What does the autumn budget have in store?
In this piece, Castlefield adviser Olivia Bowen outlines what may be in store for thoughtful investors in the upcoming Autumn budget.
You may well be aware that there is a much anticipated Labour Autumn Budget on 30th October, and it has been the focus of much attention and thought within the financial services industry and wider press. Given the need to balance the UK’s finances, there will need to be increased taxation.
Naturally, we keep a close eye on political and economic factors which may affect our clients, but it’s hard to anticipate changes to the tax landscape in advance.
Although we have no crystal ball, we thought it would be helpful to share our thoughts:
The Government clearly needs to raise revenue to spend on schools, healthcare and other public services. The most likely way to do this would seem to be to increase taxes and, as they have ruled out changing Income Tax and National Insurance, there are only a few options left.
Capital Gains Tax (CGT) rates could be on the agenda, and it is typically a tax on wealth rather than earned income.
- CGT rates are currently 10% for any gains which fall within your basic rate band for income tax and 20% for any which are taxed at higher or additional rates of tax. There is a surcharge of 8% on property sales for basic rate taxpayers and 4% for higher and additional rate taxpayers (the sale of your own home is not taxed).
- These rates are lower than income tax, partly because of an acknowledgement that it’s not intended to be a tax on asset value growth due to inflation – it’s intended to be a tax on growth above inflation. Many years ago, this was dealt with via the Indexation Allowance, as some of our older clients may remember.
- It’s generally considered to be more likely that any changes will be made from the new tax year, i.e. from the 6th May 2025, rather than immediately – as this will give people time to trade at lower tax rates, knowing what changes will be introduced; and in doing so the overall tax revenue is likely to be higher as people make use of the period before rates rise.
Pensions
Some clients have expressed concern that the new Government may reduce the tax relief benefits of pensions, in particular the 25% tax-free cash element.
However, the Government desperately need people to save for retirement so that they are not living in poverty, and want to encourage this. In addition, the previous Government introduced the Lifetime Allowance cap, and reduced the Annual Allowance - but this caused all sorts of unintended consequences, for example senior people in the NHS were having to pay tax on pension contributions they couldn’t control. We assume the new Government won’t want to create similar issues.
In every budget there are worries about changes that will affect pensions, but in our experience the predicted changes rarely come to fruition and in any case it’s impossible to predict what may be announced.
Please note, it would NOT be sensible to pull money out of a tax-free environment (e.g your pension) just in case the tax scene shifts, unless you were planning to anyway.
In every budget there are worries about changes that will affect pensions
In summary, our experienced team will be keeping a close eye on how things are developing – whilst not second guessing what will happen. We will interpret the budget once it is announced and give our professional opinion on what might affect our clients.
If you feel particularly concerned about the above, or you would like to discuss your situation, please speak to your financial adviser - or contact us and we’ll introduce you to a member of our advice team.
Written by Olivia Bowen