Newsletter: September 2024

Over the last 2 months since Labour’s victory in the general election, there have been plenty of rumours circling the media of what changes may be brought in later this year.  Of course, much focus is on the upcoming 30th October budget, and how Chancellor, Rachel Reeves, will plan to plug the supposed £22bn hole in the nation’s finances.

On the 28th August, the Prime Minister warned the country that the budget would be “painful”, urging the public to accept “short-term pain” for “long-term good”.  Mr Starmer stressed that it would only be those with the “broadest shoulders” who would bear the brunt of any tax changes, and reconfirmed his earlier pledge to not increase Income Tax, National Insurance or VAT.

We have already seen changes to the Winter Fuel Payment for pensioners, adult social care, and of course, Public Sector pay rises for NHS workers, Armed forces personnel, Police, Prison Service workers, and train drivers.  The question is, therefore, what changes are still to come?

First, I think it is important to note that predictions of any kind may be unwise.  As we have seen over recent years, government policy can change quickly, BUT… newspapers, social media, and thinktanks can also get well ahead of themselves.  Speculation is their job, and it is important to remember that, stay calm, and not make any rash decisions.

As mentioned, the Prime Minister has ruled out changes to Income Tax, NI and VAT, so media speculation has turned to other areas.  As mentioned in my last newsletter, Labour has already produced a Pension Schemes Bill promising a wide-ranging Pensions Review, however, pensions taxation appears to be out of the scope of either of these initiatives.  Instead, the eye of journalists has turned towards areas such as changes to Higher Rate Tax relief, reductions in the Annual Allowance, and removal of tax-free death benefits before age 75.  Some commentators have also suggested changes to tax-free cash rules, including ridding the tax-free cash entitlement altogether.

We have heard from, and spoken to, several companies who have their own views about the potential for change. The fact of the matter is, we don’t know what Labour will announce in October.  We agree with the sentiments put across from some, and would also add that any changes that are brought in, will most likely require a transition period and time for adjustment, much like the recent changes to, and abolition of, the Lifetime Allowance (LTA).

Turning our attention away from main legislation regarding pensions, there have also been rumoured changes to other forms of tax.  Here is a summary of some of the areas currently in the media spotlight:

Capital Gains Tax (CGT) – CGT is tax charged on the profit made from financial assets such as shares or buy-to-let properties.  Although we do not directly deal with these two assets, CGT is applicable to any profits made through General Investment Accounts (GIAs), which you may hold with some of our recommended platforms/providers.  The scope of CGT could be widened by Labour to include assets that are currently CGT-exempt, and the current tax-free allowance of £3,000 could be cut, even to £0.

Inheritance Tax (IHT) – Current IHT rules include a ‘Nil Rate Band’ and ‘Residential Nil Rate Band’, allowing assets under £325,000 or £500,000 to be exempt.  Both Nil Rate Band allowances could be cut, and the ‘Residential’ band for homeowners could be cut altogether.  Further, it would also be possible for Labour to bring pensions into the estate too.

Savings Tax – Under current legislation, investors can place up to £20,000 into ISAs which benefit from tax-free growth, with no CGT on profits.  Whilst the £20,000 allowance is expected to remain the same, there are suggestions that the government could introduce a lifetime cap.  Further, the current Personal Savings Allowance of £1,000 for basic-rate taxpayers, and £500 for higher-rate taxpayers could also be changed.  The Personal Savings Allowance currently covers interest earned from bank accounts, savings accounts, building societies, credit union accounts, and bonds, but this list could be re-examined.

Council Tax – Bandings for Council Tax are currently based on 1991 property values in England, and this has prompted debate for reform of the Council Tax calculation system.  Prior to the election, Labour was accused of secretly plotting a raid on council tax, with former Leicester MP Jonathan Ashworth insisting that Labour would not be ‘changing Council Tax banding’.  However, Sir Kier Starmer has not yet ruled this out, amid claims that a ‘proportional’ system could be considered.

Fuel Duty – Mr Sunak’s 5p cut to fuel duty was introduced more than two years ago, and is due to expire in March 2025.  According to the RAC, the 5p discount is losing the Treasury £2billion a year.  This has led to the founder of campaign group, FairFuelUK, Howard Cox, stating, “I have credible intelligence that the Treasury has virtually settled… on increasing fuel duty by 10p a litre”.

Of course, the list above is not exhaustive, and I think it likely that even Labour have not yet decided on the fundamentals of their budget next month. I suspect current conjecture to be a testing of the waters to see which policies would be most unpopular. To repeat my earlier message, there are many ‘ifs’, ‘buts’ and ‘maybes’.