Introduction
Rachel Reeves will deliver her first Budget on October 30th. There is unlikely to be much to celebrate. Speculation surrounds the likely targets for tax increases. Below are some persistent predictions. Note, these are just predictions, and there will no doubt be surprises when the Budget details are released.
Budget Details: Personal Taxes and Pensions
Labour has pledged not to increase the main rates of Income Tax, National Insurance (NI), or VAT. However, other forms of personal taxation may change. Pensions, in particular, will likely be a focus.
Potential Changes to Pensions
- The government may reduce the tax-free pension lump sum from its current level (£268,275) to a lower amount. This could raise around £2 billion annually.
- They might introduce flat-rate pension tax relief, replacing the current marginal rate system. This could save around £5 billion but would negatively affect higher earners.
- Employer pension contributions could also face National Insurance charges. This may lead to employers offering less generous pension schemes.
Budget Details: Capital Gains Tax (CGT) and Inheritance Tax (IHT)
Potential Changes to CGT
- The government could increase CGT rates, possibly aligning them with Income Tax rates. This could raise the top rate from 20% to as much as 45%, significantly impacting higher earners and business owners.
- They might introduce a “double death tax,” taxing assets both via CGT upon death and subsequently through IHT.
Potential Changes to IHT
- Labour might increase the tax rate above the current 40% or reduce the £325,000 nil-rate band.
- They could also include pension pots, currently excluded from IHT.
Business Taxes
While Labour has ruled out large hikes in business taxes, some changes are expected.
Potential Changes to NICs
- The government might raise employer NICs from 13.8% to 14.8%. This could potentially raise £8–9 billion for the Treasury.
Carried Interest and Energy Profits Levy
- They could reform the taxation of carried interest, particularly affecting private equity, and extend the Energy Profits Levy.
Budget Details: Other Measures
Fuel Duty
- For the first time in 13 years, the government may increase fuel duty. This move aims to promote the adoption of electric vehicles.
VAT on Private Schools
- Labour has committed to imposing VAT on private school fees starting in January 2025. This measure could generate additional revenue but has sparked debate.
Conclusion
Overall, the October 2024 Budget will likely include painful decisions. Labour aims to tackle the fiscal deficit with changes focused on wealth and asset taxes, pensions, and potentially significant tweaks to business taxation policies.
