As the October 2024 Budget approaches, several key tax measures are anticipated based on Labour’s manifesto and previous policy announcements. Here’s what we might expect:
Capital Gains Tax (CGT): It is likely that the CGT rates may be increased, potentially aligning with income tax rates, which could push them up to 45% for property and other assets like shares. This would significantly impact investors including owners of let property and second homes.Inheritance Tax (IHT): Changes to IHT could include reducing exemptions for agricultural and business property, and there is speculation about the introduction of a “double death tax” where both IHT and CGT might be applied to inherited assets.Private School VAT: As announced, from January 2025, Labour is to impose VAT on private school fees, which will increase private education costs by 20%. Additionally, charitable business rates relief for private schools is expected to be removed starting in April 2025. Non-Domiciled Status: The non-domicile tax regime will be abolished by April 2025, affecting those who previously used this status to reduce their tax liabilities. A new residence-based regime will replace it. State Pension and Triple Lock: Labour has committed to maintaining the triple lock, ensuring pensions rise with inflation, earnings, or 2.5%, whichever is higher. However, there is concern that frozen tax bands could mean more pensioners paying income tax as their state pensions increase. Energy Profits Levy: The Energy Profits Levy on oil and gas companies is set to increase from 35% to 38%, continuing efforts to generate revenue from high-profit sectors.
In the October 2024 Budget, public expenditure cuts are expected alongside tax increases, as the government seeks to manage the fiscal deficit. Here are some anticipated areas for public spending reductions:
Welfare and Social Benefits: While the state pension triple lock is set to remain, other welfare spending could face reductions. Means-tested benefits, such as Universal Credit and support for lower-income households, might experience tighter eligibility requirements or reductions in spending. And the Chancellor has announced that the Winter Fuel Allowances will be restricted to pensioners who receive pension credits. Local Government Funding: Local authorities might see reduced funding, potentially leading to cuts in public services such as libraries, waste management, and social care programs. These cuts could prompt councils to raise local taxes or fees to make up for the shortfall.Education: Although Labour is focusing on improving state education by introducing VAT on private school fees, broader cuts to education funding could still be possible. Non-essential programs and administrative overheads may be targeted to reduce costs.Health and Social Care: While the NHS is a political priority, there could be attempts to make the healthcare system more efficient by reducing administrative costs. However, direct cuts to healthcare services are unlikely given the political sensitivity surrounding the NHS.Defence and Policing: Defence spending may be constrained or redirected to focus on specific areas, such as cybersecurity, while traditional sectors like infrastructure investment could face reductions. Similarly, police forces may experience budget cuts, impacting non-frontline services.
At present, the Labour Party’s fixation with plugging the apparent �22bn ‘black hole’ in government finances will likely preclude any uplifting announcements in the coming budget.