Autumn Budget 2024: What to Expect
The upcoming Autumn Budget, scheduled for 30 October 2024, is expected to bring significant changes to the UK tax landscape. With the government facing a £22bn financial shortfall, tax increases are likely, particularly in areas such as capital gains, inheritance, and pensions. In contrast, VAT, income tax, and national insurance—the three largest sources of revenue—are expected to remain unchanged. Here's what we know so far and what you can expect from this year’s Budget.
Capital Gains Tax (CGT)
One of the most anticipated changes in the Autumn Budget is a potential increase in capital gains tax (CGT) rates. Currently, CGT rates are lower than income tax rates, making it an attractive area for investors. Basic-rate taxpayers pay 10% on gains and higher-rate taxpayers pay 20%, with higher rates for property sales.
There is speculation that the government could align CGT rates with income tax rates, meaning that basic-rate taxpayers could see their CGT rate double to 20%, while higher-rate taxpayers could face rates of 40% or more. This would significantly increase the tax burden on the sale of investments, second homes, and other taxable assets.
What You Can Do:
- If you're planning to sell an asset in the near future, you might want to consider doing so before the Budget to take advantage of the current, lower rates.
- You may also want to explore tax-efficient investment options, such as ISAs and pensions, to help mitigate any future tax liabilities.
Inheritance Tax (IHT)
Inheritance tax (IHT) is another key area of focus. Even without any changes to the IHT rate, the frozen thresholds—which have remained unchanged since 2009—are pulling more estates into the taxable bracket due to rising property and asset values. The nil-rate band of £325,000 per person and the residential nil-rate band of £175,000 are set to remain frozen until 2028, which means more people will likely be affected by IHT as asset values continue to grow.
There is also speculation that the government could review existing IHT exemptions, including those for pensions, business relief, and agricultural land.
What You Can Do:
- Consider reviewing your estate planning strategy and whether any changes are needed to minimise future IHT liabilities.
- If you're planning to make gifts or transfer assets, it might be worth doing so before any potential changes in the IHT regime take effect.
Pensions
Pensions are one of the few areas where the government has signalled potential changes. The current system allows for tax relief on pension contributions, with higher-rate taxpayers benefiting from 40% or 45% relief. There is speculation that the government could introduce a flat rate of tax relief, potentially around 30%, which would reduce the advantages for higher earners.
The government has, however, confirmed that the 25% tax-free lump sum will remain unchanged, which is good news for those approaching retirement.
What You Can Do:
- If you're a higher-rate taxpayer, you may want to consider maximising pension contributions before any changes to tax relief take effect. The current annual limit is £60,000, and you can also carry forward unused allowances from the previous three tax years.
ISAs
ISAs (Individual Savings Accounts) are a cornerstone of tax-efficient saving, offering tax-free growth and withdrawals. While no specific changes have been announced, there has been some speculation that ISA allowances could be reduced or capped in the future.
At present, you can contribute up to £20,000 per year into an ISA, and this allowance is a ‘use it or lose it’ benefit, meaning if you don’t use the full amount in a given tax year, you can’t carry it over.
What You Can Do:
- Ensure you’re maximising your ISA allowance each year to take full advantage of the tax-free benefits.
- For those saving for children, remember that Junior ISAs allow up to £9,000 to be saved tax-free per year.
Income Tax
Although Labour has promised not to raise income tax rates, the continued freeze on income tax thresholds means that more people are being pulled into higher tax brackets as wages increase. This phenomenon, known as fiscal drag, increases the overall tax burden without any direct changes to tax rates.
The personal allowance and income tax thresholds have been frozen until 2028, which means that even if your income doesn’t change significantly, you could still end up paying more tax over time as inflation pushes wages higher.
What You Can Do:
- Review your income and tax strategy with a financial adviser, especially if you're approaching a higher tax bracket due to wage increases.
- Consider tax-efficient investment options, such as pensions and ISAs, to help reduce your taxable income.
Conclusion
The Autumn Budget 2024 is expected to introduce measures aimed at increasing tax revenues, particularly by targeting wealth in the form of capital gains, inheritance, and pensions. While there won’t be changes to VAT, income tax, or national insurance, the potential for significant changes in CGT, IHT, and pension tax relief means it’s crucial to stay informed and prepared.
As always, it’s important to remember that these changes are still speculative, and any decisions about your finances should be made based on your long-term goals, not just immediate tax concerns. If you’re unsure how the Budget could affect you, consider speaking to a financial adviser who can help you navigate the changes and ensure your financial plan remains on track.