Ian Harlock‑Smith, Director ‑ Personal Tax looks at possible 2024 UK Budget tax changes and what to expect. We also get to meet Trainee Chartered Accountant, Alec Fraser and learn about his varied interests including having completed a couple of Ironmans
As we approach the 2024 Budget on 30 October, speculation surrounding potential tax changes is heating up.
With ongoing economic challenges, including inflation, fluctuating energy prices, and post-pandemic recovery efforts, the Chancellor faces significant pressure to craft a budget that balances fiscal responsibility with the needs of citizens.
Current Economic Context
Before diving into specific tax changes, it’s essential to understand the economic backdrop against which the 2024 Budget will be set.
Although inflation has shown signs of stabilizing, the cost-of-living crisis remains a top concern for households. Additionally, the government is still having to navigate post-Brexit trade relationships and the effects of assistance provided to people and businesses during the 2020 pandemic.
The Chancellor’s priority will likely be to stimulate growth while addressing the fiscal deficit.
From a tax advisers’ perspective, we see there being two key target areas – Capital Gains Tax and Inheritance Tax.
Capital Gains Tax (“CGT”)
CGT rates for higher rate taxpayers are currently 20%, 24% for residential property gains or 28% for carried interest gains. These are low rates when compared to the current 45% highest rate of income tax and may therefore be increased.
The annual exempt amount has previously been reduced to £3,000, but this could be reduced or abolished altogether.
There could also be changes to CGT reliefs, such as Business Asset Disposal Relief (“BADR”), Holdover Relief and Rollover Relief, which may lessen the benefit of them to taxpayers.
Another possibility is that the tax-free uplift of the cost of assets for CGT purposes, on death, could be abolished for assets that are free from IHT, usually because of a transfer to a spouse/civil partner or are for assets which qualify for Business Property (“BPR”) or Agricultural Property Relief (“APR”).
It is not clear what the CGT changes could be in the Budget and, if the CGT rates are to be increased, what the new rates will be and when these will be effective from (e.g. will they be effective from budget day or the start of the next tax year).
Inheritance Tax (“IHT”)
Some of the potential changes could include;
- Increasing the 40% rate of IHT.
- Abolishing Potentially Exempt Transfers (“PETs”), so that gifts to individuals are immediately chargeable to IHT, subject to any available reliefs, or increasing the 7-year survivorship period.
- Increasing the proportion of trading/investment activities for Business Property Relief (“BPR”) from 51% trading/49% investment to perhaps 80% trading/20% investment.
- Removing BPR on AIM listed shares.
- Abolishing Agricultural Property Relief (APR) for let farms.
- Reducing BPR or APR rates or capping the relief to a fixed value per person.
- Abolishing IHT relief for regular gifts out of income or pension funds on death.
It would not be a surprise to see a period of consultation take place before any fundamental change to the IHT regime are made, but this cannot be guaranteed.
Income Tax
Since the election Labour has reiterated its pledge not to raise taxes “on working people” by which it appears to mean not to increase the basic, higher or additional rates of income tax,
This doesn’t rule out the possibility of a temporary windfall tax on higher earners. This approach could serve both as a revenue-generating measure and a means of addressing perceived inequalities.
Conclusion
While speculation around potential personal tax changes abounds, maybe you should be thinking about the following before the Budget.
- Subject to getting suitable investment advice, should capital gains be realised so that CGT is paid at current rates?
- Should you make cash or asset gifts to individuals or trusts to use the current PET rules and CGT/BPR/APR reliefs?
- Should you contribute to your personal pension while higher and additional rate tax relief is available?
- Should your company pay dividends to bank the current lower dividends tax rates and the fact that no national insurance liabilities currently arise on dividends?
- Should you make charitable gifts to benefit from Gift Aid where you obtain higher income tax relief?
Careful thought should be given and professional tax advice obtained, before taking any of the actions mentioned above.
We will be holding our post Budget event on 31 October at The Vitality Stadium, Bournemouth or remotely via Zoom. If you would like to attend in person or remotely, please visit https://www.saffery.com/insights/events to register.
If you have any questions please contact Ian Harlock-Smith on 01202 068494 or via email ian.harlock-smith@saffery.com
Name: Alec Fraser
Role: Trainee Chartered Accountant
Time at Saffery: Just over 2 years
What’s the best bit about your job?
Firstly, It’s the team that I am part of. Everyone is supportive and wants to see you succeed, which is really nice when you’re trying to juggle your exams, work and life.
Secondly, being able to work on jobs in a variety of sectors within the local area is incredibly rewarding, especially when I’m out and about on weekends, seeing the products firsthand and knowing I contributed to something, which is very satisfying.
The culture of Saffery is important to the business and the people within it – what do you think you bring to the team and what do you contribute?
This is my second career. With my last one being very much focussed on training, delivery and application to the highest of standards. With this experience I feel I bring a different perspective to the team, and one which I hope has been a positive influence on the other team members.
If you weren’t doing this role, what might you be doing?
I would probably be working within a company delivering communications advice and equipment. Although when I was younger, I always wanted to be a professional golfer.
What do you enjoy doing outside of work?
Running, cycling, hockey, golf and walks with my dog and wife. Also, once my exams are over, I would love to do a couple more triathlons.
Tell us something about yourself that we don’t know
I was in the army for 8 years before I got out and decided to become an accountant.
Also, I have completed a couple of long-distance triathlons (Ironman’s).
Who or what inspires you?
My parents really. If I am half as successful with my own family one day as they were raising me and my 2 brothers, then I would be a lucky man.
What’s your favourite place in Dorset?
I don’t have one in particular. But all the different parks, plantations and areas of outstanding beauty, where you can go and enjoy the outside.
Give 3 words to describe yourself
Outdoorsy, relaxed and quietly competitive.