What taxes will change/increase in the Autumn Budget, how likely is it, and what can you do to plan?

From inheritance tax (IHT) to capital gains tax (CGT), and pensions tax relief to stamp duty, these changes could have far-reaching implications. While some measures, like changes to IHT, seem likely as the Government seeks to increase tax revenues, others, such as adjustments to income tax or stamp duty, appear less certain. For those looking to optimise their financial planning, now may be the time to act, particularly before any new rules come into force.

1. Inheritance tax (‘IHT’)

Inheritance tax (‘IHT’) raises £7.7bn (less than 1% of total tax receipts) and only 4% of estates have a tax bill. The Government may look to abolish the IHT nil-rate band – which is £325k, and increased to £500k if you are passing on your main residence to your children. Under the current rules, individuals can plan for IHT by making unlimited gifts under the 7-year “potentially exempt transfer rule” – the Government could introduce a cap on gifts during lifetime and on death, which is a system used in the US. The Government are also likely to review ‘Business Property Relief’ and ‘Agricultural Property Relief’, which offer up to 100% relief from IHT on certain qualifying assets. These IHT reliefs cost the Government around £2bn a year.

How likely is it?

High – the Government will see opportunity to get more estates paying more IHT, given how little it currently generates. But, IHT reform is not straightforward and so it could take at least 12 months before any changes take effect.

What can you do to plan?

If you are planning to make a gift to a child or grandchild, you should think about doing this now and before the Autumn Budget on 30 October if you can.

2. Capital gains tax (‘CGT’)

CGT raises less than 2% of the total tax take – it raised £14.5bn in 2022/23, and this is £2.5bn down from the previous tax year. To improve that tax take the Government could increase the rate of CGT to 25%-30%, or possibly go as high as aligning to income tax. In my view, there would need to be a lower rate for sales of business assets to support entrepreneurial growth, which could be set at 20%. The Government could also look to target some of the reliefs an exemptions in the CGT system, such as the exemption for wine and classic wars, and it could also apply a tax on lottery winnings which are currently tax-free.

How likely is it?

Very high – the ‘broadest shoulders’ are more likely to pay CGT and it is therefore an easy tax for a Labour Government to target.

What can you do to plan?

If you hold listed shares standing at a capital gain, you may want to sell these shares before the Autumn Budget – but you will need to watch the ‘bed and breakfasting rules’ which mean that you must wait 30 days before acquiring the exact same share or same class of a specific fund.
Our recent Blick Rothenberg on CGT discusses the likely change to CGT and some more options to plan – https://www.blickrothenberg.com/insights/detail/strategies-for-effectively-selling-a-business/

3. Pensions tax relief

The Government spends an eye-watering £45bn on pensions tax relief, to encourage people to save for their retirement. The Government could reduce the tax relief for higher and additional rate tax payers – a 30% flat rate of tax relief on pension contributions would raise £2.7bn.

How likely is it?

Medium – whilst limiting pensions tax relief is an attractive option to raise tax revenue, the Government has also indicated it wants to use pension savings for investment in national infrastructure, and therefore reducing the incentive to save into your pension would go against that objective.

What can you do to plan?

If you are planning to make a personal pension contribution in the current tax year, you should do this before the Autumn Budget to lock-in the tax relief under the current rules. Making a pension contribution under salary sacrifice is more beneficial as you can save the National Insurance, but your employer will need to have everything set up for you to do this in time. You should also review any unused carry forward allowances you have from the previous three tax years to maximise any pensions contributions now.
You can find out more about how the Autumn Budget may impact pensions here – https://www.blickrothenberg.com/insights/detail/how-will-the-30-october-budget-announcement-impact-pensions/

4. Stamp duty

Stamp duty land tax (‘SDLT’) rates have never been higher, with a top rate for a UK resident individual purchasing a second property of 15%; if you’re an overseas buyer, that top rate increases to 17% and the Labour Party proposed a further 1% increase in their General Election manifesto.

How likely is it?

Very low – with SDLT rates being so high, the Government will acknowledge that further increases could adversely impact the housing market. It is also unlikely that the Government will want to reduce SDLT rates for lower value house purchases, and so we shouldn’t be overly optimistic around any giveaways.

What can you do to plan?

The best answer here might be ‘to do nothing’ and wait to see what announcements, if any, the Government may decide to make. We could all be taken by surprise if the Government decides that it needs to give more support to first time buyers, although a fairly generous regime already exists here.

5. Dividend tax

Dividend income is taxed at slightly lower rates than the main rates of income tax – 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. In addition, dividends do not attract National Insurance, in the same way as a salary or profits from your self-employment. To simplify the personal tax system, the dividend tax rates could be aligned to the normal income tax rates of 20%, 40% and 45% and the £500 dividend allowance be abolished.

How likely is it?

Medium – this would be a relatively easy win for the Government and presented as simplification to the tax system and targeted at investors who hold share portfolios. But, changes to the dividend tax regime would also hit private business owners who receive dividends from their company, and so would be against the Government’s pro-business growth agenda.

What can you do to plan?

Make sure you maximise your ISA contributions across your family, and hold such dividend paying shares in your ISA – this would mean such dividend income is not taxed on you. However, the current annual ISA limit is £20,000 per adult and income producing assets held outside the ISA would be taxed on you personally. Other planning options can include using offshore bonds and family investment companies, to hold income producing assets in a lower tax environment.

6. Income tax
Income tax contributes to around one third of total tax receipts, and a 1% increase to higher rate income tax to 41% would raise £2bn – the same 1% increase to basic rate income tax would raise a very handsome £8bn. But the Government have pledged not to increase income tax, National Insurance, VAT or corporate tax, so they have their hands tied on one of their biggest tax levers.

How likely is it?

Very low – the Government have effectively ruled out increases to income tax, but they could be tempted to introduce a new rate for very high earners or change some of the limited reliefs and exemptions that exist in the income tax system to raise tax revenue.

What can you do to plan?

Make sure you do all the basic tax planning options that are available, such as maximising contributions to your pension and ISA and transferring income producing assets to a lower earning souse. For more adventurous planning, consider investments in the Enterprise Investment Scheme and Venture Capital Trusts, which carry 30% income tax credits, but these are traditionally higher risk investments and it will be important to take the right investment advice beforehand.

Would you like to know more?

If you would like to discuss the above and how it may impact you, please get in touch with your usual Blick Rothenberg contact or Nimesh Shah using the form on this page.