This week is Labour Party conference week. Rachel Reeves made her debut speech on Monday as the Chancellor of the Exchequer. She said there was no return to austerity but instead a time for “iron discipline” and “relentless focus.” With this in mind, we explore what’s expected in the budget.
When is the Budget?
The Labour government’s first budget is set to take place on Wednesday, October 30th, 2024. Historically, the Chancellor stands up to speak at 12.30pm, but the exact timing will be confirmed nearer the time.
What should we look out for in the Labour government’s first budget?
The Labour Party manifesto gives us the strongest idea of what the budget will contain. Indeed, in her speech on 8 July, Rachel Reeves reiterated her commitment to implementing Labour’s manifesto pledges.
While we can’t be sure of exactly what the Budget will include, it will likely focus on a long-term strategy to enhance living standards and foster economic growth. This is no easy task!
Will there be any tax cuts or changes to income tax?
Rachel Reeves has confirmed her party’s commitment to not raising National Insurance, VAT, or the basic, higher and additional income tax rates. Therefore, could we see some potential changes to banding thresholds or even the personal allowance?
Even if the personal allowance and banding thresholds remain the same, inflation affects their value, making them less valuable. This is known as ‘fiscal drag’; in other words, keeping allowances at the same level effectively increases an individual’s tax burden.
Whatever comes, we can be fairly certain that there will be no tax cuts.
Will capital gains tax or inheritance tax be used to raise taxes?
Labour has not ruled out tax rises on capital gains and inheritance taxes. Many people are expecting changes in this area. We are unsure what’s expected in the Budget, but no increases have been specifically ruled out.
We think capital gains tax rates may be aligned with income tax rates, perhaps with the withdrawal of some reliefs for both taxes too.
What about business tax and business investment?
We anticipate that the Labour Party will outline a business tax plan for the next term of parliament. This plan should aim to stimulate investment and support economic growth through a strong industrial strategy.
Additionally, Labour has committed to keeping both Full Expensing and the Annual Investment Allowance in place.
While the main corporation tax rate (currently 25%) is expected to remain unchanged, there is speculation that the small profits rate (currently 19%) and marginal relief may be altered or eliminated.
What will happen to VAT on private school fees?
One of the key pledges in the Labour manifesto was to make private school fees subject to VAT.
A Technical Note detailing the proposal was published on 29 July. The note confirms that any fees paid from 29 July 2024 for the term starting in January 2025 onwards will be subject to VAT.
Will the Furnished Holiday Lettings regime still be abolished?
The Conservative Party announced the abolition of the furnished holiday lets (FHL) regime in their March 2024 Spring Budget.
The Labour Party has also announced that it will abolish FHL status from April 2025. This means that FHLs will become subject to the same tax rules as non-FHL properties.
What could happen to the system for Non-Domiciled individuals?
In the 2024 Spring Budget, the Conservatives announced a new “Foreign Income and Gains” (FIG) regime that would replace the remittance basis for non-domiciled individuals starting from 6 April 2025.
The Chancellor has already confirmed that Labour will implement the FIG regime announced by the previous government.
Before implementing the new regime, they will review key areas of the reforms to ensure fairness and competitiveness. This includes ending all advantages for non-domiciled individuals.
Will stamp duty land tax change?
The current stamp duty land tax (SDLT) surcharge for residential property purchases by non-UK residents is 2%. Labour plans to increase the surcharge to 3%.
Pensions – could the new Labour government make tax changes?
It may appear that Rachel Reeves could change the pensions tax framework.
This could involve:
- changing the annual allowance rules
- reintroducing the lifetime allowance rules
- review the tax-free lump sum and remove the 25% tax-free amount.
- reform the tax relief available in respect of pension contributions.
Many commentators anticipate some developments in this area. If you’re thinking about making a lump-sum cash investment into your pension this tax year, now would be a good time to seriously consider it.
Similarly, if you are considering taking the tax-free lump sum from your pension, please give it some serious thought now. You should speak to your financial advisor sooner rather than later.
Making Tax Digital – will it still go ahead?
It is likely that Making Tax Digital (MTD) for Income Tax will still go ahead. We don’t really know what’s expected in the budget.
The Labour Party has previously published its ‘Plan to Close the Tax Gap’, whose stated aims align with those of the MTD for Income Tax project. However, the timelines may change. We’ll wait and see.
Next Steps
We have five weeks before the budget, so if you want to discuss anything mentioned here further, please get in touch. First, email your regular manager who would be happy to help.
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