Speculation is rife on tax increases in the Budget on 30th October 2024.
According to some newspapers Chancellor Rachel Reeves is already the worst chancellor in history, which is a tad silly when there hasn’t yet been a Budget. Putting that to one side, it is good to understand what might occur, and whether you might wish to take action before 30th October.
Some speculation suggests reforms will be back-dated – this would be extremely unusual. Others suggest tax changes to take effect from midnight on the 30th. This would only be likely in a very small number of instances (e.g. changing tax relief on pension contributions) but such changes would create additional pressures for an already under-pressure HMRC.
Below are thoughts on the areas relevant to most readers (ISAs, CGT, inheritance tax), plus two pension sections, and finally how you might approach taking any immediate action.
ISA’s
Let’s start with the good news (hopefully). There are no murmurs on reducing the annual ISA allowance of £20,000, or indeed capping accumulated ISA’s at a set value. Maximising contributions to ISAs remains a priority, where possible (see possible Action at the end of this note).
Capital Gains Tax (CGT)
For most investors, CGT is either 10% (for basic rate taxpayers) or 20% (for higher rate taxpayers).
The Chancellor has the option of making these rates the same as for Income Tax (20%, or 40% respectively), which would be a substantial change.
A number of analysts have highlighted that this will result in LESS tax being received as everyone will work harder to sidestep taxable capital gains (yes, we have cunning plans up our sleeve).
Inheritance Tax (IHT)
Inheritance tax reliefs to be removed or limited? The Chancellor would need to do this very carefully, both for political reasons and unintended consequences (though the latter has not previously been a problem – anyone remember pensions simplification?).
Pension Tax Relief and Tax Free Cash
Perhaps the most likely change (and possibly with immediate effect) is the removal of higher rate income tax relief on pension contributions, currently 40% or 45%. Everyone might then have a flat rate of tax relief e.g. 20% or, more generously, 30%.
If you have not taken your full tax-free, and planned to do so in the near future, consider acting on this now. If you didn’t plan to do so, don’t panic to do so now, as you only shift this money into a taxed environment and increase the value of your estate.
Action YOU COULD TAKE NOW
The sensible thing to do is accelerate action you expected to take in the near future in any event, the most common being:
- gifts to reduce the taxable value of your estate on death, whether those which would be immediately exempt (£3,000 per person per year, or £6,000 per couple), or which would be if you survive after 7 years.
- pension contributions to benefit from higher rate tax relief (up to £60,000).
- taking tax-free cash from your pension fund.
- sell taxable investments to fund this tax years ISAs.
- sell taxable investments to fund your pension contribution (up to £60,000).
Should you have any questions or concerns in the coming weeks please do not hesitate to contact your usual adviser.
