You will see a huge amount of speculation in the press as we head towards the upcoming budget under a Labour Government for almost 15 years. Rachel Reeves started positioning her planned changes with her recent speech to the House of Commons, where she berated the outgoing chancellor Jeremy Hunt for the £22bn ‘black hole’ that she says they have discovered since being elected. Of course we had a similar message when the Conservatives were elected in 2010 and the then outgoing Labour Treasury minister famously left a note for his successor saying “sorry, there is no money left!”.
So some of this is the usual political posturing, so that Rachel Reeves can put some of the blame for the anticipated tax rises on the ‘mismanagement’ of the last Government. Is she right? Well it is hard to see how the last 14 years could have gone any worse, even allowing for the once in a lifetime event of Covid that would have knocked any Government off course. The reality is that few of us trust any politician to tell the truth. Much of the language is deliberately sound bites for the news cycle, or rhetoric to boost their personal ‘brand’, so it is hard to see the reality and predict what will happen with any certainty.
So what do we know?
- The upcoming budget will be on 30 October 2024.
- The Labour Government has committed that, unlike the “fiscal event” from Liz Truss and Kwasi Kwarteng, their budget will be reviewed and approved by the Office for Budget Responsibility. This should provide some independent review of the numbers they use, which Liz and Kwasi’s plans did not!.
- Whilst there may be some changes that are immediate (fuel duty is often increased from midnight on the day), most will be outlining changes to start from the tax year 2025/26 on 6 April 2025.
- We know that Labour has budgeted for a chunk of tax raising to come by chasing down tax avoidance, and is investing a significant sum in HMRC recruitment to do this. Unfortunately our recent experience of HMRC is that they are attacking issues with a sledgehammer, and in many cases ‘bullying’ tax payers into settlements or reduced claims for tax relief, with the threat of penalties and interest, rather than by winning technical arguments about the rights and wrongs of tax. If you have claimed R&D tax credits you will know this already! The anti-avoidance rules mean that here can be many legitimate commercial, financial or practical issues for a course of action, but if even one element was a decision made for a more advantageous tax treatment, HMRC can simply ignore the other reasons and tax you as if you had been evading tax. Expect more explanation of how they plan to do this and how much tax they expect to raise.
- A commitment has been given, and reaffirmed, that Labour will not increase income tax, national insurance or VAT rates. Whilst perhaps a positive thing for many, it inevitably means that any tax increases will be disproportionately bourn by other tax payers (see below).
- Capital Gains Tax has been on the radar screen for review for some time. There have been various suggestions such as…
- Withdrawing the lifetime allowance for capital gains on the sale of a business, (Business Asset Disposal Relief – often known as entrepreneurs relief) where the first £1m is taxed at just 10%
- Increasing the rate of CGT of relevant transactions, i.e. residential property from 24% back to 28% or even higher, other gains taxed at 20% increased to 25%, 30% or any other rate they pick, or aligned with income tax rates.
- Whilst it would be a tough one to implement, some have suggested that the Principal Private Residence Relief (Tax free sale of your home) could be removed. It would cripple the housing market, as many would stay put and not move, so it would reduce Stamp Duty raised and damage their plans for building 1.5m new homes in the next 5 years (although there isn’t actually the capacity to build that many homes anyway!)In short, expect changes to CGT, and expect the tax to be higher not lower! So if you looking at making a capital gain any time soon (selling a property or moving shares for example) that you may want to push hard to get it done before the budget.
- Inheritance Tax is always banded around as a tax raising option. Most beneficiaries of an estate are please to get whatever they inherit and will accept higher taxes on that than they will on hard earned salaries, and the person whose estate it was doesn’t get another vote! The Chancellor could therefore change the lifetime limits so the tax free bit reduces, or simply increase the rate of tax from 40% to 45% or even 50%. Whilst conceptually it always seems hard to tax an estate that has generally been build from income and wealth that was already taxed along the way, it is an easy target. It does however generate hardly any money compared to other taxes, so isn’t a big ticket item for the Government.
- Corporation tax is already comparatively high at 25% (above certain levels). Pushing this higher will mean that many bigger businesses may opt to relocate to cheaper tax jurisdictions. Whilst you may think that is a complex and expensive thing, for many businesses it is simply the redesignation of where their head office is. The government wants businesses attracted to the UK to do business here, so it would be a brave chancellor who is looking to grow the economy, that pushes Company tax rates higher.
- There are of course the usual beer, wine and cigarettes, although increases in these do filter into inflation figures, but expect a few pence here and there. Jeremy Hunt planned to bring in duty on Vapes from October 2026, to discourage non-smokers from taking it up, but encourage smokers to switch to Vapes. Not a bad idea hopefully not dismissed Rachel Reeves just because it wasn’t her idea.
The overall message is clear. Taxes will rise. What, when and by how much is less clear. Politically it makes more sense to hit taxes hard in year one of a 5 year parliament and then soften them in year 5 ready for the next election, but that may just be us cynical accountants thinking the worse of our professional, socially responsible politicians who have complete integrity and no self-interest!
With higher taxes and a more aggressive HMRC, the need to have appropriate, professional and commercial tax guidance, is more important than ever.
If we can help on any issues or you would like to discuss the upcoming budget, give us a call.