September - a three-year low.
Some positive measures include:
- The extending of the recovery loan scheme – renamed the growth guarantee scheme – which will hopefully boost support for smaller businesses.
- Changes to the research and development tax credits scheme promise to increase integrity and ensure it genuinely fosters innovation.
- Changes to the taxation of non-domiciled individuals with the introduction of a new regime for personal Foreign Income and Gains Regime (FIG), which could provide expats in the UK with new planning opportunities.
Conclusion
The trend I see is one of rampant speculation and constant flip-flopping of ideas and hypothesis. From inheritance tax to pension reforms, CGT to the non-dom regime, each area has been subject to a whirlwind of predictions, only to be countered by subsequent reports suggesting alternative outcomes.
It's worth noting that headline-grabbing announcements often serve a dual purpose – capturing public attention while potentially distracting from the absence of anticipated changes. This strategic misdirection allows the government to avoid outrage over not implementing certain reforms while sneaking in smaller – but nonetheless impactful – changes, such as increasing CGT by 1% instead of bringing it in line with income tax.
Either way, the budget promises to be an interesting one, with many moving parts – and it will certainly require careful analysis. While it may seem daunting, our team at Hawksford is alive to the potential outcomes of any proposed changes and we are ready to support clients and help them navigate the challenges and grasp the opportunities.
This appears to be something of a moving feast, and while many families and businesses will have been considering their options when proposals were initially put forward, it may be best to wait to see the detail before making any big decisions.
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