Personal tax planning ahead of the autumn budget
With the date of Labour’s first Autumn Budget set for 30 October 2024, there is intense speculation as to what tax rises may be unveiled by Rachel Reeves, the new Chancellor.
And whilst she has promised not to raise income tax, National Insurance, or VAT, it appears likely that there will be changes to capital gains tax (CGT), inheritance tax (IHT), stamp duty, fuel duty, pension tax relief, and maybe council tax and business rates.
Let us consider some of these.
CGT
A favourite bet appears to be aligning the rates of CGT with those of income tax, so CGT rates could increase from their current 20% (24% for residential property) to 40% or even 45%.
This last happened in 1989 under the then Chancellor Nigel Lawson when gains were taxed as the top slice of income.
If this is about to be repeated then it is likely to happen from 6 April 2025, but it cannot be discounted that the rate could change much sooner, on the day of the Budget for example, in anticipation of assets being sold at current rates.
So, there is still time to undertake transactions before any change, such as disposing of certain assets (subject to family and commercial considerations).
Labour made clear before the election that it would not bring principle private residences within the net of CGT.
But another possibility could be to close the rule that allows asset values to be reset for CGT purposes on death. Assets sold during probate could then still be liable for CGT.
Valuable reliefs such as Business Asset Disposal Relief could also be cut, affecting some business owners wanting to sell their businesses. This could trigger sales prior to any change.
Labour has previously said that it had no plans to change IHT, which wasn’t a commitment not to change it. But it did rule out a wealth tax.
What it did say was that it would close or reduce IHT exemptions for agricultural / farming land and business.
Pension tax relief
It is possible that tax relief given on pension contributions could be cut, and there has even been speculation that the current 25% tax free lump sum that can be taken from a pension pot could be reduced over time.
VAT on private education
It has been confirmed that VAT on school fees will start from 1 January 2025, and any fees paid in advance from 29 July 2024 onwards that pertain to a term starting in January 2025 onwards will be subject to VAT.
Non-doms
For those who are not UK domiciled, the special tax rules affecting them change from 6 April 2025, but the planned transitional rule regarding a 50% reduction on tax due on foreign income and gains in year one will not now be introduced.
There will also be a review into the Transfer of Assets Abroad and Settlements legislation, and further announcements (especially on the impact to trusts) will be announced at the Budget.
Furnished holiday lets
We knew that the Furnished Holiday Let rules were to be scrapped from 6 April 2025, making it less attractive to rent out a property. And there are anti-forestalling rules in place for disposals of such properties where an unconditional contract for sale is entered into from 6 March 2024, but completion is not until 6 April 2025 or later.
Should you act now?
Clearly, there appear to be tax changes ahead, and whilst we do not have a crystal ball as to the exact nature of those changes, it is always worth having a conversation with a tax professional in anticipation of what may happen and how you or your family may be affected and what actions you could take.
It is always important to consider the wider picture of family and commercial considerations before choosing to act or choosing not to act.
If you would like to discuss how possible tax changes may affect you, speak to Peter Ball at Bishop Fleming on 0333 321 9000 or email [email protected].