Autumn Budget 2024: Full list of predictions as Reeves’s announcement edges closer | Personal Finance | Finance

Chancellor Rachel Reeves is set to deliver her first Budget to the House of Commons on Wednesday, with tax increases and spending cuts reportedly on the table.

The Government initially identified a £22billion shortfall in public finances, but sources suggest Ms Reeves now faces a funding gap closer to £40billion.

This expanded deficit has increased pressure to introduce measures that could protect key departments from real-term cuts and help stabilise the economy.

The Labour Party promised not to raise taxes for “working people” during its election campaign, which if honoured, should mean there will be no rises in income tax, National Insurance, or VAT.

However, there has been increasing speculation on what other areas Ms Reeves may address.

Potential pension tax changes have been a core topic of concern for Industry experts since Ms Reeves first warned of the “difficult” decisions that lie ahead.

• Pension tax-free lump sum withdrawals

Some suggest one change Ms Reeves could make to private pension taxation could include reducing tax-free lump sums.

At present, people can withdraw 25 percent of their pension (up to a limit of £268,275) after they reach 55, tax-free. There has been speculation that Ms Reeves may reduce this limit to £100,000.

However, Tom Selby, director of public policy at AJ Bell noted: “Any move along these lines would be deeply unpopular and potentially hugely complicated too.”

He added: “The level of uncertainty created ahead of the Budget has real-world consequences, with both contributions and the number of people taking their tax-free cash rising in recent months. It is clearly not desirable that some savers feel forced to make decisions based on rumour and speculation rather than their long-term retirement goals.”

Under existing rules, it is possible to pass on a retirement pot completely tax-free to nominated beneficiaries if a person dies before age 75. If they die after age 75, any inherited pension is taxed in the same way as income.

Crucially, pensions usually don’t form part of people’s estate for inheritance tax (IHT) purposes.

Mr Selby said: “This is undoubtedly a generous set of rules and something which could easily be reviewed by the new Government. However, as is often the case with pensions, applying any new tax on death – or bringing pensions into the IHT net – would come with substantial challenges.

“It is therefore possible a complicated protection regime would be needed to ensure people are not subject to unfair and arguably retrospective tax measures. This would inevitably reduce the money the Treasury could potentially raise from such a move.”

Often cited as the UK’s most hated tax, despite only being paid by a small proportion of the population, many speculate the Chancellor could target inheritance tax in tomorrow’s budget.

The inheritance tax rate is currently set at 40% on estates above £325,000. The tax-free allowance threshold has been frozen since 2009, despite rising inflation.

Charlene Young, pensions and savings expert at AJ Bell, said: “At 40% it’s already one of the highest tax rates, so it’s unlikely we’d see a headline rate increase. What’s more likely if Ms Reeves did want to change this tax is cutting allowances or whittling away certain reliefs to increase the amount some estates pay.

“A couple leaving their main residence to their children could potentially shelter a £1million estate from inheritance tax, thanks to both the nil-rate band and the residence-nil-rate band – but either of these could be cut.”

Ms Reeves is reportedly considering extending the number of years someone has to stay alive after passing on wealth as a gift from seven to 10 years.

Craig Rickman, personal finance expert at interactive investor previously told Express: “It’s possible the Government could leave the IHT system unchanged, content to keep tax thresholds frozen and let rising asset prices boost revenues in a stealthy way.”

This tactic, also known as fiscal drag, alone is forecast to double annual IHT receipts to £15billion by 2032-33, according to the Institute for Fiscal Studies.

Mr Rickman continued: “Doing nothing may also pave the way for Labour to start from scratch and launch a considered and in-depth review of the IHT landscape.”

Having ruled out increases to some other taxes, Ms Young said capital gains tax (CGT) might appear like an “obvious place” for the Government to make changes and generate more tax revenue.

This tax is charged on profits made from selling assets that have increased in value, such as second homes or investments. Higher earners currently pay 24 percent on property gains and 20 percentr on profits from other assets like shares

Ms Young said: “The most radical option is equalising CGT rates with income tax – which would represent a huge tax increase for investors. The Institute for Fiscal Studies has called for reforms to go further – and for an end to the exemption on death – arguing that the current system actually discourages productive investment.”

However, Ms Young noted that it may not be the “cash cow” that many think it is. She explained: “The Government’s own figures show that a big increase in CGT rates could backfire and actually lead to lost revenue for the Government.

“For example, raising both the lower and higher CGT rates by 10 percentage points, to 20% and 30% for non-property gains, would result in a total loss of £2.05 billion for the Exchequer by 2027/28. That’s because while the rates are higher, investors would be expected to change their behaviour to mitigate paying the tax.

“CGT being wiped out on death also creates an incentive in some cases to hold onto assets so they are taxed as part of the estate under IHT, potentially paying less or no tax.”

This leaves one option open to raise the rate of CGT for higher-rate taxpayers back to 28% from April 2025.

Ms Young said: “This would be relatively simple to implement and puts it back to the higher rate introduced by George Osborne in 2010. It also narrows the gap between income and investment gains, but not to the extent of taxing them equally at rates of up to 45%.”

• Income tax threshold freeze

Ms Reeves is expected to extend the freeze on income tax thresholds, which sees people pulled into paying higher rates through a process known as “fiscal drag”.

Ms Young said: “While the Chancellor pledged in the election campaign not to raise the rate of income tax, that doesn’t preclude extending the current freeze on thresholds, which is tantamount to raising tax by the back door.

“It was a tactic used by the Conservatives to raise taxes on working households, with rising wages at a time of high inflation providing a super-charged stealth tax on earnings. The effect is muted somewhat when wage rises are lower, which is to be expected as inflation comes down, but it’s still an easy way to boost tax revenues.”

National Insurance (NI) relief on employer pension contributions is another “appealing target” for a Chancellor with limited options available, Mr Selby suggested.

• Increase employer contributions

Employers currently pay NI at 13.8 percent on workers’ earnings. The Chancellor is expected to increase employer contributions by at least one percentage point.

Politically, Mr Selby said: “This would also be less risky as it wouldn’t hit voters directly in the pocket – although there is a danger employers will scale back remuneration, including pensions, to meet this extra cost.

“If the Government goes down this road, it will face a difficult balancing act deciding the level of tax that raises sufficient revenue without undermining its central objective of boosting economic growth.”

While next April’s increase in the state pension is pretty much bolted on, Mr Selby said it would “hardly be surprising” to hear Rachel Reeves use the Budget statement to re-announce Labour’s commitment to the ‘triple-lock’.

Mr Selby said: “UK pensioners are on track to see a sizeable inflation-beating increase to their state pension next year.

“The Government’s commitment to the triple-lock pledge means it’s likely the earnings growth figure of 4% will be used to determine the rise in the state pension next year. And at a time when inflation has fallen back closer to the Bank of England’s targeted rate of 2%, this will give a welcome boost to pensioners’ income in real terms.”

The National Living Wage is the minimum wage rate set by the Government for workers aged 21 and over.

Danni Hewson, head of financial analysis at AJ Bell said: “It will be up to the Low Pay Commission to make its recommendations for 2025, but inflation will be a key factor in that decision-making process. After last year’s record increase, many employers are hoping for a more manageable uplift this time around.”

However, she noted: “With Labour’s pledge to create a ‘genuine living wage’ there are plenty of employers waiting nervously for the Government’s recommendation which is expected to be outlined by Rachel Reeves in the Budget.

“As expectation mounts that employers may also have to shoulder National Insurance on pension contributions, there will be plenty of businesses reining in expansion plans or considering ways to better harness technology like AI to keep bills down.”

Formerly known as Entrepreneurs’ Relief, BADR allows for a reduced CGT rate of 10 percent on qualifying business assets.

1. Business Asset Disposal Relief could be scrapped

Myron Jobson, senior personal finance analyst at interactive investor suggested: “There is a possibility that this relief might be abolished or its lifetime limit of £1million reduced, potentially impacting small business owners and entrepreneurs.”

Dan Coatsworth, investment analyst at AJ Bell said: “The previous government has already cut dividend tax allowance to the bone, going from £5,000 to the current £500. The big question is whether Labour is prepared to go any deeper.”

HMRC is expected to collect almost £18billion from dividend tax in the current tax year, making it a meaningful source of revenue. Mr Coatsworth said: “While slashing the allowance, perhaps to £250, cannot be ruled out, the new Government would be incredibly unpopular with investors if it reduced the dividend allowance any further.

“Another option would be to raise the rate of dividend taxation, although there’s only so much room for manoeuvre with tax rates on dividends already very close to matching income tax rates for higher and additional rate taxpayers.”

He suggested that the Government will “likely” tread carefully here to encourage investment into the UK stock market and create a more “vibrant” place for British businesses to access growth capital. Therefore, Mr Coatsworth noted: “Taking even more of investors’ returns as tax could mean shooting itself in the foot.”

Currently, savers can deposit up to £20,000 into Individual Savings Accounts (ISAs) each tax year, with no lifetime cap on total contributions.

Chancellor Rachel Reeves previously called for a £500,000 limit on tax-free ISAs in an unearthed column from 2016.

Recent comments have reignited concerns that Labour may consider changes to ISAs in its Budget, as Ms Reeves previously suggested the system needed an overhaul, noting it primarily benefits high earners.

In the now-archived piece, she wrote: “We are increasingly seeing a smaller group of wealthier savers using ISAs to minimise their tax liabilities in a move away from the Isa’s original purpose of helping a large number of people build a nest egg.”

The Resolution Foundation, a left-leaning think tank, has previously called for a £100,000 cap on ISAs, echoing concerns that ISAs have shifted away from their original purpose of helping a broader range of savers.

The former leader of the think tank, Torsten Bell, is now the Labour MP for Swansea West.

In a change that’s already been announced, the £2 fare cap will be replaced by a £3 cap until the end of 2025. Single bus fares in England have been capped at £2 per journey (or £1.75 in London) for most routes since January 2023.

Fuel duty, which is a tax included in the price motorists pay for petrol at the pump, could be raised for the first time in more than a decade.

The tax on motor fuels was frozen by the Tories between 2010 and 2022 and then cut by 5p to 52.95p per litre, where it remains.

From January, the Government plans to remove the VAT exemption and business rates relief for private schools to enable funding for 6,500 new teachers in state schools. This means private school fees will be taxable at the standard VAT rate of 20 percent.

The French and German ambassadors to the UK have called for international schools to be excluded from the plans.

Non-domiciled (non-dom) residents don’t pay UK tax on overseas income. Labour has proposed toughening plans to abolish non-dom status, although concerns remain that it might generate less revenue than expected.