Which tax rises could be announced in the Autumn Statement?

The Prime Minister Kier Starmer has warned of a ‘painful budget.’ Tax rises in the October budget are widely expected and the chancellor Rachel Reeves is expected to look at pensions, CGT and IHT as part of a package of measures to boost the Treasury.

When is the budget?

The Chancellor announced that the budget will be presented to parliament on Wednesday 30 October. The threat of tax rises comes after the Chancellor warned of a £22bn black hole in the country’s finances and she is widely expected to announce significant changes to plug that gap.

Which taxes are likely to be increased?

Landlords’ tax

Rental profits are currently subject only to income tax, but some Labour MPs are urging the chancellor to levy a landlords’ national insurance charge on rental profits for the first time. 

Capital gains tax

Capital gains tax (CGT) is charged on the profit made from the sale of an asset that has increased in value.  Examples of these may be shares that are not held in ISAs, or second homes. CGT is payable by individuals but also self employed sole traders, partners in business partnerships and company owners among others.

Capital gains tax rates range from 10% on trading businesses to up to 24% on residential property.  At the same time the conservatives reduced the capital gains tax annual exemption to £3,000.

Commentators are suggesting that current government may bring capital gains tax rates in line with income tax rates or at the very least, increase the CGT rates substantially.

Dividend tax

The dividend tax free allowance has been reduced over recent years from £2,000 to £1,000 in April 2023 and then to just £500 from April 2024.  Dividend tax rates then start at 8.75% per cent for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

The freeze in tax thresholds also means that more investors are caught by higher rates. This means that many basic rate taxpayers who only just breach the allowance will be required to file a tax return for the first time.

Pensions

When individuals pay into private pensions out of taxed income, their pension fund receives tax relief on these contributions at the basic rate.  Higher rate taxpayers can claim additional tax relief through the filing of their personal tax returns.

The chancellor is expected to consider a proposal by Treasury officials for a flat 30% rate of pension tax relief, meaning higher rate tax payers will lose out.

Inheritance tax

Inheritance tax (IHT) is charged on a deceased person’s estate at 40%, after taking into account that person’s available nil rate band (NRB), which is generally £325,000. 

No tax is due if the estate is valued at less than £325,000 or if the entire estate is left to a husband or wife, civil partner, charity, or a community amateur sports club.  The residence nil rate band (RNRB) may also be available if the estate is valued at less than £2 million, giving a total tax free allowance of £500,000.  On the death of the spouse or civil partner, their entire estate can be eligible for relief of up to £1,000,000.

There are other reliefs available for business assets or agricultural land.  Pensions are also considered to be outside of the deceased’s estate and therefore are free of IHT.

There are suggestions that the chancellor could raise the rate of inheritance tax overall, or curb the relief available on assets such as agricultural land and pension savings.

We will be providing an instant summary of the budget again this year and a more detailed downloadable pack will be delivered to your email shortly afterwards. If you have any questions in the meantime, please do get in touch with your Swindells partner.