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Predictions for the October 2024 Budget: Insights from Rowleys’ Tax experts

18th September 2024

As the Labour Party solidifies its position as the UK government, anticipation is growing around its first major fiscal event. On 30th October 2024, Labour will unveil its much-anticipated Budget, a pivotal moment for individuals and businesses across the country. Prime Minister Keir Starmer has already set the tone, warning that the Budget will be “painful” as the government makes difficult choices to balance the books and ease the UK’s tax burden. Starmer and his Chancellor, Rachel Reeves are expected to introduce a series of tough reforms, aimed at addressing the fiscal challenges left behind by their predecessors.

While the overarching goal is to relieve tax pressure on ordinary families and bolster the country’s finances, the Rowleys tax experts believe there will be significant adjustments in key areas that could impact both individuals and SMEs. With a focus on inheritance tax, capital gains tax, and other wealth-related levies, the expected changes could reshape tax planning strategies for many. Here are our predictions on what the October 2024 Budget might hold.

Inheritance tax (IHT)

Over the past year, there have been growing indications of potential IHT reforms, a topic we’ve explored in previous Budget predictions. However, this Budget could be the one where these long-anticipated changes finally come to fruition.

• Accumulated pension funds to be included in IHT calculations – currently, pension funds can remain outside of an individual’s estate for IHT purposes. However, this might change, bringing pension pots into the IHT net, potentially increasing tax liabilities.
• Abolition of Capital Gains Tax (CGT) base cost uplift on death for assets qualifying for IHT relief – business and agricultural assets could be passed down with historical base costs, meaning beneficiaries may face CGT on the full increase in value when they sell, rather than benefiting from the base cost uplift at death.
• Reduction in the Residence Nil Rate Band (RNRB) – a possible reduction from £175,000 to £125,000.
• Extension of the 7-year gift rule to 10 years – this extension would increase the period gifts remain part of the estate for IHT purposes.
• Abolition of gifts out of income exemption – some gifts are currently exempt from IHT, these exemptions could be removed.
• Abolition of AIM shares exemption for IHT – currently, AIM-listed shares are IHT-free if held for two years; removing this could dissuade some investments.
• Abolition of the Residential Nil Rate Band (RNRB) – alongside an increase in the standard nil rate from £325,000 to £500,000.

Changes to capital gains tax (CGT)

Capital Gains Tax has been a focal point of speculation in the lead-up to this Budget, with experts anticipating significant changes aimed at increasing revenue. The potential reforms could affect both personal and business assets, with higher rates and tightened reliefs on the horizon. For those holding valuable assets, especially SMEs, any adjustments to CGT will have a direct impact on long-term tax planning and future disposals. Below are the key CGT changes that we predict could be introduced.

• Increase in CGT rates and tightening of Business Asset Disposal Relief (BADR) – the rates could increase, especially for non-business assets. we could see an increase from 10% to 25%, with the lifetime limit being reduced from £1m to £500,000.and the qualifying conditions for BADR (formerly Entrepreneurs’ Relief) may become more stringent.
• Introduction of a flat CGT rate of 40% – except for business assets, this could apply to all disposals.
• Rebasing assets for CGT: Setting a fixed date to take out inflation-based gains from CGT calculations.

Employer and business taxes

Businesses, particularly SMEs, are likely to face several new tax measures as the government seeks to address fiscal shortfalls. Labour’s focus on balancing the tax burden while supporting economic growth suggests that employers may see an increase in costs, particularly through National Insurance contributions and Corporation Tax adjustments. These changes could affect profitability and cash flow, making it crucial for business owners to prepare for the potential financial impact.

• Increase in employers’ National Insurance contributions (NICs) – this could increase the cost burden on businesses, especially SMEs.
• Corporation tax (CT) small profits rate increase – an increase from the current 19% to 20%.
• Surcharge on dividends for close companies/Owner-Managed Businesses (OMB) – a potential surcharge, possibly in the form of NI, on dividends paid by closely held companies.

Research and development (R&D) tax credits

While no major changes to the R&D tax credit schemes are expected, we anticipate the government will address the ongoing controversies related to dishonest advisors taking advantage of these schemes.

Potential stamp duty changes

• Reduction in stamp duty thresholds for first-time buyers – a reduction from £425,000 to £300,000 is expected, potentially impacting housing market dynamics.

Pension and social welfare changes

• Abolition of tax relief at higher rates for personal pension contributions – a flat rate of 30% across the board may replace the current 40% and 45% relief for higher earners.
• Winter fuel payments restricted – payments might only be made to people aged over 80 or those on pension credit.
• Increase in student loan interest rates – likely to impact younger generations with larger debt burdens.

Other expected measures

• Fuel duty increase – 10p per litre rise is expected to help fund environmental initiatives.
• VAT on private school fees – Labour have already announced that private school fees will be subject to 20% VAT, a measure that will come into force on 1st January 2025.

Summary

As the October 2024 Budget approaches, it’s clear that significant tax reforms are on the horizon. Both individuals and businesses will need to prepare for changes that could affect their financial strategies for years to come.

While the government’s focus may be on relieving pressure for lower-income families, the predicted tax increases on wealth and business profits will require careful planning to mitigate their impact.

At Rowleys, we offer expert guidance to help our clients navigate the complexities of the new tax regime. Whether it’s restructuring your business, revisiting estate plans, or optimising your personal tax strategy, our team is here to ensure you are fully prepared for what lies ahead.

As always, we encourage clients to seek advice early to make informed decisions before any new measures take effect. By taking a proactive approach, we can help you safeguard your financial future and continue to thrive in an evolving tax environment.