🌹 Labour’s Budget Plans – Rumours – DAY 1 🌹

Over the coming days, we’ll explain some of the potential changes the Labour Budget will introduce, and how that can affect tax and estate planning. Stay tuned!

The Prime Minister, Keir Starmer, has warned that the Autumn Budget 2024 will be painful and signalling a bleak day on 30th October.

Well, if you believe everything you read in the press, anyone with any money, property or a business might as well sell, shut up shop and move – but where?

Whilst we are seeing many scare stories in the media especially the Telegraph, (how this paper has changed over the last 10 years eh?), surely not every rumoured tax change can be in the 30th October budget, can it?

Labour promised pre-election to not increase the 3 big tax earners for the Treasury, namely Income Tax, VAT and National Insurance, but what else could they do to fill the purported £20bn hole and the fact that the public finances are worse than they feared (not sure how believable that is, as Govt. finances are as transparent as they have ever been and are in the public domain these days due to OBR etc).

This is a personal opinion piece, so the usual disclaimers apply. The information made available in this article is for your general information and use and is not intended to address your particular requirements. In particular, the article does not constitute any form of advice or recommendation by Suitable Life and is not intended to be relied upon by clients, prospects or readers in making (or refraining from making) any investment decisions.

• CGT to be increased to match income tax rates – so a move from 10%, 18%, 20% and 24% (lower rate for non-property gains, lower rate for property, higher rate for non-property, higher rate for property) to 20%, 40% and 45% for all assets.
• Changes to reliefs or exemptions – such as Business Asset Disposal Relief (BADR – used to be called Entrepreneur’s Relief) – where the 1st £1m of gain is taxed at 10%, remainder at 20%. Could this be scrapped?
• Increase or decrease of the current CGT exemption – was £12,500 not so long ago, now a paltry £3,000. Can it go any lower?
• Changes to Principal Private Residence relief (PPR) – no CGT payable on a gain on your main home currently, but could this change or be capped?

Our Comment:

• Ultimately, under current rules, CGT is a tax on inflation in the main. Of course, there are true capital gains, and they should be taxed accordingly. But should you be taxed just by holding on to an asset and it rising with inflation – so no REAL capital gain? Under current rules you are.
• If they re-introduced some form of indexation relief for inflation, and then taxed the REAL gain at income tax rates, would that be “fair”? I think so.
• Maybe taxing short-term gains at a higher rate?
• Both of the above may be the logical way to do it, but hey, since when has politics been logical.
• Removal of BADR would not be great for business owners and would be a double whammy with any increasing of CGT rates overall. We’re not sure how that incentivises the risk you take when starting a business and how it helps the growth agenda, but ideologically would be a no-brainer for a Labour Govt. – some change likely.
• CGT to income tax rates. This would at least make gains and income a level playing field of taxation and stop promoting a benefit for money to be treated as a gain and not income – likely in my view.
• Reliefs and exemptions changing – some quite likely, just not sure which ones and the extent.
• CGT on main home sale – they ruled out pre-election CGT on your first home, but did not mention never paying it on your main home. Maybe they’ll look at a cap?  It would be harsh, but there are a lot of pent-up gains here – my view would be unlikely (for now!).

• Fiscal drag – where frozen personal tax thresholds drag more people into paying higher rates of tax.

Our Comment:

• I cannot see them suddenly seeing the error of the Tory ways, and suddenly giving us all more disposable income and lower taxes.
• With so many pensioners now being caught in the tax net, would there be a change to pensioners personal income tax allowances? – unlikely in my view.
• Chance of further frozen allowances happening – likely.

This post represents just one part of the potential changes the Labour Budget may introduce and our opinions. To download a PDF containing our full thoughts, please follow the below link.