What’s going to happen in the 2024 budget?
It’s a question we’re being asked frequently at the moment, from clients, friend and contacts!
So, we asked our Tax Director Paul Brown to share his thoughts and predictions, with the caveat that no-one really knows what will happen…
Here’s what Paul had to say:
Despite election promises to keep the main tax rates—income tax, National Insurance Contributions (NIC), corporation tax, and VAT—steady, the current tax environment is arguably the most uncertain in years.
With rumours swirling about how Rachel Reeves might address the much-debated £22 billion “black hole” in public finances, it’s hard not to speculate.
If the government is indeed looking to increase tax revenues, Inheritance Tax (IHT) and Capital Gains Tax (CGT) are likely targets.
These taxes, often perceived as affecting the wealthier segments of society, might be easier for the government to justify increasing without alienating its traditional voter base.
Indeed, just this week Kier Starmer told the press that it would be a very painful budget, and that those with the broadest shoulders would bear the brunt of any tax rises.
So, what might we expect from the upcoming Budget?
Business Asset Disposal Relief (BADR): Is the End Near?
“If I had a pound for every time someone predicted the end of Business Asset Disposal Relief (still often referred to as Entrepreneur’s Relief), I’d be a wealthy man!” says Paul. Yet, this time, it seems highly probable that the relief could be scrapped.
This change could take effect from Budget Day itself, potentially costing those who would otherwise have benefited up to £100,000 in CGT (Capital Gains Tax).
Paul goes further, stating “Beware of any schemes promoting artificial transactions to “lock in” BADR before the Budget—these are likely to be targeted by anti-avoidance rules.”
So, will there be nothing for people who have worked hard all their lives to build their businesses viewing a sale of the same as their retirement income?
Paul suggests that if a replacement to BADR is introduced, it might take the form of a retirement relief, aimed specifically at those “of a certain age” selling their businesses.
Capital Gains Tax (CGT) Rate Hikes: A Question of When, Not If?
It seems almost inevitable that the CGT main rate will increase from their current levels—10% for basic rate taxpayers and 20% for higher and additional rate taxpayers.
While it’s unlikely that these rates will be aligned with income tax rates, an increase to perhaps 20% and 30% respectively seems plausible.
If a steeper rise is on the cards, we might see a return to taper relief, providing a discount on gains based on the length of asset ownership, and adding a huge amount of complexity to both recordkeeping, financial planning and calculating capital gains tax liabilities.
This change, if implemented, would likely kick in from the new tax year on 6 April.
Changes to CGT on Residential Property: A New Reality for Landlords?
For those owning more than one residential property, the CGT rates could rise from the current 18% and 24%.
If you remember the rate for higher rate tax payers was reduced from 28% to its current 24% in the last budget, and it makes sense to think that this Government will at a minimum reverse this reduction.
These increases might even surpass the rates applied to other assets.
While the government’s stance against multiple property ownership may be puzzling to some, it’s a trend that seems set to continue.
Inheritance Tax (IHT) Meets Capital Gains Tax: A New Intersection?
A crossover between IHT and CGT might emerge through changes in how assets are taxed upon death.
Currently, when a person dies, their beneficiaries inherit assets at their market value, eliminating any CGT liability if sold at that value.
This rule applies even if the assets were exempt from IHT due to Business Property Relief (BPR) or Agricultural Property Relief (APR), effectively giving the inheritor of the asset a ‘double whammy’ of a tax win.
The potential removal of the CGT uplift where assets don’t attract IHT could be an easy win for the government, though any substantial changes to IHT would likely be subject to consultation.
Business Property Relief (BPR): Stricter Rules on the Horizon?
The current test for BPR eligibility is whether a business is “wholly or mainly trading,” usually interpreted as more than 50% trading activity. With careful planning investment assets which may not otherwise qualify for BPR can be brought into a business. This means that, provided the wholly or mainly test is still met by the business as a whole, the value of those assets can be protected from IHT.
This threshold might be raised to 80%, making it harder for businesses with significant investment assets to qualify.
Such a change could limit the ability to shelter investment assets from IHT.
Agricultural Property Relief (APR): A Tweak or Two?
HMRC has long been concerned about farmhouses that qualify for APR, thus escaping IHT.
While removing this exemption entirely would be difficult, introducing a lower IHT rate for farmhouses could be considered.
Given the disparity between the value of residential and agricultural land, such a change could create significant challenges for many farmers.
Pension Changes: Another Revenue Raiser?
Pensions have often been in the government’s crosshairs when looking for revenue.
Removing higher rate relief on pension contributions could be an option, as could reintroducing the lifetime limit on pension savings—perhaps with exceptions for NHS consultants.
Reducing the annual allowance from the current £60,000 back down to £40,000 could also be on the table.
An Extra Thought: A Sneaky CGT Deadline Extension?
One extra possibility that could fly under the radar is extending the 60-day reporting and payment deadline for CGT beyond residential property to cover all assets.
Even if the government doesn’t increase CGT rates, such a move would bring revenue forward significantly—after all, tax paid early is just as valuable as tax paid later at a higher rate!
This could be a subtle yet effective way for the government to boost its cash flow without making headline-grabbing tax hikes.
R&D Tax Incentives: Time for a Fresh Start?
“Perhaps more in hope than expectation, I would be delighted to see a root and branch reform of the R&D tax incentives system” says Paul.
The current rules are overly complex and, when combined with an increasingly aggressive approach to compliance from HMRC, are actively discouraging companies from claiming what they’re genuinely entitled to.
While the old system has undoubtedly been abused by a small number of unscrupulous advisers, constantly applying sticking plasters to a system that’s not fit for purpose isn’t the answer.
Instead, why not start with a blank sheet of paper, involve industry experts, and develop a new system that truly incentivises innovative behaviour from companies?
Afterall, the current system was developed way before the internet, let alone the evolution of artificial intelligence!!
Final Thoughts: A Budget Full of Surprises?
The Chancellor has indicated she wants to take her time preparing the Budget—a sensible approach.
One can only hope that this time includes considering the unintended consequences of any proposed measures.
The current outlook is certainly bleak, but perhaps the strategy is to paint a grim picture so that when the Budget isn’t quite as bad as feared, we all breathe a sigh of relief and think, “Well, it could have been worse!”
For more insights on how potential tax changes might affect you or your business, keep an eye on our news pages and our YouTube channel which are updated regularly.
And as ever, if you have specific concerns, don’t hesitate to contact us directly for tailored advice. 🌟
