The forthcoming UK Autumn Budget, scheduled for October 30, 2024, will be a pivotal moment as it marks the first budget delivered by a Labour government in 14 years. Chancellor Rachel Reeves, who recently criticised the previous administration for leaving a £22 billion black hole in public finances, is set to unveil a budget that is expected to include significant fiscal adjustments. Here’s an overview of what to anticipate in the upcoming budget:
Budget Background and Context
Chancellor Rachel Reeves has faced considerable pressure to address a substantial funding shortfall left by her predecessors. The government has already implemented some immediate cost-saving measures, such as scrapping the Stonehenge tunnel project, halting universal winter fuel payments, and cancelling the NatWest share sale. Both Reeves and Prime Minister Keir Starmer have warned that the upcoming budget will involve tough decisions, which are likely to be reflected in tax increases and reductions in exemptions.
- Taxation Adjustments
1. Capital Gains Tax (CGT)
One of the most anticipated changes is a potential increase in Capital GainsTax. Currently, CGT rates for residential property stand at 18% to 24%. There has been speculation that these rates might be aligned with Income Tax rates, which would represent a significant increase. While the government has assured that National Insurance, Income Tax, and VAT rates will remain unchanged, the lack of such assurances for CGT suggests a possible hike in this area. Such a move would likely affect individuals and businesses involved in property transactions and investments.
2. Inheritance Tax (IHT)
Inheritance Tax is another area where increases are predicted. The current IHT rate is 40% on estates exceeding the nil-rate band of £325,000. There are discussions about either raising the tax rate or reducing the tax-free threshold. Moreover, the concept of a “double death tax”—imposing Capital Gains Tax on top of Inheritance Tax—has been proposed. This would potentially increase the total tax burden on inherited assets to 54%, impacting those who pass on substantial estates to their heirs.
3. Stamp Duty Land Tax (SDLT)
The SDLT exemption threshold for first-time buyers was previously increased from £300,000 to £425,000. However, Labour has indicated plans to revert this threshold back to £300,000. This change is expected to affect first-time homebuyers by reducing the amount they can spend without incurring Stamp Duty, which could have implications for the housing market and affordability for new buyers.
4. VAT on Private Schools
Starting January 1, 2025, private school fees will be subject to the standard VAT rate of 20%. This decision, part of the Labour government’s broader fiscal policy, will impact families paying for private education by increasing the overall cost of school fees. The move aligns with broader efforts to increase government revenue and ensure a more equitable tax system.
5. Non-Dom Status
The government is also expected to move forward with changes to the non-domiciled tax status, a policy previously initiated by the prior administration. The abolition of the non-dom status will likely be replaced with a new residence-based tax regime. This change aims to address tax avoidance and ensure that individuals who reside in the UK pay taxes more fairly in line with their residency status.
Conclusion
Chancellor Rachel Reeves will present the Labour government’s first budget on October 30, 2024, amidst significant fiscal challenges. The budget is anticipated to introduce a range of tax increases and policy changes designed to address the £22 billion funding gap left by the previous administration. Key measures are expected to include hikes in Capital Gains Tax and Inheritance Tax, adjustments to Stamp Duty Land Tax thresholds, the imposition of VAT on private school fees, and the abolition of non-dom status.
These changes reflect the government’s commitment to fiscal responsibility and revenue generation while navigating the difficult economic landscape inherited from the previous administration. As the date approaches, further details will emerge, clarifying how these predictions will translate into concrete policy decisions and their impact on individuals and businesses across the UK. For more information and update you can reach to UK Property Accountants
