By Caroline Anstee, Managing Director of Anstee & Co.
The new Labour Government announced the autumn budget on Wednesday the 30th of October 2024. Since then there has been much speculation and we have seen the cut in the winter fuel payment, now means tested, which was a bit of a shock. The recent vote at the labour conference showed how unpopular this was.
Keir Starmer’s announcement and recent speech warning of a budget we may not be happy with, protecting the workers and not increasing NI or taxes for the workers, has now been confirmed by Rachel Reeves at the labour conference when she said:
‘We will protect workers and not increase income tax, for the basic, high or higher taxpayers or raise NI, VAT or Corporation Tax’.
The question is then where will the axe fall?
As advisers, we can only advise on current legislation and it is our job to keep up with any changes and advise accordingly. However, nobody knows the outcome, every budget or new tax year brings changes, keeping us on our toes, however, this feels different.
I thought I would summarise some of the things they could do, I attended a recent conference where Paul Johnson, director of the Institute of Fiscal Studies spoke, he doesn’t know any more than we do, although he has a lot more information to hand so interesting to hear his thoughts.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) the annual allowance (£3,000) is the lowest it has been for years so there is not much they can do except abolish it altogether. The rate at which capital gains tax is charged could be increased, it is currently 10% for basic rate taxpayers, 20% for high rate taxpayers and 28% on residential additional homes. They may add the gain to your income, then taxed at your highest rate, although if they did that there should be some sort of indexation (as there was previously).
Inheritance Tax (IHT)
Inheritance Tax (IHT) the allowances haven’t changed for a long time, currently they are £325,000 per person and an additional £175,000 per person if you own your own home and are passing it to children.
They could increase the rate at which IHT is taxed, it is presently 40%.
Placing funds into a trust is one way to protect your assets, although the tax regime is already tough they may make it even worse. Trusts presently only get half the tax allowances an individual gets.
Pensions could be brought back into a person’s estate (currently outside of your estate).
Pensions
Pensions are one of the most tax-efficient vehicles. No income tax, no CGT and tax relief on contributions. Your pension is also not included in your estate for IHT.
They could change the contribution annual allowance – currently, it is £60,000 per annum per person.
They could change the tax relief on contributions, currently given at your highest level of tax i.e. 20% for basic rate taxpayers and 40% for high-rate taxpayers.
When you die before the age of 75 your pension goes to your beneficiaries (that you have nominated) tax-free, they could tax this?
They may stop carry forward – this is where you can go back to the previous 3 years and use unused allowances.
They could increase the NI paid on pensions by the employer.
At the conference yesterday (25/9) Steve Webb, former pensions minister spoke and said that changing tax relief and tax-free cash is highly unlikely as it will affect the majority of the public sector pensions and therefore politically damaging. He demonstrated how we have a massive pension crisis looming as there is a generation who just don’t have enough in their pension pots. Any major changes will make this worse.
Individual Savings Accounts (ISAs)
Individual Savings Accounts (ISAs) are a tax-efficient savings vehicle, currently limited to £20,000 per year per person. They could change this allowance or cap the amount you can have in total.
All the areas of financial planning above won’t raise funds immediately and in the scheme of things do not raise much of the billions needed, certainly they won’t fill the black hole. There are of course other taxes, such as stamp duty, for example, however, the above are the areas most affecting your long-term financial plans.
Listening to Rachel Reeves at the Labour conference she said:
‘We are going to close loopholes in tax avoidance, tax evasion and non-dom loopholes, recruiting 5000 new HMRC officers. The budget will be for economic growth and ‘tough decisions’ have to be made’
Some tax reform will be inevitable, however, it all lacks clarity and is pure speculation at this point.
What should I be doing now?
Some of the above are unlikely just because of the practicality of it all, however, there are a few things that could be done before the budget or the new tax year, such as :
- Make sure your ISA allowance is used if you have savings.
- consider realising capital gains whilst the rates are the lowest, they have been for some time.
- Talking about options with your pensions, taking the tax-free cash from a vehicle that is very tax efficient may not be the right course of action, but for those nearing the age of 75, it is worth reviewing regardless of the potential changes.
- Make sure your pension contributions are maximised (using carry forward where possible)
It will be a busy time before and after the budget and if you want to discuss any of the above and how it may affect you please speak to your adviser. Just don’t call or expect answers on the 30th of October!
I stress currently we can only advise on current legislation and like you we have no idea what they are likely to do.
Finally, the information contained in this article is for information purposes only and does not constitute financial advice. No action should be taken based on this information alone. Anstee & Co is authorised and regulated by the Financial Conduct Authority (FCA).”
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