Some Non-Taxing Insights

The Chancellor, Rachel Reeves, has announced 30th October 2024 as the date of the new Labour government’s first Budget. Words by Stephen Maggs

This is the date when we expect many tax changes to be announced and implemented. So, what changes are we expecting under the new Labour government? What should be considered now before the expected changes are implemented?

As an advisory led firm, we have been having many conversations with clients since before the election about the impact of a new Labour government. Now, post-election, those have become more numerous and focused. Whilst much of this is, of course, speculative and cannot be guaranteed, it gives you an idea of what we are thinking and expecting.

Income Tax & National Insurance Contributions (NICs)

The Labour manifesto committed to not raising income tax and NICs on “working people.” This hints at a possible increase in employers’ NIC and potentially NICs being chargeable on other forms of income, such as investment income. Coupled with this is the possibility that the State Pension age cap on NICs ceases. We also wouldn’t be surprised to see income tax rates on dividends increasing.

Capital Gains Tax (CGT)

We strongly expect CGT rates to be raised to match income tax rates, together with a likely return of the indexation allowance (abolished in 2008 for individuals), which allowed for a deduction/relief for inflationary increases for the period the asset had been owned. Overall, the majority of those paying capital gains tax will pay significantly more.

Business Asset Disposal Relief (providing a 10% capital gains tax rate on qualifying gains) might be retained, but the lifetime limit could be lowered again from the current £1 million per person. Those considering selling assets and realising gains in the near term should look at implementing disposals before 30 October 2024 to ensure they benefit from the current regime.

Additionally, we expect the capital gains base cost uplift on inherited assets to be removed where the asset has received relief or exemption on the deceased’s death. Those considering disposing of such inherited assets should seek advice. These changes would likely take place from Budget Day.

Corporation Tax

The Labour manifesto committed to keeping the main rate of corporation tax at 25% for this parliament. We hope for more considered thinking around Research & Development relief, as the current system is broken. However, it is complex, and changes may not be feasible by 6 April 2025.

Inheritance Tax (IHT)

Significant changes to IHT are expected. Although Labour has not formally indicated anything, it is very likely that they will significantly curtail or abolish the valuable Business Property Relief (BPR), possibly significantly capping it. If retained in some form (i.e., if capped), we strongly expect the assets able to qualify for the relief to be curtailed (e.g. AIM listed shares losing qualifying status).

We think Agricultural Property Relief (APR) might be removed for landlords and retained only for those owning and farming the land themselves. These changes would be huge, and the loss of BPR would be catastrophic for some. Clients relying on the current benefits of BPR and APR should consider their positions asap. Additionally, the “residence nil-rate band” may be abolished, reducing the available nil-rate band to the standard £325,000 per individual (£650,000 per married couple in most scenarios). These changes would likely take effect from 6 April 2025.

VAT

Labour’s manifesto committed to not raising VAT rates. However, private education fees are being subjected to standard-rated VAT, from 1 January 2025. Families impacted should consider whether income tax planning, using gifts from grandparents (potentially as part of their inheritance tax planning), could mitigate the overall tax cost.

Pensions

After some toing and froing, Rachel Reeves confirmed that a Labour government would not reverse the abolition of the lifetime allowance announced by the previous Conservative government.

However, we expect the inheritance tax exemption for most pension funds to be removed, making pension funds chargeable to inheritance tax.  This will significantly increase inheritance tax exposure for many. Additionally, the 25% tax-free lump sum might be curtailed or abolished, with changes likely from Budget Day.

Furnished Holiday Lets

It’s been confirmed that the abolition of the FHL regime will take place on 6 April 2025. Those affected should consider their positions and seek advice.

RRL Cornwall
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