The Chancellor of the Exchequer, Rachel Reeves has set the date of the new government’s first budget on October 30, 2024. Rumours are already circulating about what changes to expect with potential impacts on businesses, particularly around Capital Gains Tax (CGT), Corporation Tax, and Dividend Tax. The government states that it aims to tackle tax avoidance and strengthen HMRC’s powers, while pledging to deliver economic stability. The chancellor added this week at the Labour party conference that the first budget would have “real ambition” and despite being criticised recently for economic pessimism, “this budget will be a budget for economic growth; it will be a budget for investment”.
On 27th August, Keir Starmer publicly stated that the fiscal plan is “going to be painful” and that those with the broadest shoulders should bear “the heavy burden”. Some of areas of change have already been announced: with the changes to the Winter Fuel Payment scheme affecting millions of pensioners and the proposed introduction of VAT on private school fees on 1st January 2025, which could affect businesses related to the education sector. There has been some talk about tax rises in general with some key highlights:
Capital Gains Tax (CGT)
There is a lot of speculation that CGT rates could be aligned more closely with income tax, potentially increasing the CGT rate for higher earners from 20% to 40% or more. This change would significantly affect business owners and investors, particularly in property and shares, where gains are currently taxed at lower rates. The Institute for Fiscal Studies (IFS) claims that such a move could raise £16.7bn a year for the government. A recent study by the Resolution Foundation also found that equalising CGT rates on shares with dividend rates, could raise an extra £7.5bn a year.
Additionally, some reliefs, like the Business Asset Disposal Relief (BADR) scheme, may be reformed, affecting entrepreneurs who sell their businesses according to UKTaxCalculators.co.uk.
Corporation Tax
While no further rises in the headline Corporation Tax rate at currently 25% are anticipated yet, there is some talk that businesses may face tightened rules around allowances and deductions. There are also some predictions that the Chancellor may also review private equity taxation, and the favourable treatment of carried interest, which could impact investment firms.
Dividend Tax
Some UK tax advisors are hinting that dividend taxation could be impacted if there are broader moves to equalise income from different sources. After 30th October, businesses that pay dividends to shareholders, may as a result see higher taxes imposed on those earnings.
Energy Profits Levy
If the Levy is extended to 2030, this could raise costs for energy companies operating in the UK and have a knock-on effect for companies supporting this important sector.
Inheritance Tax and Pensions
There are proposed changes to business property relief and private pensions that are being considered, with potential revisions to how pensions are treated under inheritance tax. We are keeping a close eye on these developments as many of our clients are looking at planning for the future and the best way to fund their retirement.
The talk of tax rises has intensified recently and the potential of these changes and the impact they may have in the proposed autumn budget. All we do know is that if Labour adheres to their recent manifesto pledges, there will be no change to income tax, national insurance or VAT rates. We also know that UK businesses have worked hard at being resilient over the last few years, after the impact of Covid and economic uncertainty and now need some stability and certainty. The talk of any tax rises suggests that, while the government is trying to balance fiscal responsibility with economic growth, businesses should be prepared for some potential tax hikes and reduced reliefs.
We recommend anticipating any potential changes that will affect you and your business and take action to tailor your financial strategy and be prepared. Please get in touch with our team if you would like to discuss the possible changes that could affect your business ambitions.