‘I’m a finance expert – the 10 areas I predict Reeves will target in Autumn Budget’ (Image: Getty)
Chancellor Rachel Reeves is just days away from announcing the first Labour Government’s Autumn Budget in 14 years, and speculation is circling on what may be announced.
Ms Reeves has warned that “difficult decisions” will need to be made to fill an alleged £40billion hole in the country’s finances and boost the economy.
The Budget will be announced on Wednesday, October 30, in what interactive investor’s Myron Jobson has said is set to be “one of the most significant and transformative events for personal finances”.
The senior personal finance analyst said: “It is becoming increasingly clear that a bitter cocktail of spending cuts and tax rises is on the cards to tackle the multi-billion-pound black hole in public finances. Speculation ahead of the Budget is usually rife, but this time around, with a new Government at the helm, it is on steroids. The anticipation and uncertainty surrounding potential changes to the pensions and investment taxation regimes have driven the usual pre-budget buzz to unprecedented levels.”
However, he warned: “Britons face the tricky task of keeping up with the confirmed changes to policy affecting personal finances while not making irreversible and potentially financially costly decisions based on speculation.”
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The upcoming Autumn Budget could introduce changes to the pensions regime (Image: Getty)
Pensions
According to Mr Jobson, the upcoming Budget could introduce changes to the pensions regime. However, he noted: “The ongoing Pensions Review could mean that the biggest announcements relating to pensions may be revealed at a later date.”
Employer National Insurance (NI) contributions
There is speculation that employer pension contributions could become subject to National Insurance (NI). At present, these contributions are exempt from NI for both employers and employees.
Mr Jobson said: “Changing this could generate significant revenue – up to £17billion per year according to some calculations – for the Exchequer, but might discourage employers from making generous pension contributions beyond the auto-enrolment minimum.”
He added that it could also have a knock-on effect on wages offered by businesses and inflate the cost of their goods and services to mitigate the heightened cost burden.
Pension tax-free lump sum
Mr Jobson said: “There has been talk that the tax-free lump sum, which currently allows retirees to withdraw up to 25% of their pension pot tax-free, could be reduced.”
Ms Reeves was reportedly considering reducing the pension tax-free lump sum to £100,000, which is almost a third of the current limit (£268,275). Mr Jobson noted there has also been whispers of cutting the percentage of a pension pot that could be withdrawn tax-free.
He said: “Any negative changes to tax-free lump sum rules are likely to go down like a lead balloon. The pension tax-free lump sum is one of the best-loved and most well-understood parts of the pension system. Significant changes to it could risk undermining confidence in pensions, which is the last thing we need as many people aren’t saving enough for a comfortable retirement.”
Capital gains tax and inheritance tax
There is speculation that Capital Gains Tax (CGT) rates might be increased.
Currently, higher rate taxpayers face CGT rates of 20% on most assets and 24% on residential property. Basic rate taxpayers pay 10% and 18%, respectively.
Mr Jobson said: “The Government might raise these rates or align them more closely with income tax rates. There was also a rumour that CGT could rise as high as 39%, but the Prime Minister has since suggested that this is unlikely to be the case.
“This could result in higher tax bills for investors when they sell assets at a profit. Our calculations show that CGT liability for investors across the income spectrum could double, at best, if CGT rates are aligned with income tax.”
According to Mr Jobson, fears of a less generous investment taxation regime have provided extra impetus for investors to make the most of ISAs. He explained: “[ISAs] shield gains and income generated from investments from tax.”
Additionally, Mr Jobson suggested the Chancellor could be planning to remove the CGT uplift on death.
He explained: “At present, assets are revalued to the market value at the date of death, which can eliminate CGT liabilities for heirs. Potential changes could see the removal or limitation of this uplift, meaning inherited assets could carry the original owner’s base cost, thereby increasing CGT liability when the asset is eventually sold.”
Capping business and agricultural reliefs
Business Property Relief and Agricultural Property Relief are reliefs that can partially or fully exempt the value of qualifying assets from inheritance tax (IHT).
Mr Jobson said: “The reliefs can reduce the value of the assets for IHT purposes by either 50% or 100%. At present, each of these reliefs is uncapped, but the Government could seek to introduce a cap on the maximum amount of asset value that each relief can be claimed against, meaning any value above this threshold would be subject to the standard 40% IHT rate.”
Business Asset Disposal Relief (BADR)
Formerly known as Entrepreneurs’ Relief, BADR allows for a reduced CGT rate of 10% on qualifying business assets.
Mr Jobson said: “There is a possibility that this relief might be abolished or its lifetime limit of £1million reduced, potentially impacting small business owners and entrepreneurs.”
Fiscal drag could be extended beyond 2028
Fiscal drag works by freezing tax thresholds so that more income is taxed at a higher rate as wages rise with inflation. Tax thresholds were due to be frozen until 2028, however, there’s been speculation that this could be extended.
Mr Jobson said: “The existing freeze in tax thresholds will claw more of our income into the taxman’s coffers as earnings increase over time. Known as fiscal drag, it is a sneaky tax grab that is set to hit those in the lowest income brackets the hardest.
“Fiscal drag has been a reliable source of revenue for the Government, enabling it to bolster public coffers without the political fallout of overt tax hikes. Should the Chancellor choose to freeze income tax thresholds beyond the current 2028 deadline, the implications for Britons could be profound.
“The gradual erosion of disposable income through higher effective tax rates is a subtle but significant burden on households.”
Inheritance tax fiscal drag
Under current inheritance tax rules, estates valued above £325,000 are typically taxed at 40 percent. This is referred to as the “nil-rate” threshold, and it has been frozen since 2009 despite soaring house prices and inflation.
Mr Jobson said: “With the nil-rate band frozen at £325,000 since 2009, and the additional residence nil-rate band capped at £175,000, more estates are falling into the IHT net due to rising property prices and investment wealth.
“Inflation-linked adjustments to these thresholds seem unlikely, meaning an increasing number of estates could be caught in the IHT net.”
The 10 things Rachel Reeves could target – full list
- Pensions review
- Employer NI contributions
- Pension tax-free lump sum
- Capital gains tax
- Inheritance tax
- Capping business reliefs
- Capping agricultural reliefs
- Business Asset Disposal Relief
- Fiscal drag extension
- Inheritance tax fiscal drag
