It won’t have escaped your attention that the new Labour government’s first Budget falls on 30 October — the eve of Halloween.
Unlike the newspapers, I’ll spare you too many spooky puns. But allow me just this little one: people are frightened.
Prime minister Keir Starmer and chancellor Rachel Reeves have warned of “pain” and “difficult decisions”. It seems they’re preparing us for the worst.
Truthfully, what did you expect? The Conservatives were famously left a note by Labour when they took over in 2010, warning, “There is no money left.” Labour has hardly been left a better deal in return. With an enormous £22bn “black hole” in public finances to fill, things are bound to get ugly.
It is unclear if the government would implement changes immediately or defer them to the next financial year
The party has promised not to touch income tax, National Insurance or VAT but this leaves many options still open. Each has the potential to help fill the coffers but the pay-off could be huge in terms of backlash, complexity and unintended consequences.
Starmer says those with “the broadest shoulders should bear the heavier burden”, suggesting most clients will be affected. Advisers will need to be at the top of their game in the coming weeks, so let’s look at the biggest talking points.
Capital gains tax
The shortest odds are on a capital gains tax (CGT) announcement. Nine out of 10 advisers have reported growing concerns from clients ahead of a predicted hike in CGT rates in line with income tax, resulting in higher earners paying up to 45% on profits.
It is unclear whether the government would implement changes immediately or defer them to the next financial year. In the June 2010 Budget, rates were raised the following day.
Labour needs huge savings, fast — there’s no denying that. But big changes have long tails of consequences
“If the chancellor wants money as soon as possible, a deferral [to 6 April 2025] could actually deliver more in the short term,” says Technical Connection managing director Tony Wickenden.
Reports are already suggesting a selling ‘frenzy’ ahead of a potential announcement.
As always, it’s impossible to know at this stage whether any change will transpire, but Wickenden advises those already planning to make disposals in 2024/25 to act ahead of 30 October.
Inheritance tax
Politicians have tiptoed around inheritance tax (IHT) for years, with the Conservatives in particular fearing the reaction from their wealthier voters. However, while unpopular, the tax affects just 4% of estates.
With Starmer’s “broadest shoulders” pledge in mind, IHT looks ripe for the picking. That said, changes to the nil-rate band, reliefs or gifting allowances would require a delicate balancing act.
In contrast to its predecessors, it’s vital this government views pensions with a longer-term lens
“Wealthy individuals could move assets offshore to avoid it… and tinkering with reliefs available to farmland, private companies and AIM shares would provoke a reaction,” says AJ Bell co-founder Andy Bell.
Advisers should be wary of a ‘double death tax’, where CGT could be added to IHT, raising the total IHT burden to 54% for some, according to thinktank RSM.
Experts agree that clients should make the most of allowances on offer to them today.
Pensions
A Budget isn’t a Budget without whispers around pensions. Labour has committed to the triple lock, but there are questions over the exemption from IHT, as well as the 25% tax-free lump sum.
After years of speculation, it could also be time to accept a move to flat-rate tax relief, which could bring in £2.7bn per year, according to the Institute for Fiscal Studies. Reeves would have another unenviable tightrope to walk here.
“Assuming a 30% flat rate, basic-rate and non-taxpayers would benefit — but at the expense of higher- and additional-rate taxpayers,” says Aegon UK pensions director Steven Cameron.
Wickenden advises those already planning to make disposals in 2024/25 to act ahead of 30 October
For some, the ‘no regrets’ action may be to pay extra into their pension before the Budget.
In contrast to its predecessors, it’s vital this government views pensions with a longer-term lens. And this is true across the board.
Labour needs huge savings, fast — there’s no denying that. But big changes have long tails of consequences.
Can it resist the temptation of quick wins? There is a country full of futures depending on it.
Maria Nicholls is features editor
This article featured in the October 2024 edition of Money Marketing.
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No surprise. The leopard hasn’t changed its spots. They bleat about a black hole and then make plans to borrow more. Is this logic? They have never understood that you don’t kill the goose with the golden egg. Those who earn more and are better off are better off for a reason – they are valuable contributors to the economy. So now they propose to demotivate them? Employees are really not treated that badly, but will these new proposals from the Corbyn infused dogmatist Angela Rayner result in less employment? Wont employers be reluctant to take on more staff or replace leavers?
Please don’t take this as tacit support for the last lot. Daily they are confirming that they consist of swivel eyed loons – just look at their leadership contest. To me it seems that, as usual, the British public are lions led by fools.