There has been much speculation regarding Chancellor Reeves’ forthcoming Budget Statement on 30^th October 2024.

Pundits all have their own take on what might be on the Chancellor’s ‘hit list’, and the Chancellor herself has been priming the public with doom and gloom stories about a £22bn “fiscal hole” left by the previous government, and the need for those with the ‘broadest shoulders’ to take the pain.

This time around everyone is crystal ball gazing and remarkably there have been no leaks!

We are actively working with clients to ensure sensible planning precautions are implemented before 30^th October, and our Senior Partner and Head of Tax, Stephen Corner, has been briefing us on his thoughts about the forthcoming statement.

Income Tax – The Government has ruled out changes to income tax, although recent statements have included references to ‘working people’ not taking the pain which should be borne by those with the broadest shoulders, perhaps hinting at rate increases for unearned income.  Perhaps lifetime limits for ISA saving going forward leading to ISA’s losing their tax advantages going forward.

VAT – Again, any changes were ruled out in the manifesto, albeit specifically private schools have been targeted for application of standard rate VAT on fees. This has already been announced in Parliament along with anti-forestalling provisions so this is a certainty.

National Insurance – Again, the Government has said no changes are to be made, albeit some commentators believe it would be relatively straight forward for the government to apply some form of NIC to rental and pension income.

Pensions – it is entirely possible there will be another raid on pension schemes. One possibility would be lower lifetime limits, there could be tax on income and gains within the pension scheme but perhaps more likely pension funds could be subjected to Inheritance tax on the death of the pension holder. Relief for pension contributions could be limited perhaps to the basic rate of tax.

Inheritance Tax – Widely seen as an easy target and additional tax on those leaving behind wealth would be easier to sell to the public.  Potentially, a graduated band at higher rates on estates over say £2m could be introduced.  Some believe business property relief could be abolished, meaning IHT payable on passing over trading company shares. Perhaps smaller shareholdings without control are a more likely target to avoid impacting on employees in trading businesses if companies have to be sold to pay tax! Perhaps unlikely, but changes could be made to agricultural property relief, targeting owners of farms and agricultural estates which are operated under a shared farming agreement or tenant farmer, rather than being worked by the owners themselves.

Employee Ownership Trusts – An Increasingly popular tool for clients managing an exit in a highly tax efficient fashion whilst creating much wider share participation amongst their employees.

It’s unlikely the government will change the basic premise of these arrangements but may act to prevent situations whereby owners can engineer two sale events (firstly on the exit to the employees and secondly on a subsequent share sale event) and given that most of these trusts are set up off-shore where the trustees pay no capital gains tax on sale, perhaps such trustees could be brought within the charge to capital gains tax as the government is already planning to do for trusts set up by non-doms!

Capital Gains Tax – An area much discussed. Possibly any substantive changes will be difficult given the government’s short term in power.  To implement a complete re-vamp of the regime will take a lot of work.  However, there are certain areas that could produce a ‘quick hit’ in terms of revenue generation.  Firstly, the much-trailed attack on Hedge Fund managers and their ‘carried interest’ arrangements, which could be immediately assessed to an equivalent of an income tax rate.  It would also be relatively straightforward to re-implement the 28% rate of CGT (or higher) on residential property sales.

If a more significant increase to capital gains tax rates are announced we could see a return to a form of taper relief so that short term gains are aligned closely to income tax rates and longer term gains in trading businesses continue to benefit from lower rates.

Exit Tax – A very long shot for the punters but Labour has been trailing its desire to further limit the benefits of non-domicile status. An easy additional strategy would be to implement an exit tax on individuals leaving the UK. Such a tax deems all an individuals assets to be disposed of at market value on the day of leaving creating capital gains tax liabilities.  A number of jurisdictions now have Exit charges so the UK would not be out of step if it introduced such a charge.

Corporation Tax – The Chancellor has suggested CT rates are at an appropriate level, so an increase in the main rate is again not seen as likely. However, additional revenue could be easily raised by making changes to capital allowances, R&D tax credits and pensions relief, although it would be difficult to reconcile such moves with the alleged growth agenda of this administration.

Given the Government’s significant trailing of its intent at this early stage, it’s difficult to believe the Budget will follow the historic trend of a number of small and less consequential changes to legislation.  Be prepared for some possible major announcements.  As always, please do refer to your Barnes Roffe contact partner for any further thoughts or advice in the run up to this much awaited event and after the event when we assess the impact of the announced changes.

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