The 2024 Autumn Budget is right around the corner, set to be released on the 30th of October. With this being the Labour Party’s first budget since their win in the election, it’s natural that we are all speculating the changes that might be made from the Conservative’s tenure. In this article, we’ll be doing just that. There are a number of aspects of Private Client law that may be influenced, from Inheritance Tax (IHT) to Capital Gains Tax (CGT), and at this juncture, it’s vital to assess how this will affect your Estate plan.
How Might Inheritance Tax Be Affected?
Labour took a more conservative stance on IHT reform in their manifesto last June, but as we approach the Autumn Budget, there is now an expectation for tax increases, one of which could be IHT. In a pattern replicated throughout parliamentary history, it is likely that tax revenue increases will be a necessary part of budgetary changes, as to implement new policies and reforms. According to the BBC, this deficit between anticipated and desired revenue is £40 billion, although suggestions from the Institute for Fiscal Studies (IFS) places this number closer to £25 billion. Part of this deficit may, therefore, be reduced by an increase in IHT revenue. However, there are a number of ways this could be achieved, and we do not know whether we will see changes to the rate of tax, allowances, exemption or reliefs, or a combination of them.
It can also be useful to understand the propositions of other political parties, as an important acknowledgement of the other perspectives in this country. The Green Party presented a more aggressive approach during their campaign last June, suggesting a reform to tax intergenerational wealth more heavily on Estates over £10 million in value. Reform proposed the abolition of IHT for Estates under £2 million and a flat rate of 20% above that. Neither of these suggestions are particularly realistic for Labour to adopt, however it is valuable in highlighting the alternative ideas that many people across the UK identify with, whether that’s tackling wealth inequality, or securing more lenient Estate planning options.
How Might Capital Gains Tax Be Affected?
CGT is predicted to undergo a more concrete change, however. Reports have varied, but the consensus is that an increase in the taxation rate is forthcoming. Some estimates place the new rate between 33% and 39%, although there is still the consideration of the manifesto, proposing a rate of 45%, equal to the highest bracket of income tax. The positive news for most is that we haven’t been subject to rumours concerning any changes to Private Residence Relief, and so the sale of primary residence is likely to remain exempt from CGT. The potential reforms are likely to work towards the same goal as any other tax changes, that being to make available the funds with which new reforms and policies can be implemented.
It must be considered that CGT is not guaranteed to be affected, despite the potential. The Conservatives were staunchly opposed to any increases in CGT in their manifesto, and while speculating an increase gives us an idea of the changes we may have to make, it isn’t inconceivable that the tax remains unchanged. Thus, taking preemptive action by rushing into sales and investments might be presumptuous until tax reforms have been announced and their implications have been considered.
The Focus on Non-Dom Status
Non-Dom status relates to UK residents whose permanent home is outside of the UK for tax purposes. As recently as their manifesto this summer, Labour revealed a pledge to abolish non-dom status, replacing it instead with a modern scheme that allows temporary tax relief for individuals genuinely living in the UK for short periods. The main purpose of this is to close loopholes that allow the wealthiest to use offshore trusts to protect assets from UK taxes, thus increasing tax revenue. There are conflicting projections of this idea’s success, however. Labour, with research from the London School of Economics (LSE), do not anticipate the majority of non-dom individuals to relocate which, if true, would increase tax revenue greatly. On the other hand, it has been reported from Treasury officials that the Office for Budget Responsibility (OBR) may see it differently, in which case there may be significant departures from non-dom citizens, potentially even lowering tax revenue. This all remains to be seen, depending on whether Labour chooses to follow through with this issue.
While the realisation of Labour’s tax agenda may cause concern among the wealthy, there are alternatives which may appeal even less. The Green Party, for example, proposed a wealth tax on all assets, not just income. Wealth redistribution is a divisive topic, and while there are those who greatly approve of this notion, the wealthy can be grateful that Labour’s actions appear to be less critical of the current system.
How might the taxation on your assets and Estate look like in a month’s time? The answer is that we can’t be sure yet. While it is helpful to look at the potential changes, it is also important not to act based on unfulfilled expectations. In light of these potential changes, however, we cannot encourage you enough to review the Estate planning strategies that you have in place, regardless of the news we receive on the 30th of October. Big changes may be coming, so it is highly advisable to find out how you can ensure that you are well-positioned to navigate the new Estate planning landscape.
If you have any concerns when we do hear the news, feel free to contact us here, and we can discuss how best we can help. We offer free 30-minute consultations and our expert team are here to help at this critical juncture.
