The autumn budget 2024 UK on 30^th October 2024 is just around the corner, and speculation is swirling about what Chancellor Rachel Reeves will announce. Will we see sweeping reforms or a series of smaller adjustments? How will this budget affect the average person and what does it signal about the government’s long-term economic plans? Whilst we don’t expect any further specifics until Budget Day, we can examine current economic indicators, political pressures and expert predictions to get a clearer idea of what to expect.

Deciphering the UK’s Current Economic Landscape

The UK economy is currently in a difficult position. Sluggish growth, still some inflation fears and pressure on public services, all need to be addressed. Brexit, global supply chain issues, and the war in Ukraine have all contributed to this complex situation.

From 2021 to August 2023, the Bank of England had been raising interest rates to combat inflation, with just one recent 25 basis point reduction in August 2024. This impacts borrowing costs for individuals and businesses. Combined with high energy and food prices, this is creating a cost-of-living crisis affecting households across the UK.

What are Experts Forecasting for the Autumn Budget 2024 UK?

Many experts believe the budget will be “tough”, as the government will need to balance the books while addressing the cost of living. However, there’s pressure on the new Labour government to deliver on promises of growth. This puts the Chancellor in a tricky position.

Taxes – A Delicate Dance Between Revenue and Relief

Labour has ruled out increases to major taxes such as income tax, national insurance, and VAT for working people. However, they failed to specifically define “working people”. A cut in winter fuel payments to most pensioners has caused concern and speculation remains about potential changes in other areas. Capital Gains Tax (CGT) is a prime target for reform, perhaps pension taxation, plus the already confirmed changes to taxation of resident non domiciled people.

A return to taxing all capital gains at income tax rates, as suggested by the Institute for Public Policy Research (IPPR) , could be on the table, perhaps combined with indexation, to factor in recent high inflation, and reduce long-term taxable gains. Other possibilities include a higher, fixed CGT rate, with 30% being guessed at by some commentators. Changes to personal tax relief, especially for pensions, are also being discussed as well as possibly including residual pension pots into inheritance tax.

For businesses, the upcoming roadmap for business taxation should give more clarity on the government’s long-term vision. It’s likely to reaffirm pledges, like the corporation tax freeze at 25%, but include measures aimed at generating revenue. The windfall tax on oil and gas companies is confirmed to increase by 3% to 38% from 1^st November 2024, with the standard rate of 40% taking the overall tax burden to 78%. It is also extended by 1 year to 2030.

Speculation is mounting that the government will impose new measures on banks in what Prime Minister, Sir Keir Starmer, said on August 27^th would be a “painful” October budget, with a heavier burden falling on those with the broadest shoulders. Profitable corporations and wealthy or high earning individuals being an obvious target. There is talk of introducing an annual wealth tax, a ‘mansion tax’ on valuable property or even an exit tax on those leaving the UK.

Darren Jones, Head of Global Technical Development at The deVere Group, commented, “Tax increases in The Budget are inevitable but with the Government’s commitment not to increase income tax, national insurance or VAT on working people, Rachel Reeves has a difficult job filling the well reported £22bn black hole in public finances.”

“The existing beneficial tax treatment of UK resident, non domiciled people is frankly crazy. It allows up to 15 years of foreign generated income and gains to remain untaxed, provided the taxpayer doesn’t remit the income and gains to the UK. It is madness to allow this tax break and specifically disincentivise the money being brought into the UK economy.”

“The likely new approach from April 2025 will allow a similar tax break for a maximum of 4 years and allow remittance of the funds into the UK to help boost the economy. It remains to be seen whether this encourages existing res non doms, with tenure of over 4 years, to leave the UK.”

“It will also be interesting to see whether returning UK expats will benefit from the new 4 year rule. My guess is, those who have been non UK resident for 10 years or more, will also benefit from tax free foreign income and gains for their first 4 years of being back in the UK. This could provide a useful period where returning UK expats can, for example, rent out their foreign property tax free in the UK, and subsequently sell it within 4 years without fear of UK capital gains tax, being mindful many countries may impose tax locally though of course. Equally, income and gains on well placed investments could be received tax free for this short period.”

“The Inheritance tax benefit for res non doms on foreign situs assets will also be removed, most likely after they have been UK resident for 10 years. Those with trusts holding foreign assets may also be targeted and careful planning will be needed, especially by non doms who haven’t yet moved to the UK, but may do so.”

“It will be curious to see if UK expats who have lived abroad for over 10 years benefit from inheritance tax exemption on foreign assets, bringing to an end worldwide IHT for UK domiciled individuals. If the Government do level the playing field and move to a residency, rather than domicile, system of taxation, this may well be the case. The devil will be in the detail of the new rules and there may be some additional citizenship rules to navigate.”

“With the Government’s refusal to rule it out pre and post election, Capital Gain Tax changes seem inevitable. Currently tax rates are as low as 10% rising to a maximum of 28%, so a higher flat rate of say 30% is an option. Alternatively, equalising rates to income tax may be the approach. If it’s the latter, I’d expect this to be done in conjunction with indexation on the original acquisition price to discount inflationary effect. Given gains may be over many years, it would seem overly harsh to tax at income tax rates as high as 45% without this adjustment, especially given recent high global inflation.”

“Under current rules, at point of death, the acquisition price of an asset is rebased to the probate value, avoiding tax on any gain made by the deceased in their lifetime. Granted, inheritance tax may be levied on the entire value, but holding over the original acquisition price rather than rebasing may be an option, although this wouldn’t bring in much needed tax in the short term. If the assets qualify for business or agricultural relief from inheritance tax, this current rebasing is very generous to the beneficiary with both CGT and IHT avoided. Surely the Chancellor will make some changes here with business and agricultural relief perhaps being restricted to £500,000 or so, rather than unlimited as it often the case today.

“The date at which CGT changes may be imposed will also be interesting. It could take effect from Budget day, or may be deferred until the start of the next tax year. The latter would give tax payers the opportunity to sell out of assets at the current, lower tax rate but encouraging these significant, disposals, bringing in a lot of short term tax. An immediate rise in tax rate on budget day would encourage holding on to assets rather than selling, hence raising no short term tax. The Chancellor may consider it preferable to encourage short term disposals, pre April 2025, at the lower rate, and allow such a ‘closing down sale’”.

“Business Asset Disposal Relief, previously Entrepreneurs Relief, is currently a flat rate of 10% for business owners selling a business. Scrapping this reduced rate and applying standard CGT rates is something being rumoured.”

“Pensions is always very emotive. Whilst Labour did say they would look to reintroduce the Lifetime Allowance, I think it is more likely they will restrict the tax free pension commencement lump sum (PCLS), which is normally capped at £268,275, perhaps to £100,000. There is also speculation tax relief on contributions may be limited to basic rate tax or capped lower than the current £60,000 per annum. On death, pensions are currently free from inheritance tax, something that could also change in the budget.”

“Wealth Tax…please Rachel, no! This tax has failed, and subsequently been abolished, if pretty much every major economy in which it was introduced. Switzerland makes it work, and collects around CHF 9bn pa, but they don’t have estate tax or capital gains tax. Spain collects less than Eur700m. Germany, France, The Netherlands and a number of others have abolished the tax as receipts are too small to justify administration and economic negative effects.”

“Exit tax is the most recent suggestion and, frankly, is a terrible idea. Taxing all people leaving the UK on a notional disposal of their assets looks like a desperate attempt to stop wealthy people leaving the UK, certainly discourages entrepreneurs and wealthy people moving to the UK and, by most accounts, won’t raise very much tax. I also see no way they could introduce this ahead of April 2025, so encourages a rush to leave perhaps greater than the res non dom changes.”

Spending – Balancing Austerity with Ambition

To balance the books, the government needs to increase revenue or reduce spending. Tax changes will play a role, but the autumn budget 2024 UK is also expected to outline spending cuts but focus on efficiency measures. Labour needs to find a balance between fiscal responsibility and delivering on promises.

Investing in preventive services is expected to be a key theme of the budget. This means allocating resources to societal challenges to improve long-term outcomes and potentially reduce overall public spending. However, allocating funding to preventive services requires long-term planning.

This can be at odds with the need to address immediate pressures. For example, while increasing spending on children’s mental health services may ease pressure on the NHS in the future, it will increase costs today. Take local authorities as an example. They face rising demand for children’s services, a shortage of placements, and increasing budget pressures. Between 2019/20 and 2024/25, their budgeted spend increased by £3.7 billion. Almost 53% of this increase happened between 2023/24 and 2024/25 alone.

The Spring 2024 survey of Directors of Adult Social Services described the current situation as “as bad as it has been in recent history”, indicating similar challenges facing adult preventative care.

In 2020, the Department for Education needed a minimum of £5.3 billion per year for school maintenance and risk mitigation. Preventative measures will be vital if these issues are to be tackled effectively.

Research suggests that a well-funded preventive approach can be beneficial, and the budget will undoubtedly include preventative approaches across vital sectors.

Conclusion

The upcoming autumn budget 2024 UK is important for the government. The Chancellor faces numerous challenges, including a difficult economic situation and a need to deliver on pre-election pledges. They need to find a way to prioritise a sustainable future, invest in preventative measures and ensure a fair distribution of resources, whilst carefully introducing well targeted tax rises. The budget’s impact on the economy and people’s lives across the UK will be undeniable. The choices made by Chancellor Rachel Reeves will have a lasting impact.