What Might We See in the Budget Next Month?

The Prime Minister has already warned that “it’s going to be painful”. Having ruled out increases to income tax, national insurance, corporation tax and VAT, where might the government make changes to the tax system? Below are some of my thoughts on what we might see Chancellor, Rachel Reeves announce.

Capital Gains Tax

This seems like an inevitable area that the government will target. The previous Tory government has already reduced the Capital Gains tax-free allowance down to its current level of ￡3,000, but I expect there will be further changes. It’s possible that this amount will be reduced further, or perhaps, the rates at which capital gains are levied will be increased to align with those of income tax.

It has also been suggested that we could see the introduction of Capital Gains Tax on disposal on death (in addition to IHT).

Pensions

While estimates of the total cost of pension tax reliefs to the government vary, the widely accepted figure is around ￡50 billion annually—making it an appealing target for any Chancellor who is looking to reduce spending.

It is possible we could see the removal of IHT exemption for residuary pension funds on death. There could be cuts to the overall rate of income tax relief on contributions to 30% or even imposing an annual maximum relief in cash terms.

Inheritance Tax

Possibly the most hated tax of all, but only paid by a small proportion of estates, we are likely to see some changes to current IHT rules.

I have already mentioned that we could see pension funds being included within an individual’s estate for IHT purposes. Additionally the Chancellor could consider introducing progressive IHT bands, starting at 25% and potentially rising to 50% for the largest estates.

We may also see changes to the way Business Relief works, specifically we could see the removal of relief for AIM shares.

Other areas the Chancellor could look to change include Council Tax and Stamp Duty Land Tax, and we might even see the introduction of a so-called 'Wealth Tax.' Unfortunately, for now, I cannot say for sure what changes are coming. There are a range of options on the table, but until the official budget is announced, all we can do is anticipate and prepare for the possible financial implications of the upcoming decisions.