Labour chancellor Rachel Reeves is due to deliver her first Budget on 30 October.
It will be the first Labour Budget in over 14 years, and the BBC reports that Keir Starmer has warned that it’s “going to be painful”, and that the country should be prepared to “accept short-term pain for long-term good”.
The chancellor has already announced a string of cuts, including to public infrastructure projects and the Winter Fuel Payment, alongside some spending measures for striking public sector workers.
Further to these early announcements, analysts anticipate major financial reforms in the upcoming Budget, with Reeves expected to focus on several key areas of taxation and spending.
Read on to discover five reforms Labour could include in the Autumn Budget.
1. Pensions are likely to be reformed
The government already included a Pensions Schemes Bill in the King’s Speech, aimed at improving the efficiency, flexibility, and management of pensions. The bill seeks to simplify the process of consolidating your existing pension pots and ensure your pension scheme is effectively supporting your retirement goals.
Moreover, in their manifesto, Labour committed to maintaining the State Pension triple lock for the duration of the next parliament.
When it comes to the upcoming Budget, there are several pension reforms Labour could make, such as:
- Implementing a flat rate of pension relief in place of the current system where relief is provided at your marginal Income Tax rate
- Reinstating the Lifetime Allowance (LTA), which restricts the level of pension savings you can accumulate before further tax charges are due on withdrawal
- Altering the 25% tax-free lump sum that you can withdraw from your pension
- Including pensions as part of your estate, making them subject to IHT
- Increasing the age at which you can access your defined contribution (DC) pension without incurring a tax charge.
If any of these reforms are implemented, you may want to consult a financial planner to ensure your pension is aligned with the new regulations and continues to support your long-term retirement goals.
2. Taxes on working people are unlikely to change, but “fiscal drag” could increase the tax burden
Labour made repeated promises throughout the election campaign and in their manifesto to not increase taxes on working people. So, this likely rules out rises in National Insurance, Income Tax, and VAT in the upcoming Budget.
However, Labour is unlikely to change the former Conservative chancellor Jeremy Hunt’s commitment to freeze Income Tax thresholds until 2028.
If Income Tax thresholds remain frozen, you could end up paying a larger tax bill due to “fiscal drag”. This is because, as your earnings rise, you may pay tax on a larger proportion of your income, even if tax rates and thresholds stay the same.
3. There could be changes to Inheritance Tax reliefs or rates
Labour made no commitment to maintaining the current rates, reliefs, and thresholds for Inheritance Tax (IHT), and there is a good chance that this will be one of the areas under review in the Budget.
To increase revenue from IHT, the chancellor could:
- Raise the IHT rate from 40%
- Reduce the nil-rate band from £325,000, or the residence nil-rate band from £175,000
- Modify or remove certain IHT reliefs, such as Business or Agricultural Relief
- Eliminate the gifting allowance
- Introduce a “double death tax”, which would entail levying Capital Gains Tax (CGT) on inherited assets as well as IHT, if the assets had appreciated in value.
If such changes are implemented, you may want to revisit your estate plan to ensure it remains tax-efficient and your beneficiaries are best supported by your legacy.
4. The VAT exemption for private school fees is set to end
In its manifesto, Labour committed to ending the VAT exemption for private school fees, and this is likely to feature in the Autumn Budget.
This could mean that the cost of sending your children to private school may increase by up to 20%.
Labour has estimated that this will raise an additional £1.5 billion a year, which it will reinvest in the state education sector.
Although the chancellor will probably confirm the date in the Budget, these changes will likely come into effect from January 2025 and will cover fees paid in advance from July 2024.
5. Stamp Duty and Capital Gains Tax could also be reformed
The chancellor may also reform Stamp Duty and CGT.
The previous Conservative government raised the Stamp Duty thresholds in 2022 as a temporary measure while inflation was high, with the intent of returning them to their previous levels by April 2025.
This means the Stamp Duty threshold would reduce from £425,000 to £300,000 for first-time buyers, and £250,000 to £125,000 for regular buyers.
Labour has so far indicated that it will stick to this reversion and the chancellor will likely confirm this in the Autumn Budget.
As for CGT, Labour has made no specific pledges, aside from confirming that individuals selling their main residence would remain exempt from paying it.
However, since Labour made no commitment to preserving the current CGT rates in its manifesto, there is speculation that it could increase them.
Many anticipate that the chancellor may align CGT with Income Tax, meaning you would pay the same tax rate on capital gains as you do on your income.
Get in touch
A financial planner can work with you to ensure you remain tax-efficient and that you stay on course to achieve your goals following the upcoming budget.
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Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
