Autumn Budget 2024

“A lot of bad news”, “painful”, “short-term pain for long-term good” – when the Government is talking about the budget in these terms I think we can expect significant tax rises.

Clearly raising money will be central, but Rachel Reeves, just like any new Chancellor, will want to shake things up. Some simplification opportunities will be taken. Will the Office of Tax Simplification (or something like it) make a comeback?

Certainties

The Chancellor has already confirmed that the Finance Bill 2024-25 will contain measures regarding:

• furnished holiday lettings tax regime abolition;
• Pillar Two: transitional country-by-country reporting safe harbour anti-arbitrage rule;
• VAT on private school fees and removing the charitable rates relief for private schools;
• tax treatment of carried interest;
• changes to the taxation of non-UK domiciled individuals;
• energy profits levy reform; and
• closing the tax gap.

See my colleague Sarah Arnold’s summary of these important measures which appeared in Croner-i’s Tax Weekly e-magazine.

Although some of these changes may be re-announced in the budget, it seems unfair to claim them as predictions.

Predictions

Labour said they would not raise taxes on “working people” who Keir Starmer regards as ‘people who earn their living, rely on our services and don’t really have the ability to write a cheque when they get into trouble’.

His government will not, however, reverse the freezing of income tax bands scheduled to continue until 2028. The resulting “fiscal drag” will arguably continue to bring many such people into higher rates of tax. In fact, extending the freezing period must be a temptation for a cash-strapped Chancellor.

Labour has promised not to increase income tax, national insurance contributions (including reversing recent cuts made by the Conservatives) or VAT which leaves inheritance tax and capital gains tax in the firing line.

Inheritance tax

Possibilities here include:

• increasing the rates;
• removing the exemption for residuary pension funds;
• introducing a cap on business property relief;
• tightening the criteria for what qualifies as business property and agricultural property;
• removing CGT rebasing where some form of IHT relief (e.g. gift to spouses, business and agricultural assets) is applied; and
• extending the potentially exempt transfer qualifying period from 7 years to, say, 10 years.

One simplification measure that may happen is the abolition of the residential nil rate band with an equivalent increase to the main nil rate band.

There continues to be talk of a wealth tax but designing a robust system is not easy and the experiences of other countries are not encouraging.

Capital gains tax

Changes Rachel Reeves may be considering:

• increasing the rate to align with income tax;
• making compensating increase in business assets disposal relief; and
• Looking at principal private residence relief – remove altogether or convert into some form of rollover relief.

Businesses

• A roadmap for business taxation will be published. It is likely to contain confirmation of pre-Election promises to cap corporation tax at the current 25% rate through the next five years and to the full expensing system for capital investment and the annual investment allowance for small business.
• It is also likely to tackle the current business rates system which the Labour manifesto said “disincentivises investment, creates uncertainty and places an undue burden on our high streets.”

Other

There will be no reintroduction of the lifetime allowance, but could Labour introduce a single rate for relief for pension contributions?

Two areas that may be looked at to encourage the move to low emission or zero CO2 vehicles:

• the reintroduction of the fuel duty escalator; and
• significant increases in the benefit in kind for other company cars.

To prevent stamp duty land tax acting as a disincentive to move house, maybe it could be rethought as an annual charge rather a transaction-based one.

It has been suggested that this would be a good time for a council tax revaluation – the last one was in 1991 - or maybe something more radical for that tax.