Rachel Reeves delivered her first budget, the first ever for a woman in the UK, and the first for a Labour government for a decade and a half.
Although the teams have swapped sides in the House of Commons, the presentation of the Budget all felt very familiar – I am not certain that as a performance it reflects well on Parliament and UK plc, in the eyes of constituents or outsiders looking in.
It has become a real challenge to write anything noteworthy about a Budget, due to the norm now that most of the headline changes have been unofficially pre-announced (leaked), for which the Chancellor was admonished in the House of Commons before she spoke.
There were certainly some rumours that ultimately did make the final cut, and there were some variations on the rumours, maybe refined through focus groups, however I did not feel there were any new show-stopping announcements on tax related matters.
I did have a short intake of breath at the extension of employers’ national insurance contributions to earnings above a new lower threshold of £5k. This is in addition to the 1.2% increase on earnings which had been pre-leaked. The parallel extension of the Employers' Allowances to £10k is forecast to limit the worst of the impact of the NIC changes to half of all employers – effectively the biggest half. There are still a very large number of employers who are going to shoulder a not insignificant cost. Reducing the threshold will increase the cost of employing anyone at or over the old £9,100 threshold by at least £615 per employee per year, plus the additional 1.2% on all earnings above the old £9,100 threshold. My instinct is that this is going to hit the larger employers in retail and hospitality particularly hard, as they must have a large number of (part time) employees earning around the old employer contribution threshold of circa £9k per year.
The predicted capital gains tax (CGT) rates rises came, with the increase at the lower end of the pre-budget rumours. It was no surprise to me that the Chancellor did not move to completely align the rates of CGT with Income Tax, because although politically that might have been attractive, there have been enough studies that suggest the amount of CGT actually collected would decrease from current levels if rates were hiked up to 40% plus. I was a little surprised the rates changed mid-year from today, from 10%/20% to 18%/24%, which is going to give an interesting challenge to all the tax software companies, and HMRC, who will need to re-programme their IT systems.
The Government have released a Corporate Tax Roadmap, which at first blush appears to be a good thing – looking to create a feeling of stability and a plan around a top corporate tax rate at the current level of 25%, which will hopefully encourage businesses that the UK remains a good place to do business.
The abolition of non-dom tax status is going ahead from April 2025, and in a harsher form than that proposed by the previous Conservative Government. We are analysing the impact of these announcements and will be talking to lots of our clients in the coming days and weeks. A number of non-doms have already left the UK anticipating these tax changes, and I think the further strengthening of the changes will accelerate some departures. Will that be a net gain or loss to UK Plc’s finances?
I was a little surprised that VAT on private school fees was not delayed a little, as it seems that many schools will not be ready for the change from 1 January 2025. I hope HMRC are going to take a soft touch when dealing with schools over the coming months. This is such a complex area, and many schools do not have anyone in-house with the necessary skills (or time to learn), nor do they probably have the budget to buy-in external consultants to help them.
The changes to IHT were largely as expected – the restriction of Business Relief and Agricultural Property Relief to 50% over £1m probably did not go as far as I expected, and whilst the introduction of the £1m threshold is welcome, it does add just another layer of complexity to tax calculations.
Rather than re-introducing the pensions lifetime allowance (as they suggested when Jeremy Hunt abolished it), Labour plan to take a different approach to limiting the £70 billion+ cost of the tax reliefs available in this area. Encouraged by wealth planners, many of the more affluent had come to see pensions as an IHT and estate planning tool. This will now change from April 2027, when any unused pension funds will be subject to IHT in an individual’s Estate. In the interim, there will be a consultation considering how pension providers should administer the changes. As well as raising funds from the IHT charge, this may well discourage the wealthy from overloading their pensions and look to alternative investment structures for their families.
So many Budget summaries usually say somewhere “the devil is in the detail”, which I have so far resisted. To give you a flavour however - on Budget Day, alongside a transcript of the Chancellors speech, HM Treasury release the Budget Red Book, which is a “brief” summary of the tax and spend announcements – this year the Red Book runs to about 170 pages. Alongside the Red Book there is draft legislation which is hundreds of pages, supported by tax information and impact notes etc, plus consultations on possible future changes. I haven’t counted but collectively there will probably be over 1,000 pages to wade through. Whilst many in the tax profession love this time of year, in many cases the new legislation is adding layers and layers of complexity onto an already bloated and complex tax statute. At some stage, as a nation, we need to take stock and say - there must be a better way of doing this?
Keep an eye out for our detailed Budget Summary that will be following tomorrow, Thursday, 31st October 2024.
We are also hosting a webinar on Friday, 1st November 2024 at 1pm to analyse the updates and what the tax changes mean for you and your business. Sign up here.
If you’d like to have a confidential discussion about how this might affect you, please reach out to Phil Blackburn, Partner (philblackburn@lubbockfine.co.uk) or your usual LF contact.
