The Autumn Budget – Predictions and suggested actions
What exactly is going to happen in Labour’s first budget?
And what actions should I take now, to best serve me and my family?
Rachel Reeves will present her first budget on 30 October 2024.
As usual, all media sources are already publishing lists of predicted measures and majoring on all the bad news. It was ever thus.
What we hope to do in this note is to provide some context and also a few concrete actions that many of our clients should consider in the light of the impending budget. Please do not take action based only on the following note – talk to your usual Satis or Hillier Hopkins adviser.
Predictions
I have been attempting to and failing to predict legislation for most of my career. It is almost impossibly difficult to do this in any useful way. Rachel Reeves and Keir Starmer have been laying it on with a trowel in terms of seeking to manage our expectations and blame the previous Tory administration for actions they will take early in office. The country’s debt levels are exceptionally high by any standard. Rachel Reeves has ruled out (further) tax rises for National Insurance, income tax, VAT and corporation tax – these account for around 70% of tax receipts. Further she has declared that she will also keep to fiscal rules that further constrain her spending plans.
In the last fortnight I have read commentary suggesting the following measures:
- Capital Gain Tax (CGT) to rise (perhaps to income tax levels)
- Business Asset Disposal Relief to be curtailed (another CGT measure)
- Business (Property) Relief to be curtailed (this is concerned with inheritance tax)
- Agricultural Property Relief to be curtailed (this is concerned with inheritance tax)
- Inheritance tax to be dramatically reshaped
- Pensions tax relief on contributions to be reduced (maybe to a flat rate)
- Pension funds to be liable to inheritance tax
- Pensions – Restrict or reduce or cancel the tax fee cash element of pensions (25% for most individuals)
- National Insurance to be charged on dividends from close companies
- A new health and social care levy to be introduced (err, I think we tried this recently)
- Windfall taxes on banks, mining companies
- Fuel duty changes
- A new wealth tax
- Start the 45% income tax rate at £80,000
- Changes to council tax.
And many, many more…
The increases to capital gains tax and / or reductions in reliefs are the most widely trailed. But do not forget these were widely predicted by experts for several Tory budgets.
Actions to take
Our advice to our clients is to take advantage of the current regime which is known.
Do not consider taking actions that are driven purely by predicted tax legislation. However, if you have been toying with taking action, we recommend taking action now. How does this look in practice?
If you have been thinking about making gifts to your (adult) children, or grandchildren, or someone else, consider making those gifts now. If you gift cash, it is unlikely there will be immediate tax consequences. If you gift assets, these are likely to be disposals for Capital Gains Tax (CGT).
Other than property and a few other oddities, the maximum CGT rate is 20%. This may look like a cheap rate in years to come. And moving assets out with a 20% liability may be vastly preferable to a liability of 40% inheritance tax in the future on a larger sum. In some cases there will also be opportunities to hold over the gain (ie defer paying tax).
If you have been thinking about setting up a trust, do it now. Larger settlements to discretionary trusts may trigger an immediate tax charge of up to 20%. Again, this may look far preferable to future liabilities.
If you have been thinking about making a pension contribution, make it now. You should in most cases gain valuable tax relief against this year’s income (40%/ 45%/ 60% are all possible depending on circumstance). Yes, inheritance tax efficiency may be curtailed or lost altogether but valuable reliefs are available now. If you run a company, make pension contributions before 30 October.
If you have been thinking about withdrawing tax free cash from your pension, perhaps to fund a gift, or a purchase or to clear a liability, do it sooner rather than later
Most clients already fully fund ISAs, but if you are thinking about helping adult children or grandchildren to contribute, do it now.
If you are engaged in the sale of your business, get the transaction done before 30 October if realistic. Speak to an adviser about how Business Relief and discretionary trusts work.
If your business might declare a dividend soon, do it sooner rather than later.
The disappearance of the non-dom regime is basically a certainty. If you currently benefit from the non-dom regime take advice on actions to take now.
Conclusion
Rachel Reeves will announce tax rises on 30 October. They will probably include some of the above but there are myriad other possibilities, either for the October 2024 budget, or for future ones. The terminology is purposefully opaque – for example, merely through continuing with frozen personal allowances the Labour government are effectively increasing income taxes. Unless the pledge on VAT, NI, Income Tax and Corporation Tax is broken, it is difficult to see how Rachel Reeves will make the numbers work.
As we discussed at the last Client Appreciation Event, the top 1% of income tax payers are now paying 28% of all the income tax collected. Eventually tax rises will cause changes in behaviour and Rachel Reeves knows this. I think it is likely therefore that the fiscal rules will be broken or fudged.
Look out also for the proposal championed by Robert Peston (ITV) and David Smith (Sunday Times) and many others. The detail is very technical but the main point is that the Bank of England pay a huge amount of interest on notional bank deposits held by commercial banks – the interest rate could be reduced.
As 30 October gets closer, media and specifically social media will get increasingly noisy. Rushed last minute decisions are bad news in financial planning. If anything in the above applies to you then please do not leave action until the last minute – please speak to your adviser today.
We will be distributing material soon after the budget. And on Wednesday 6 November we will be holding our next Client Webinar which will feature, returning by popular demand, Apollo Lupesco. Details will follow closer to the date.
Thank you.
BS September 2024