The Autumn Budget 2024: What You Need to Know and How It Could Affect You

As the UK gears up for the Autumn Budget, scheduled for Wednesday, 30th October 2024, the financial world is buzzing with speculation about the potential changes and how they might impact individuals and businesses alike. This will be the first Budget presented by the new Labour government under Chancellor Rachel Reeves, who is tasked with addressing the widely reported £22 billion fiscal deficit. With Prime Minister Sir Keir Starmer’s stance that those “with the broadest shoulders should bear the heaviest burden,” many are expecting significant adjustments to the nation’s tax system.

In this article, we’ll provide an overview of what the Autumn Budget entails, explore some of the key changes that are being speculated upon, and explain how these could impact your personal finances and your business.

What is the Autumn Budget?

While the Spring Budget is traditionally the UK’s main fiscal event with big announcements on tax changes and spending policies, the Autumn Budget serves as a secondary but important fiscal review. Typically, this Budget is used to assess the state of the economy and outline spending priorities for the remainder of the year.

This year’s Autumn Budget is particularly significant, as it follows Labour’s victory in the General Election in July 2024. As a result, the upcoming Budget is expected to provide clarity on how the new government plans to tackle the UK’s financial challenges, including the reported £22 billion “black hole” in public finances.

During the Budget, the Chancellor will also address the economic and fiscal outlook produced by the Office for Budget Responsibility (OBR), which provides an independent analysis of the UK’s economy.

Speculated Changes in the Autumn Budget

While it’s important to stress that no changes are set in stone until the official announcement, there has been widespread media speculation about what measures Chancellor Rachel Reeves might introduce. Below, we explore some of the most commonly discussed areas of change.

1. Pensions

Several pension-related changes have been circulating in the media. Here are some of the key speculations:

• Tax Relief for Higher Earners: One of the most discussed potential changes involves reducing tax relief for higher earners. Currently, higher-rate taxpayers can claim 40% relief on pension contributions, which reduces the amount of tax they pay. However, there is speculation that this could be reduced, making pension contributions less attractive for higher earners. That said, due to the impact this could have on public sector workers, many experts believe this change is unlikely to be introduced.

• Reduction in Tax-Free Cash Withdrawals: At present, individuals aged 55 and over can withdraw 25% of their pension pot tax-free, up to the limit of £268,275. There are concerns that this figure could be reduced, potentially to as low as £100,000. Alternatively, the tax-free withdrawal percentage could be lowered from 25% to 20%. If implemented, this would represent a significant reduction in the tax benefits currently available to retirees.

• Inheritance Tax on Pensions: Another area of speculation is whether pensions could become subject to inheritance tax (IHT). Currently, pensions fall outside of IHT, allowing many people to use their pensions as a way of passing wealth on to their families tax-free. Introducing IHT on pensions would dramatically alter retirement planning strategies and may result in people accessing their pensions earlier or in different ways.

2. Capital Gains Tax (CGT)

Capital Gains Tax (CGT) has also been a key topic of speculation ahead of the Autumn Budget. CGT is the tax paid on the profit from the sale of assets, such as property or shares, and has historically been charged at a lower rate than income tax. For the 2024/25 tax year, the CGT rates are set at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers (rising to 18% and 28% for residential property sales).

• Alignment with Income Tax: There is speculation that CGT rates could be raised to bring them in line with income tax rates, which would mean CGT could rise to as much as 39% for higher-rate taxpayers. Such a move could make investment gains significantly more expensive for individuals and businesses, particularly those who rely on income from property or shares.

• CGT Allowance: It is also worth noting that the annual CGT allowance – the amount of profit that individuals can make before paying CGT – has already been reduced from £12,300 to £3,000 for the 2024/25 tax year. While there are no confirmed plans to reduce the allowance further, any potential changes could result in higher CGT liabilities for investors and property owners.

3. Inheritance Tax (IHT)

Inheritance Tax has been a hot topic for some time, and it’s no surprise that there is widespread speculation about potential changes to this area of the tax system in the Autumn Budget.

Currently, IHT is charged at 40% on estates above the nil-rate band of £325,000. Additionally, individuals can pass on up to £175,000 in residential property to direct descendants (children or grandchildren) without incurring IHT. Married couples or civil partners can combine their allowances, meaning they can pass on up to £1 million to their beneficiaries tax-free.

• Nil-Rate Band Reduction: One potential change that has been suggested is a reduction in the nil-rate band, which would lower the amount that can be passed on to loved ones without paying IHT. If this were to happen, it could result in larger IHT bills for many families.

• Changes to Gifting Allowances: The government may also consider changing the rules around gifting. Currently, individuals can gift up to £3,000 each year without incurring IHT, and gifts made more than seven years before death are exempt from IHT. Changes to these rules could make it more difficult for individuals to reduce the size of their estate during their lifetime.

4. National Insurance for Employers

While the Labour Party has pledged not to raise National Insurance contributions (NICs) for employees, speculation remains that employers could face increased NICs. In particular, there have been rumours that employer NICs could be applied to pension contributions, which are currently exempt. If this were to happen, it could increase the cost of providing pensions for employers and may discourage some businesses from offering generous pension schemes.

5. Income Tax Thresholds

Although the Labour Party committed to not raising income tax rates during the General Election campaign, there has been talk of extending the freeze on income tax thresholds. The freeze, which is currently set to end in 2028, means that as wages rise with inflation, more people are pushed into higher tax brackets, even if tax rates themselves do not increase. This phenomenon, known as “fiscal drag,” could result in more individuals paying higher rates of tax in the coming years.

What Does This Mean for You?

It’s important to remember that these changes are purely speculative at this stage, and nothing will be confirmed until the Chancellor delivers the Budget on 30th October 2024. That said, the potential changes outlined above could have a significant impact on your personal finances, especially if you have investments, a pension, or are thinking about estate planning.

Here are some things to keep in mind:

• Plan for Pensions: If you’re concerned about potential changes to pension rules, now is a good time to review your pension arrangements. Consulting with a financial adviser can help you understand how any future changes could impact your retirement plans.

• Watch Out for Capital Gains: If you have significant investments or own property, any changes to CGT could affect the amount of tax you pay on your profits. Again, seeking professional advice can help you plan accordingly.

• Consider Estate Planning: Inheritance tax is always a key consideration for those looking to pass on wealth to their families. If you’re concerned about potential changes to IHT, it may be worth revisiting your estate planning strategy with a qualified financial adviser.

• Get Expert Advice: With so much speculation and uncertainty, it’s easy to feel overwhelmed. But you don’t need to navigate these complex issues on your own. At Exchange Accountants, our expert team is on hand to provide personalised financial advice tailored to your circumstances. We’ll help you make informed decisions that align with your goals and ensure you’re prepared for whatever changes the Autumn Budget may bring.

How Exchange Accountants Can Help

Here at Exchange Accountants, we keep a close eye on all government announcements to ensure our clients stay informed and can plan effectively. Whether you need advice on pensions, investments, or tax planning, our experienced team is here to guide you through the complexities of the UK tax system.

If you have any questions or concerns about how the Autumn Budget might affect you or your business, get in touch with us today. We’re here to help you every step of the way, ensuring you’re in safe hands as we navigate the ever-changing financial landscape together.