Autumn Budget 2024 Predictions

Since taking charge in May 2024, the new Labour government have announced that there is a £22bn fiscal shortfall leftover from the previous government.

Whilst there seem to be plans in place already to raise around £5.5bn in taxes this year, the new government has made it clear that there are further difficult decisions to be made at the upcoming Autumn budget. 

With the budget on 30^th October 2024 being the first one delivered by a Labour government since 2010, there are rumours of some potentially controversial changes.

Nobody knows for sure what will be included in the upcoming budget, but considering the rumours that are circulating we’ve explored below at what is possible:
 

Changes to Capital gains tax (CGT)

The current annual CGT allowance (2024/2025) is £3,000. Any gains realised above this allowance are charged 10% for basic rate taxpayers, and 20% for higher/additional rate taxpayers. 

Rates are charged slightly higher on residential property (except for your main residence) at 18% for basic rate taxpayer, and 24% for higher/additional.

Changes to capital gains tax seem to be highly anticipated, with possible reforms including:
 

• A flat rate increase: Such as the flat rate of 30% that was in place from 1965 to 1988.
   
• A harmonisation for CGT with income tax rates: which could include aligning CGT rates with income tax.
   
• Tapering for longer term gains: similar to the US model for taxing gains, we could see heavier taxation on short term gains, with a reduced amount for assets held over the longer term.
   
• Reduction or removal of the CGT allowance: potentially further reducing the CGT allowance of £3,000 maybe to complete removal or the allowance.
   
• Removal of the CGT exemption on death: currently, CGT dies with you on death, so (assuming the asset is within your estate) you would only be subject to inheritance tax.
    

If any changes to CGT were to be announced, it's possible for these to be implemented either immediately following the budget or at the beginning of the next tax year, around 6th April 2025. Both approaches have been utilised in previous budgets.

Predicting which method the government will adopt is challenging, but the logical choice would be to provide a 5-month window for individuals to realise gains at the current and more favourable rates, potentially leading to significant short-term revenue. 

Without such a period, individuals may choose to hold onto their assets, which, while potentially generating high tax revenue in the long run, would not provide immediate revenue for the government.

Many believe that aligning capital gains tax rates with income tax rates is the likely direction, however, simplifying the current system to a flat rate, would be a less complicated solution and maybe, more viable.
 

Changes to Pensions Legislation

Changes to current pension legislation is another area that is drawing significant attention, and rightly so, as any changes to pension legislation would likely affect a substantial portion of the UK population.
 

The possibility of any changes to pensions has so far been a contentious issue, but if announced they could include:
 

• Cuts to income tax relief:  There is a lot of speculation around capping the income tax relief available on pension contributions. For example, setting a cap of 30% or imposing perhaps an annual maximum relief in cash terms.
   
• Reinstating the lifetime allowance:  The return of lifetime allowance has been mentioned a few times and would expectedly cause complexities for those nearing retirement.
   
• Reduction of tax-free cash: A reduction to £100,000 seems to have been widely speculated and met with scepticism.
   
• Inheritance tax exemption before and after age 75 rule: Another rumour is removing the inheritance exemption of pensions on death.
  
  Currently pensions sit outside of an estate for inheritance tax purposes meaning if you pass away before the age of 75, then whoever you decide to be the beneficiaries for your pension will pay no tax on drawing the funds.
  
  If you die after 75, then the funds drawn by your beneficiaries would be subject to income tax at their marginal rate. We could see the Labour government removing the ‘before 75’ tax free benefit to a pension, or even remove the inheritance tax exemption all together.
   
• Restrictions to employer national insurance exemption: This limit could be at either an amount of money or a % of the employee’s salary that the employer is limited to.
   

Given the demographic shifts and decline of final salary pension schemes supporting working people in their retirement, substantial cuts to tax relief on contributions for employee or employer seem obscure. 
 

Reducing the growth of people’s pensions which are built up to support retirement and considering the difficulty on the government to sustain a state pension on an aging population, it seems hard to validate the rationale, although not impossible. It may be more likely that the limits already in place for higher earner’s contributions to pensions could become stricter.  
 

Also, whilst putting a fixed rate of income tax relief seems simple at the surface, it would be difficult for HMRC to implement across the board and would be costly, meaning this is unlikely to raise money in the short term.
 

In terms of cutting tax-free cash allowances or reinstating the lifetime allowance, if this were to occur, we usually see this done retrospectively, meaning some form of protection for the people that have built up their savings pot under the current regime.
 

Changes to Inheritance Tax (IHT)

There are currently two allowances available for inheritance tax; the first being the nil rate band (NRB), providing an inheritance tax-free allowance of £325,000 that can be allocated to any beneficiary of your choosing.
 

The second is the residence nil rate band (RNRB), offering an additional inheritance tax-free allowance of £175,000 for individuals who owned property at the time of their passing. This allowance is specifically reserved for direct descendants, such as children or stepchildren. 
 

Furthermore, assets can be transferred between spouses without incurring inheritance tax, and upon the death of one spouse, the nil rate bands may be inherited by the surviving spouse.
 

There are currently ongoing discussions regarding potential changes to inheritance tax, which could have far-reaching effects. These include:
 

• Progressive tax bands: introducing progressive inheritance tax bands, starting at lower rates for smaller estates and higher rates for larger estates, potentially higher than the current rate of 40%.
  
   
• Adjustment to business and agricultural relief: There are talks of a reduction or a cap on business relief or agricultural relief, and maybe a tightening to the qualification criteria such as removing the relief for AIM shares.
  
   
• Reduction to other allowances: potential changes to current reliefs, such as the annual gifting allowance.
  
   
• A wealth tax: The idea of a wealth tax, which could be a replacement for inheritance tax. For example, introducing an annual 1% wealth tax charge on estates exceeding £1,000,000.
   

Despite the high combined cost of these allowances to the government, it seems unlikely that these important reliefs would be removed altogether due to the importance of allowing businesses and farms to continue operating. 
 

There could be an increase in time for the exemptions to count, as it currently takes two years for business relief or agricultural relief to qualify. Or potentially a tapering relief put in place where the % of inheritance tax is reduced over a number of years. 
 

Another possibility could be a limit on the amount of an estate that qualifies for business relief, such as the first 10 or 20 million of business assets. Again, it seems unlikely for the government to implement anything that will be too complicated and expensive to implement. 
 

Whatever the changes, we would expect them to be preceded by a detailed consultation exercise. It is important to note that in order for the UK to continue with its economic growth, taxing businesses in the UK too heavily could create an issue for stimulating growth and job opportunities in the UK.
 

Reduction to ISA allowances and capping Private Residence Relief

The potential proposal for capping ISA contributions and a cap on private residence relief could include:
 

• Lifetime caps on ISAs: implementing a cap on the total value of funds held within an ISA or a limit on contributions.
  
   
• Private residence relief limits: Introducing limits on private residence relief from capital gains, and a potential lifetime limit on the gains or a capital gain limit per home.
   

Both suggestions would raise capital, and considering the majority of the country does not have £20,000 to save into an ISA each year, this could be less controversial than other proposals.
 

A cap on private residence relief would be a new tax and therefore be another system for the new government to establish and is not likely to create any short-term benefit. 
 

Additionally, this would cause issues for individuals in the process of, or about to sell their homes for somewhere larger, as these changes would mean they would potentially not have enough capital to do so. However, it would be unlikely to affect current homes.
 

It’s likely that this tax would cause some problems for the labour party if it was introduced.
 

Fuel Duty increase

Over 10 years ago the government pretty much scrapped the ‘fuel duty escalator’ that had been designed to encourage the use of more eco-friendly vehicles or zero CO2 vehicles. 
 

In 2022 Rishi Sunak reduced the duty on fuel by 5p, although the impact was small due to inflation at the time. In this budget we could see:
 

• Potential for increased fuel duty: As Labour government is recommitted to introducing the ban on the sale of new combustion engine cars by 2030, there are talks of reinstating the fuel duty escalator or a similar regime. 
  
  There are also talks of benefits in kind taxes on company cars increasing significantly in the run up to 2030.
   

With the inflationary pressures expected to tick up in autumn, an increase in fuel duty would likely have to be pushed back until 2025. 

If this was put into effect, with the impact of the cost-of-living crisis over the last couple of years, this could prove to be a rather unpopular move.
 

Property Tax changes

 Discussions are currently underway regarding proposed changes to land tax and stamp duty.

• Changes to stamp duty for overseas buyers: Labour’s election manifesto committed to increasing stamp duty on property charged to overseas nationals buying UK residential property, to help prevent the sale of new builds to overseas buyers.
  
   
• A new stamp duty bracket: There is also mention of a new stamp duty threshold for ultra-high valued properties, with higher rates of stamp duty.
   

Raising stamp duty rates for overseas nationals and ultra-high-value property transactions could be viewed favourably by the public, addressing concerns about housing accessibility for UK residents, and could provide a political advantage, whilst generating revenue.
 

What to expect from the upcoming budget?

While these changes aim to address the fiscal shortfall, the government must balance revenue generation with continuing economic growth and public sentiment. Rachel Reeves faces a complex balancing act and given that this is the first Labour budget in 14 years, there will likely be heightened scrutiny and expectations.
 

Whatever the new Chancellor has in store for her first budget, we’ll be ready to analyse and dissect what any changes may mean for you and your finances. 

If you have any queries relating to your finances before the budget, or if you’d like to be among the first to receive our analysis of the budget, you can get in touch with us.

*Information correct at the time of publishing. This article is provided for information purposes only and should not be taken as individual advice.