The new Labour Governments first budget is now fast approaching with Budget Day set for Wednesday 30^th October. There are numerous tax rates which could see a change, but what are the most likely taxes where changes could be made impacting your financial planning?

Here is WKM’s Budget Day watchlist:

Alignment of Capital Gains Tax (CGT) with Income Tax Rates

Labour has often highlighted the disparity between the rates of Capital Gains Tax (CGT) and income tax, which they argue benefits the wealthy, who are more likely to have significant capital gains. Perhaps the simplest tax change to implement would be the alignment of CGT rates more closely with income tax rates, especially for higher earners. This could mean that gains from the sale of assets like property or shares would be taxed at similar rates to earned income, potentially raising substantial additional revenue.

Reduction in Pension Tax Relief for Higher Earners

Another likely change is the reduction of pension tax relief for higher earners. During the election campaign Labour seemingly dropped its pledge to re-instate the lifetime allowance (cap on pension pots), but that would not rule out further changes to pension contribution tax relief (again!). Currently, individuals receive tax relief on pension contributions at their marginal tax rate, meaning higher earners receive more significant benefits. Labour might introduce a flat rate of tax relief, which would reduce the advantages for higher earners while maintaining incentives for lower and middle-income individuals to save for retirement.

Inheritance Tax (IHT)

Inheritance Tax is another area where Labour might seek to make changes. Currently, IHT is charged at 40% on estates over a threshold of £325,000, (or up to £1 million for a married couple with various exemptions and reliefs applied). Labour could propose lowering the tax-free threshold or introducing higher rates for larger estates. Additionally, they might consider reforms to lifetime gifts, which are currently exempt from IHT if the donor lives for seven years after making the gift. Similarly rumours of changes to Business Relief have circulated especially around certain share investments that are currently exempt from IHT bring more of an individual’s wealth into taxation on death.

 There will no doubt be constant speculation from now until Budget Day regarding the likely changes.  Doubtless the political optics of any changes play a part in the announcements, but there are areas of ‘low hanging fruit’ such as changes to the CGT tax rates (upwards!) that are easier to implement than the more complex areas of pensions or IHT and therefore perhaps more likely.

We will have to wait and see what is announced, but we will continue to advise clients as to the best financial plan to adopt; maximising your tax efficiency and allowing you to meet your objectives to continue to

#enjoythejourney