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Autumn Budget 2024: Navigating the speculation – should you make your financial moves now?

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Dominic Thackray · Posted on: September 30th 2024 · read

With the Autumn Budget on 30^th October looming and the claimed £22bn ‘black hole’ in the UK’s financials, financial planners and investment managers have been fielding many enquiries on whether action regarding financial planning should be taken before the Autumn Budget, given the Labour Government are signalling the need to raise taxation.

Although it’s important to understand what might potentially change with tax policies and how those changes may impact your financial planning strategies, it is just as sensible to consider the consequences if you make decisions now, and changes aren’t made as you may anticipate.

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First, let’s look at the key taxes that are currently under speculation, to understand the potential changes that Labour could make:

Capital Gains Tax The tax-free allowance was cut to £3,000 by the previous Government so an increase in the rates of tax payable could be more likely, with a change of 10/20% rates of tax on gains (18%/24% on property that isn’t your home) to be more closely aligned to income tax rates. Capital Gains are also removed on death, and a change here could also be seen.
Inheritance Tax Individuals currently have an allowance of up to £325,000 on death (plus an additional allowance of up to £175,000 where the family home is passed down). Despite allowances, with careful planning, some people can see IHT as being completely avoidable between 7-year gifting rules, as well as Business and Agricultural Relievable assets. Could a lifetime cap on gifts be implemented, or Business and Agricultural Relief be capped/withdrawn?
Pension Taxation Reductions in the 25% tax-free cash of the fund available to most individuals, restrictions on tax-relief on contributions made and changing the ways pensions are taxed on death (being potentially preferable to being included as part of an estate for Inheritance Tax).
Dividend Taxation Dividend allowances were slashed alongside Capital Gains Allowances by the Conservatives and stand at just £500 per annum. This could again be cut further, or the rates of dividend taxation again increased.

Would these changes work to raise additional revenue?

While any changes to the above would indeed raise tax, the rhetoric of the £22bn shortfall is being heavily pushed to the media, and the above are in no way top contributors to the UK’s annual tax raise – for example IHT forms c. 1% and Capital Gains Tax c. 2% of receipts.

Labour have said that they won’t change rates of Income Tax, National Insurance or VAT, though under (not uncommon) political technicalities they could still hold true to this statement by changing thresholds, as slight changes here would raise considerable amounts of tax. It’s worth noting that between Income Taxes, National Insurance, VAT and Corporation Tax, this accounts for around two thirds of public sector receipts. Labour wouldn’t be popular by using such technicalities, but slight changes to these (along with wage inflation which should increase Income and NI tax raises) could be seen as an option.

In addition to the above, there are complications to the changes to some types of taxation, for example:

The Government still needs to make pensions a viable option for people to save for retirement and be encouraged to do so.
Reducing Dividend and Capital Gains allowances brings small earnings/sales raising little tax into a regime that is suddenly reportable, that otherwise may not have been. This means more tax returns and given HMRC announced they were shutting phone lines earlier this year (promptly withdrawn), this could be more of a burden than the small amount of tax raised as a result.
Changing Pension tax-free cash and death benefits means re-writing Pension rules (and potentially rules around Trust law) which is incredibly complex. Previous changes to Pensions have come with the ability to apply for protection to maintain existing rules, given individuals are contributing to an agreed contract. That isn’t to say changes can’t be made, but doing so would not be simple. Changes to Pension tax-relief on contributions moving forward could be more feasible.
Business and Agricultural Relief are there to support the economy and were put in place to allow successors to continue to run businesses, providing vital support to SME’s. While this has also been extended to the AIM market and unquoted investment vehicles, these continue to provide support to smaller UK businesses, and particularly with the latter tend to invest in-line with what Governments want to support with renewable energy infrastructure, SME lending and property development being prevalent.

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Before making changes to your financial planning strategies, it’s important to consider the consequences.

Dominic Thackray Independent Financial Adviser

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Be prepared and understand the risks

We don’t have a crystal ball, and those working as Financial Planners and Investment Managers shouldn’t be making decisions by betting on red or black.

Clearly, Labour is looking to raise tax in the short term, but from where - the industry is still guessing. We can only make planning decisions based on current rules and regulations, and if the Government makes changes to these then we would be looking to make best use of any new regime for your planning.

Before making changes to your financial planning strategies, it’s important to consider the consequences of basing decisions on anticipated changes, rather than waiting for confirmation from the Chancellor on 30 October.

For example:

You sell a second property, and Capital Gains Tax and IHT doesn’t change: You may have just incurred a 24% tax charge on gains that would have otherwise been removed on death.
You have a pension of £500,000 and take all your tax-free cash now but tax-free cash available doesn’t change: You are capped at tax-free cash of £125,000 when withdrawn, whereas if you took tax free cash in small chunks (along with other taxable pension income) as and when required with your pension continuing to grow, you could have had up to £268,275 of tax free cash.
You have been considering a Business Relief Investment to potentially mitigate IHT, with a holding term of 2 years and held on death but have delayed for the Budget for a few months, and no change to Business Relief has been made: You subsequently make the investment, later than planning on doing so, but do not survive the 2 year minimum term (with there generally being a longevity consideration when placing such investments). The investment does not qualify and is taxed at 40% in-line with IHT.

If you were entering into a transaction in any case but just bringing forward your timescales, considerations are a little different – however decisions should be made carefully, and professional advice is recommended.

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Stay updated with MHA

Ahead of the Autumn Budget, our tax experts and industry specialists will be sharing their insights on the measures that would best support UK industries and individuals.

Stay updated on the latest developments right here on our dedicated Autumn Budget hub.

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MHA Caves Wealth is authorised and regulated by the Financial Conduct Authority (FCA), Financial Services Register number 143715. Tax and Estate Planning Services (including Trusts) are not regulated by the FCA. This communication is for general information only and is not intended to be individual investment advice, recommendation, tax or legal advice. The views expressed in this article are those of MHA Caves Wealth or its staff based on current understandings and should not be considered as advice or a recommendation to buy, sell or hold a particular investment or product. In particular, the information provided will not address your personal circumstances, objectives, and attitude towards risk. Therefore, you are recommended to seek professional regulated advice before taking any action.

Business Relief schemes are high risk investments and can be unsuitable for some investors. Do not invest unless you are prepared to lose all the money you invest as you are unlikely to be protected if something goes wrong.