Anticipating the Labour Autumn Budget

UK Prime Minister Keir Starmer has warned that the upcoming Autumn Budget will be “painful” and that there will be “big asks” made of the public. However, we have seen some indications to the contrary when compared with the initial manifesto pledges by Rachel Reeves, the Chancellor of the Exchequer, and those in Government. With one month to go, we look ahead to possible changes and implications for individuals and business owners.

The economic outlook has moved positively since the manifesto; it may be that this reduces the significance of the changes proposed. Ms. Reeves’ announcement will undoubtedly be aimed at reducing the public debt, maintaining high tax receipts and lessening the strain on public services. ?

But with the tax burden already at a post-war high, many of the tax rates are at a peak and further increases will not increase tax receipts. Additionally, the economic context of late has been growth. Inflation is under control; interest rates have fallen, and the housing market is growing once again.

?Looking ahead to the Budget on 30th October, we examine the possible changes across key tax areas for both private clients and their businesses, boosting economic growth for the UK.

Possible changes (capital gains, pension contributions and inheritance tax)

Two significant potential changes are expected to be in relation to capital gains tax (“CGT”) and the availability of tax relief on pension contributions.

Changes to inheritance tax are widely expected, but it is less clear exactly what the Chancellor has planned for 30th October; and whether this will impact the nil rate band, seven-years rule for gifts, or the tax reliefs available for main residences.

CGT rates for most assets are currently 20%, 24% and 28% for higher rate taxpayers, but this could rise to 40% or 45% if rates are aligned with those for income tax, as widely discussed..

Crystallising gains, or active sales of additional properties now, will accelerate when tax is paid, but over the longer term, it reduces the amount of tax paid.

Investment portfolios

If you have an investment portfolio, planning may be as simple as selling investments now.

Care must be taken though, as rules counteract “bed and breakfasting” by buying back the same assets within 30 days. Instead, you may buy similar assets or buy the same assets within an ISA or a SIPP (“Self-invested pension plan”).

Using a SIPP may be a good way to gain higher rates of tax relief for pension contributions now, in case a flat rate of relief at 20% or 30% is introduced from 30th October.

Similarly, contributing to your ISA now, rather than waiting to the end of the tax year, is a effortless way of protecting against changes in the annual ￡20,000 contribution allowance. JISAs and LISAs are key if you or your children have these too.

If you have previously deferred capital gains, for example when subscribing for shares in Enterprise Investment Scheme (“EIS”) companies, then you may wish to consider crystallising these gains or opting to disapply the relief, if possible.

Property portfolios

It has been confirmed that the non-resident surcharge for stamp duty land tax (“SDLT”) will increase from 2% to 3% on the value or property purchases for non-residents; it may be advisable to consider purchasing properties sooner to reduce the risk of the additional 1% of tax payable for those looking to build portfolios.

If your wealth is tied up in less liquid assets such as property or a business, it may be difficult to sell these on the open market before 30th October. Instead, gifting these assets or restructuring the group, trust, or family member’s ownership may be advisable.

A simpler option is to gift property to the next generation as part of inheritance tax (“IHT”) planning. This may crystallise a capital gain now, but your children will have a higher base cost going forward.

Options for business owners

Business owners have an array of options; trusts can be a useful planning tool for trading companies, including the availability of business property relief. As one of the key IHT reliefs available, it may be under scrutiny with changes anticipated on 30th October.

Another advantage of settling assets into trust is that you can roll over the gain so that a charge to CGT is not crystallised. However, you may not wish to claim this so that you pay CGT at the current rates. This may be particularly advantageous for shares in your trading company, as you may be able to claim Business Asset Disposal Relief (formerly entrepreneurs’ relief) at beneficial rates of CGT (10%). ?

The use of trusts and tax structuring is a complex area, and professional advice should be sought. This is the case in most complex situations, and formal tax advice should be sought to ensure that this is given to carefully consider your circumstances.

We recommend obtaining tax advice to consider the possible impacts to your personal and business interests, and we are primed to assist to obtain the best outcome for you.

If you would like to discuss efficient tax structuring for group companies (including the availability of reliefs), UK property purchases, or for the upcoming personal, tax, business, and investment implications of the Autumn Budget 2024, please do not hesitate to contact one of our team:

Patrick TR Thornton – Partner – [email protected] 020 7201 3579

Rhea Rughani – Partner – [email protected] 020 7201 3575