So now we know. The polls were correct, and Labour swept into power with the biggest landslide since 1997. With a 172-seat majority in Parliament, Prime Minister Sir Keir Starmer and Chancellor of the Exchequer Rachel Reeves are now free to implement their business and taxation policies as they see fit. In this article, we look at what they’ve done in the month since the election and with the Budget date confirmed as 30 October 2024, 5 changes that could be in the red box on that day.

Changes they have made so far.........

5 ways taxes might be raised in the October 2024 Budget.

Talking to Emily Maitlis, Jon Sopel and Lewis Goodall on a recent episode of the News Agents podcast, the Chancellor was quoted as saying “I think that we will have to increase taxes in the budget”. She then went on to state there would be no increases in the so-called ‘big three’ of Income Tax, National Insurance and VAT as promised in the Labour manifesto. So, what will she serve up for us on 30 October Budget? Below are 5 possible measures we think could be included to raise Treasury revenues in England:

1. Increase Capital Gains Tax (CGT)

It has been strongly rumoured in the press that the Chancellor will look to increase the rates of CGT and in early August she refused to rule it out. Currently these are 10% and 20% at the basic and higher rates respectively (residential property is at 18% and 24%) and it has been suggested these rates will move in line with Income Tax to 20% and 40%. In conjunction with the shrinking of the CGT Annual Exemption over the last couple of years, this would represent a huge hike. To illustrate this, let’s look at the CGT due for a higher rate taxpayer on a £12k listed stocks & shares gain 2 years ago, today and if CGT rates were increased in this way:

2022/23 - £nil – all covered by the Annual Exemption

2024/25   £1,800

2024/25 at Income Tax rates £3,600

2. Increase Inheritance Tax

Another suggested target for Ms Reeves is Inheritance Tax. The rate of IHT is already at 40%, so it feels more likely that there might be changes to reliefs and possibly restrictions on lifetime transfers. Some potential changes to IHT reliefs might be:

• Restricting the ability for an individual to pass on their pension to beneficiaries free of IHT.
• Abolishing Business Property Relief on qualifying shares listed on the AIM market (currently 100% relief).
• Restricting Agricultural Property Relief on farmland let out (currently 100% relief).
• Restricting the nil rate band amount currently available to set against lifetime transfers (currently the full £325k band is available).

3. Restrict pension relief to 20% by ending higher-rate pension relief

There has been speculation that the current pension tax relief could be replace by a flat rate system – like the restrictions on mortgage interest on residential let properties. Currently an individual in England paying into a private pension can claim additional relief to the 20% claimed by the pension provider by completing a tax return, giving them a further 20% on income taxed at 40% and 25% on income taxed at 45%. A flat rate system would remove this relief and effectively mean that all tax relief on the pension would be dealt with at source by the pension provider. For those currently claiming under this relief, it would mean an effective 20% or 25% tax rise on the highest portion of their income for the total level of pension contributions they make.

In the Spring 2024 Budget, the previous Conservative Government announced that the bands in which the higher earning parent would have their Child Benefit clawed back would be raised from between £50,000 and £60,000 to between £60,000 and £80,000. This not only increased the threshold for the claw back to start by £10,000 but halved the amount repayable per additional Pound earned. The HMRC Policy Paper published at the time estimated the impact of this change in Treasury income for the current tax year would be -£540m rising to -£660m in 2028/29. Based on this document, reversing this change would save over £3bn over the new Parliamentary term.

Hang on, you said no increases in Income Tax above! Well, we did, but the narrative of the new Government is not to increase taxes for ‘Working Families’. Dividends, technically investment income, might be just enough removed in Ms Reeves’ eyes to justify a surprise rate increase. Of all the suggested measures in the article, it is both easy to implement and could raise £Billions immediately. Now, the dividend rates are 8.75% at the basic rate, 33.75% at the higher rate and 39.35% at the additional rate. Say these were raised to 10%, 37.5% and 42.5%? A successful business owner paying themselves a £100k tax efficient mix of small salary (below the personal allowance for NI stamp purposes) and dividends would see their tax bill rise by approximately £2,336 per year or 10.4%.