Labour’s first budget – what might we see?

On 30 October 2024 we will see the first Labour Budget since they were elected. What can we expect to see? Since they have been elected, there has been ongoing speculation as to whether they would stick to their manifesto pledges on tax. In addition, how they might look to plug some of the shortfall in the country’s finances.

In recent days, the government have started to give some indications of what to expect. However, there is still a lot of speculation which is making some businesses hold off on spending commitments. We are also seeing a rush to get transactions completed before Budget Day for fear of changes. So, what changes could we expect to see in the Labour Budget?

The proposed changes

Having committed to not increase income tax or national insurance for working people, and not increase VAT (except for on private school fees), there are limited areas that could see significant tax income for the government.

Capital Gains Tax

It has been widely speculated that capital gains tax (CGT) rates will increase from the current, main rate of 20%. While there was an expectation they would return to aligning CGT rates with income tax, recent announcements suggest maybe not. Instead, we could end up with a rate somewhere between 20% and 40% as a headline rate. The key will be whether change takes effect from 30 October, or they come in from 6 April 2025. The latter could help increase tax receipts significantly in the short-term as people use the next few months to complete transactions and then see a drop off for a period, but this would certainly give a cash flow boost to the government.

Inheritance Tax

Inheritance tax seems a likely area of reform. While we wouldn’t expect to see a change in rates, there could be a tightening up of some of the reliefs that are available, most notably:

• a restriction on the availability of Agricultural Property Relief, so it is targeted at genuine farmers;
• a tightening up of Business Property Relief, potentially by extending the ownership period requirements, and bringing in a De Minimis holding level;
• potentially extending the look back period for gifts from the current 7 year period up to, say, 10 years which could bring more assets back into charge; and
• removing the tax free capital gains cost uplift that can arise on some inherited assets, to effectively say that if no tax is paid for inheritance tax purposes, then there is no uplift in base cost. While this would not give an immediate increase in tax liabilities it would in the longer term as inherited assets are potentially sold in the future.

Pensions

Pensions always seem to be talked about in the lead up to recent Budgets. However, it seems more likely we could see some changes this time in Labour’s Budget. The most likely changes could well be:

• A restriction on the amount of tax free cash that can be taken, currently 25%. We could well see this reduced or a lower lifetime cap on the amount of tax free cash that could be drawn. This is likely to be something that could have a future start date rather than having an immediate effect.
• A potential cap on the amount of income tax relief that could be obtained on pension contributions, potentially limiting the relief to 20% or 30%.

National Insurance and Income Tax

The Chancellor and Prime Minister recently made comments that the manifesto pledge on National Insurance was for working people only. This means we could see an increase in the rate of employers’ National Insurance Contributions (NIC). Given that NICs were forecast to bring in around £170bn in 2024/25, approximately 15% of all tax income, this could give a significant cash impact.

Another potential area along with NICs for employers could well be under the argument of simplifying the tax system. This would remove the lower rate of income tax on dividend income, with all income taxed at the same rate. Whilst this could be a step too far at this stage, it is something we could see during this government.

Away from the headline taxes, we can expect to see changes impacting motorists. There will be changes to road funds licence charges and a potential increase in fuel duty. This is instead of the historic pattern of freezing fuel duty levels.

The Labour Budget

So far, the government have avoided any leaks as to what will be in their budget. However, we are all expecting changes but no giveaways. What is certain is that the Labour Budget will give us all a clearer idea of what we might expect from the government over the next five years.

Westcotts will be providing live updates as the Chancellor makes her speech. We will give our immediate reaction on what it means for our clients and local businesses. Tune into our website and social media for the latest updates.

You can also join us on 6 November for a live webinar as we dissect what any changes might mean in more detail: Register here.