As the newly formed government prepares its first major fiscal statement, UK taxpayers and investors are anxiously awaiting details of how their finances could be affected. With reports of imminent tax changes, the October Budget promises to bring significant adjustments. In this article, Thomas Pescott Frost explores what these changes could mean for your income and investment.
With the new Labour government frantically fumbling to fill a ‘black hole’ of £22 billion in the UK treasury, British taxpayers and investors are (understandably) concerned. The only logical course of action is a radical readjustment of the public’s finances – meaning that changes to key taxes are increasingly likely.
Keir Starmer’s warning of a “painful” budget on October 30th does nothing to dispel the mounting uncertainty many Brits feel, and Chancellor Rachel Reeves’ promise that “those with the broadest shoulders should bear the heavier burden” may make wealthy citizens with ample income among those most uneasy.
So, what do we know? And, critically, what might potentially change come October 30th?
Autumn Budget Predictions: Changes to Income Tax, National Insurance and VAT
“The government has said on many occasions that there will be no change to Income Tax, National Insurance or VAT,” asserts Keith Senior, director of Jacobs Allen Chartered Accountants.
“However, they then caveat it by saying ‘for ordinary working people’ – so they haven’t said there are no changes to IT, NI or VAT altogether, so I suspect it will be an issue for the higher rate taxpayers.”
Given the announcement that VAT would be applied to private school tuition (when it had previously been exempt), this could indeed indicate something of a class divide between how the new government intends to tax Britain’s wealthiest people.
Potential changes to Capital Gains Tax, Inheritance Tax and Pensions
Recent economic commentators have all highlighted Capital Gains Tax, Inheritance Tax and Pensions as being the prime targets for reform as the government looks to decrease the national deficit.
While nothing is confirmed, speculation that Capital Gains Tax could be increased to a much steeper rate has resulted in landlords nationwide scrambling to sell rental properties – creating a surge of activity in the market. This is certainly a clear cause for concern for landlords and homeowners and an area mortgage brokers will be watching with great interest.
At the moment, CGT is 20% at the higher rate and just 10% at the standard – but if this threshold were to be moved to meet income tax, as speculated, it could raise this as high as 45% for higher earners.
The combination of higher CGT rates and potential changes to Inheritance Tax could severely limit wealth transfer between generations. Investors are not only concerned about immediate financial impacts but also the long-term implications for their family estates.
Discover more; watch our panel discussion below to explore these changes further.
When might changes to CGT come into effect?
Critically, if the government does reduce the tax-free threshold on Capital Gains Tax, it is highly unlikely to allow homeowners a grace period to finalise transactions; if CGT changes, it’s probable this will come into force as it is announced – which could pose problems.
Similarly, Private Residence Relief (PRR) and Business Asset Disposal Relief (also known as Entrepreneurs Relief or BADR) are possible targets. Given recent comments that Labour have made about taxing those with excess land, PRR could possible be restricted, while BADR could be withdrawn entirely.
This is a complex concern, so those who want to learn more are invited to watch the below video to get to the crux of the likely impending changes to these widely used reliefs, or get in touch with an adviser directly.