Change, change, change (on the horizon)

The Chancellor (Rachel Reeves) confirmed the new government’s first Budget will be announced on 30 October 2024 with a raft of documents and draft legislation being published here.

The Chancellor also reiterated a commitment not to raise the rates of income tax or NI. The wording used is particularly interesting as there are many ways to increase the amount of income tax/NI paid without increasing the ‘basic, higher or additional rate’. For example, introducing another rate of tax at a higher threshold, extending the freezing of thresholds beyond 2028 to benefit from the impact of inflation, with more people being brought into higher tax rates as salaries rise, and changing the thresholds at which different rates of tax/NI are paid, amongst others.

However, tax increases are inevitably on the horizon to fund the ‘black hole’ of c.￡22 billion. The current rumours are that we may see increases to capital gains and/or inheritance tax rates. Certain reliefs may also be restricted.

A potentially impactful rumour is a proposal to restrict the level of tax relief individuals receive on their pension contributions. If this were to be restricted to basic rate relief, for example, I can foresee a number of complexities and room for error.

For example, how would this interact with pension salary sacrifice arrangements? How might this interact with relief taken via the payroll for net pay and relief at source arrangements? What rate would be appropriate and how would this apply across the devolved jurisdictions? How will this interact with pension auto-enrolment? Might the government go even further and, for example, apply employer NI to employer pension contributions? Not to mention pension administration issues and whether this would disincentivise people to prepare for their retirement, in direct contradiction to recent reports that many are already ill prepared.

A key publication was a policy paper on changes to the taxation of non-UK domiciled individuals, which confirms the changes will take effect from 6 April 2025. Full details of the reform will be outlined in the Budget. Vialto has provided a summary of the points raised along with our views here.

Other publications include:

• A technical note and draft legislation on the introduction of VAT on education and boarding services provided for a charge by private schools from 1 January 2025, with forestalling measures applying to pre-payment of fees made on or after 29 July 2024. Any employers bearing the cost of these fees for employees may need to prepare for increased costs from January, particularly where they bear the cost of any tax/NI on these.
• A policy paper and draft legislation on the abolition of the furnished holiday lettings tax regime from April 2025.
• A call for evidence on the tax treatment of carried interest. If anyone has any comments they would like to feed into this, please contact me.

As well as the above, this week the government also wrote to the Low Pay Commission to instruct them to incorporate the cost of living into their considerations and to work towards equalising wage disparities across different age groups. It is likely that we will see further increases to the National Living/Minimum Wage rates and employers may want to consider the impact of future rate changes.

It is likely the new government is going to keep us busy in the run up to 30 October and that even more change is on the horizon – never a dull day!