Anticipated Tax Changes in the October 2024 Budget
As we approach the UK’s October 2024 budget announcement, there is plenty of speculation about the potential tax changes that could be introduced. With the government facing a significant budget deficit, several key areas are likely to see adjustments. Here’s a look at what might be on the horizon and how these changes could affect the accounting and tax industry.
Key Anticipated Changes
- Reforms of tax regime for non-doms: The government is planning to abolish the remittance basis of taxation and introduce a new regime called the Foreign Income and Gains (FIG) regime starting from April 2025. Under the FIG regime, individuals who become UK tax residents after a period of ten tax years of non-UK residence will not pay tax on their foreign income and gains for the first four years of UK residence. Under the new regime, non-doms will also be exposed to UK inheritance tax on their worldwide assets after ten years of UK residence. Many may choose to leave the UK before reaching the ten-year mark to avoid IHT on their worldwide assets.
- Capital Gains Tax (CGT): They’re also expected to increase the rates of CGT, potentially aligning them with income tax rates. This means that selling investments, properties, or businesses could become more costly. Additionally, reliefs such as Business Asset Disposal Relief might be reduced or eliminated, increasing the tax burden on those selling their businesses
- Inheritance Tax (IHT): Changes to IHT are also anticipated, particularly in the treatment of agricultural and business property. The government might reduce or scrap the reliefs currently available, making it more challenging to pass on wealth without incurring significant tax liabilities. There is also talk of reforming the rules to eliminate the “double benefit” from asset revaluation on death.
- Pension Tax Relief: Pension contributions currently receive full relief from income tax, but this could change. The government is considering a flat 30% rate of pension tax relief or capping relief at the basic rate of 20%. This would particularly impact higher earners who benefit from relief at their marginal tax rate
- Council Tax is another area where changes are anticipated. Local authorities in England might be given additional flexibility to adjust council tax levels., potentially leading to higher bills. There are also unconfirmed reports that the government could replace the current banding system with a 0.5% tax on the value of a property per year. This would mean, for example, that someone in a property worth £350,000 would pay £1,750 a year.
- VAT and Other Taxes: While the government has pledged not to increase income tax, VAT, or National Insurance contributions, there could be changes to VAT exemptions and other indirect taxes to raise revenue
How these changes might affect the tax / accounting industry
The anticipated changes could have several implications for the UK’s tax and accounting industry:
- Increased demand for tax planning as a result of higher CGT and IHT rates: Individuals and businesses will seek more sophisticated tax planning strategies to minimize their liabilities. This will likely increase the demand for tax advisors and financial planners
- Complexity in Compliance: Changes to tax reliefs and exemptions will add complexity to the tax legislation, requiring tax professionals to stay updated with the latest regulations, which could lead to increased compliance costs for businesses and individuals and the need to onboard more staff where necessary.
- Shift in Investment Strategies: Higher taxes on capital gains and inheritance might prompt a shift in investment strategies. Investors may look for tax-efficient investment vehicles or consider alternative assets that offer better tax treatment. Property sites like Rightmove and Zoopla are already seeing an increased flow of vendors taking to the market in an attempt to sell assets before any speculated tax hikes.
- Impact on Retirement: Planning Changes to pension tax relief will affect retirement planning, particularly for higher rate taxpayers. Tax professionals will need to advise clients on the best strategies to maximize their retirement savings under the new rules.
Conclusion
The upcoming October 2024 budget is set to bring significant changes to the UK tax landscape. While these changes aim to address a “budget deficit”, they will also create new challenges and opportunities for the tax industry. Staying informed and proactive will be key for individuals and businesses to navigate this evolving landscape effectively.
