What to expect in Rachel Reeves’ first Budget on 30 October 2024
Langricks Tax Director, Nigel Shaw, peers into his crystal ball once more to unveil his insightful forecasts on the most probable tax shifts that will affect private clients this month. The Chancellor faces a challenging landscape, having pledged not to elevate VAT, Income Tax, NICs, or Corporation Tax—the formidable BIG 4, which constitute about 66% of the tax revenue! This commitment seems to limit her avenues for tax hikes, especially with the pressing need to address the £22bn fiscal gap identified soon after her appointment. So, where can significant funds be sourced without unsettling the broader economy? The prevailing wisdom suggests that increased levies on wealth and capital are imminent, with Inheritance Tax (IHT) and Capital Gains Tax (CGT) poised to bear the weight of this financial strategy.
Dive into Nigel’s insightful forecasts:
Potential IHT change number one
Expect the additional IHT allowance called the “Residence Nil Rate Band” (currently £175,000) to be withdrawn from midnight on 30 October 2024.
Why – it’s an extremely complicated IHT relief which benefits only home owners (past or present) and those with direct descendants; also it’s skewed towards those taxpayers in London and the South East with limited benefit in poorer regions of the UK.
Potential IHT change number two
Potentially Exempt Transfers (PET’s) to be abolished from midnight on 30 October 2024.
Imagine the power to seamlessly transfer your wealth to loved ones without the burden of Inheritance Tax (IHT)—a privilege known as Potentially Exempt Transfers (PETs). This strategy has long been a straightforward path to shield your estate, as long as the gifts are made well before the clock runs out on the 7-year survivorship period. However, change is in the air. The Chancellor may soon dismantle this safety net, replacing it with a direct tax on recipients at a flat rate of 30% above the IHT threshold. This shift could significantly boost IHT collection over a lifetime, as recipients will have the assets to cover the tax—a strategic win for the Chancellor, efficiently managed through the comprehensive Self-Assessment Tax Return system.
Potential IHT change number three
Rates of Business Relief (BR) and Agricultural Property Relief (APR) to be cut to 50% from 6 April 2025.
Currently, trading businesses and agricultural landowners enjoy the luxury of sidestepping Inheritance Tax (IHT) through Business Relief (BR) and Agricultural Property Relief (APR) at an advantageous 100% rate, though limited to the agricultural value of land. This often results in zero IHT liability for estates with such assets, sparking fairness debates when compared to cash deposits, investment portfolios, or rental properties. A rollback to a 50% relief echoes the early 1980s, aiming to democratize IHT benefits and prevent their concentration among major UK landholders and private business owners. Additionally, investors in AIM shares without direct company involvement could also be in the ‘headlights’ of the Chancellor.
Turning now to potential CGT changes:
Potential CGT change number one
Prepare for a significant shift as Capital Gains Tax (CGT) rates are set to align with Income Tax rates starting April 6, 2025.
The Chancellor, alongside fellow Labour MPs, has voiced concerns over the disparity between tax rates for the average worker, earning above £50K and taxed at 40%, and retirees or investors whose capital gains are taxed at just 20%. This discrepancy is set to change, with plans to tax all capital gains at the individual’s highest Income Tax rate—potentially up to 45%! This alignment could trigger a rush to offload assets, including those ever-controversial buy-to-let properties, before the deadline, offering a possible windfall to bolster the Treasury’s coffers and tackle the £22bn fiscal deficit. Don’t miss out on the opportunity to stay ahead of these pivotal changes!
Potential CGT change number two
Prepare for the introduction of a CGT “exit charge” targeting UK residents who relocate abroad to benefit from more favorable tax conditions, taking effect from midnight on October 30, 2024.
Historically, the UK has stood out as an exception by not taxing residents on capital gains accrued but not realized while living in the country. Think of it as a “bon voyage” tax, a final thank you for your contributions to the UK economy! This development could seriously impact the globe-trotting entrepreneurs who hop between nations, often skirting substantial tax obligations. Its effect on the UK football transfer market, however, remains an intriguing question!
Curious to see which of Nigel’s Budget 2024 predictions will become reality? Join us at our Wilmslow office on Wednesday, November 6, 2024, at 9am
OR for Huddersfield based clients at Woodsome Hall Golf Club on Tuesday, November 5 from 8am, for an exclusive, in-depth Budget 2024 briefing.
Secure your spot by emailing camilla@langricks.com for yourself and any family members.
We’re excited to welcome you!