Autumn Budget date announced, and tax rises expected

The date of Labour's first Autumn Budget is set for 30 October 2024, amid fevered anticipation as to what it may include on tax rises for individuals and businesses.

In a statement made today, 29 July 2024, (along with the release of Finance Bill clauses) Rachel Reeves, The Chancellor, warned that the Treasury's finances were in a worse state than expected - a favourite ploy of any new government Chancellor that wants to secure more revenue for manifesto promises, just Like George Osborne did for the coalition government in 2010.

Other key statements today:

2024: Non-UK domiciled individuals- Policy Summary - from 6 April 2025
VAT on Private School Fees & Removing the Charitable Rates Relief for Private Schools - from 1 January 2025
Tax treatment of carried interest - call for evidence

The new Chancellor is channelling not only Osborne, but also it appears Stephen Hawking on the nature of black holes, only this one is closer to home and involves unfunded spending commitments that were made in the Spring Budget by Jeremy Hunt.

Whilst Hawking proposed that black holes were not in fact so black, nor did they grow endlessly, in the Treasury's case they are more shrouded in the fog of vagueness.

Reeves signed up to the spending plans that Hunt set out in the spring Budget, even though the chairman of the Office for Budget Responsibility (OBR) had described them as worse than fiction, and the International Monetary Fund’ said the Budget plans contained a £30bn black hole that would need to be covered with tax rises and/or spending cuts.

And in an interview on 28 May 2024, Rachel Reeves promised that there would be "no additional tax rises" beyond those already outlined if Labour won the election (although its manifesto was notable for its absence of tax pledges).

So, there is now a black hole of around £22bn according to Reeves; how do we fill it?

Spending

Already we have seen some major public building projects (roads and hospitals) shelved to save money, and we can expect to see more (e.g. winter fuel payments being means tested), but not perhaps yet on the scale of Osborne's austerity measures if the economy continues to grow as Reeves hopes.

A new spending review needs to happen this year to cover the next three years, which will make clear departmental budgets and reforms.

We know that the government is likely to agree public sector pay rises above the rate of inflation, which will not have been budgeted for, thus increasing the black hole by around £9bn.

There are other costly calls on government resources in the pipeline:

compensation for the Post Office horizon scandal,
blood contamination scandal, and
Women Against State Pension Inequality (WASPI).

To which potentially can be added funds to bail out failing water companies and local councils.

Tax rises

What is more likely and what has been well trailed by the government are tax rises in the autumn budget.

With no tax rises promised on income tax, National Insurance, corporation tax, or VAT, the next layer down of Treasury revenue comes from capital gains tax (CGT), inheritance tax (IHT), stamp duty, fuel duty, and possibly council tax and business rates. And a key tax giveaway is relief for pension contributions that is now ripe for being reduced.

See our quick guide to Labour's tax plans.

CGT

A favourite bet appears to be aligning the rates of CGT with those of income tax.

This last happened in 1989 under the then Chancellor Nigel Lawson when gains were taxed as the top slice of income.

This is likely to happen from 6 April 2025, but it cannot be discounted that the rate could change much sooner in anticipation of assets being sold before then at current rates.

Another possibility for raising taxes would 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.

See our previous article: Might we see changes to Capital Gains Tax after the election?

Valuable reliefs such as Business Asset Disposal Relief could also be cut to bring in more tax, and this would affect anyone selling their business. Could this trigger more solvent liquidations prior to the change?

See our article on solvent liquidation strategies.

IHT

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, but this was not made clear in the manifesto.

Pension tax relief

It is possible that Rachel Reeves could reduce higher rate tax relief given on pension contributions and instead introduce a flat rate regardless of the saver's income. There has also been speculation that the current 25% tax free lump sum that can be taken from a pension pot could be reduced over time.

We will have to wait for the autumn budget to see what is announced.

VAT on private education

In a new document issued today on VAT and private education:

VAT on school fees will start from 1 January 2025
Anti forestalling on fees pre-paid from today (29 July 2024) onwards - pertaining to the term starting in Jan 2025 onwards – making them subject to VAT.
Removal of charitable Business Rates relief (from April 2025?)

See our more detailed article from our VAT team

Other taxes

We know already that the taxation of non-doms and furnished holiday lets will change from April 2025, as per the spring budget, but with additional tweaks.

Non-doms

For non-doms, the previously announced transitional rule regarding the 50% reduction on tax due on foreign income and gains in year 1 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 made at the Budget.

See our earlier article on the taxation of non-doms.

Furnished holiday lets

For Furnished Holiday Lets, anti-forestalling rules have been confirmed for disposals where an unconditional contract for sale is entered into between 6 March 2024 but completion is not until 6 April 2025 or later.

See our earlier article on furnished holiday let tax changes.

Previous announcements

In the manifesto and in media interviews with Reeves, Labour made other policy announcements:

A promise not to "raise taxes on working people"
Raise £5bn a year by tackling tax avoidance
To keep fiscal drag, and maintain tax thresholds where they are (even though this policy will help generate the UK's highest tax burden by 2028).
To make private equity bosses pay 45% tax rather than the 28% they can pay under the “carried interest” rules.
To keep Corporation Tax rates as they are until 2029
To maintain Full Expensing and the Annual Investment Allowance.
To publish a “roadmap” for business taxation within six months of the election.

Tax dossier

Before the election, Jeremy Hunt issued a dossier of possible Labour tax rises, and it remains to be seen how much of this may come to pass.

Finance Bill 2024-25

Draft legislation and technical tax documents have been published today for the next Finance Bill

Tax related supplementary documents:

Budget breakdown made simple: join our seminar

Don't miss this opportunity to understand how the Autumn Budget 2024 will impact you and your business. Our post-Budget seminars will be held on Thursday, 31st October, at various locations across the South West and West Midlands. Experts will be on hand to discuss and explain the Budget measures.

Click here to book your place.