How the 2025 Budget Could Reshape Tax Policies for Private Clients and Businesses

There is an updated version of this article delivered after the Budget you can see this here

The Autumn 2024 Budget is expected to introduce significant changes affecting private clients and businesses, with a focus on targeted tax increases.

gunnercooke Private Client Tax Advisor, Doug Stratton, on how the Autumn 2024/25 Budget Could Reshape Tax Policies for Private Clients and Businesses.

In this article we discuss

• Pension Tax Reliefs
• Inheritance Tax Adjustments
• Capital Gains Tax Revisions
• Holiday Lettings
• School Fees
• Stamp Duty

gunnercooke operating Partners will release our detailed commentary on the actual Budget statement shortly after the Chancellor makes her announcement to Parliament on 30 October 2024.

5 Minute Read

In advance of what may be the most consequential Budget statement in many years, several clients have been asking us what changes we can expect to see on 30 October. While we cannot, of course, be sure of what measures will be introduced, we have had several warnings that the Autumn budget will be painful for taxpayers, particularly in the private client / high net worth sector, since increasing tax on businesses may adversely affect the Government’s stated commitment to support economic growth.

The Labour Government has already stated that there will be no increase in income tax and National Insurance contributions, so we should expect to see several more targeted tax rises, leaving the majority with no significant changes. Based on indications from political statements and past policy intentions, we may see some of the following measures introduced:

Pension Tax Reliefs

There have already been several significant changes to pension tax relief in recent years, particularly for high earners. While this is politically highly sensitive, we may see further measures to reduce the cost of pension tax relief to the Treasury. For example:

• Rachel Reeves has announced that she has decided not to raise tax on pension contributions in this month’s Budget after public sector unions warned that doing so would hurt their members.
• The Lifetime Allowance, which capped total pension savings, may be reintroduced after its recent abolition. For example, exemptions would likely be added for public sector workers and doctors.
• It could be announced that the inheritance tax exemption for residual pension funds passing to beneficiaries upon the taxpayer’s death would be removed.

Inheritance Tax

As property values have increased recently and the IHT nil rate band has remained static, more and more estates are becoming liable to inheritance tax. Changes may be introduced to redress the balance, for example, by increasing the level of exemption (currently £500,000, including the property nil rate band) while clawing back more tax from the largest estates by reducing or abolishing reliefs. Potential measures along these lines include:

• Introducing progressive tax bands to replace the current 40% flat rate.
• Reducing reliefs for business and agricultural assets, including the relief for holding shares in unlisted / AIM-listed companies.
• Reducing or abolishing other smaller reliefs or increasing the seven-year tapering period for potentially exempt transfers.

Capital Gains Tax

Since 2008, capital gains have been taxed at much lower rates than income. Naturally, this has affected investment decisions and tax planning to take advantage of the lower rates. Since a relatively small proportion of taxpayers pays capital gains tax, this will likely be one area where the Government seeks to increase its tax take. We may see one or more of the following changes implemented:

• The most extreme option, which has broad support, would be to equalise tax rates so that gains are taxed at the same rates as income, i.e. up to 45%. Alternatively, a higher flat rate may be introduced along the lines of the 30% rate that was in operation around 40 years ago.
• Taper reliefs, which were abolished relatively recently, may be reintroduced. This would effectively tax short-term gains at higher rates than long-term gains.
• Other reliefs may also be reduced or eliminated: for example, selling your home for a gain is exempt; this may be capped to tax the highest-value properties.
• The Government is currently in consultation with the BVCA regarding the taxation of carried interest in the private equity industry; we should expect to see some changes here that will increase the tax burden on affected individuals.

The ‘Non-Domicile’ Regime

Significant changes to the non-dom regime were already announced in the March 2024 Budget statement by the last Government, which effectively abolished most of the remaining favourable treatments available to non-UK nationals resident in the UK and replaced them with a new, shorter-term simplified regime. Likely, Labour will further refine these new rules, and anyone affected should delay making significant decisions (such as remitting large sums of offshore income or gains to the UK) until there is greater certainty as to what the landscape will look like after April 2025.

Other measures

• It has already been confirmed that VAT will be charged on private school fees from 1 January 2025.
• From April 2025, the favourable ‘furnished holiday lettings’ regime will be abolished, so all rental businesses will now be treated as investment income.
• Additional funding for HMRC is likely to increase anti-avoidance scrutiny. The recent focus on rental properties, IR35, and structured avoidance arrangements will continue.
• Stamp duty land tax may also be changed by reducing exemption thresholds or increasing rates.

gunnercooke operating Partners will release our detailed commentary on the actual Budget statement shortly after the Chancellor makes her announcement to Parliament on 30 October 2024. In the meantime, if you wish to discuss how any of the above may affect you, please get in touch at [email protected].

Doug Stratton is an experienced private client tax advisor, with over 30 years’ experience providing bespoke UK income tax compliance and advisory services to expatriates, entrepreneurs, UHNW individuals and their companies, trusts and families. Doug is a specialist in UK income and capital taxes with a particular focus on international matters, and with a track record of delivering clear, effective and efficient advice to a complex and demanding client population. Aside from preparing annual Self-Assessment tax returns, Doug assists his clients in dealing with HMRC enquiries, disclosures and settlement agreements, and tax planning for a wide range of life events. He has represented well-known actors, footballers, rugby players, media personalities, and Royalty.

Key Points

• Pension Tax Reliefs: Potential measures include reintroducing the Lifetime Allowance, removing the inheritance tax exemption for residual pension funds, and avoiding tax increases on pension contributions due to public sector concerns.
• Inheritance Tax Adjustments: Possible changes could involve progressive tax bands, reducing reliefs for business and agricultural assets, and increasing the tapering period for potentially exempt transfers.
• Capital Gains Tax Revisions: Revisions may include equalising tax rates with income tax, reintroducing taper reliefs, reducing other reliefs, and changing the taxation of carried interest in private equity.
• Other Measures: Additional measures include VAT on private school fees, abolishing the furnished holiday lettings regime, increased HMRC anti-avoidance scrutiny, and potential changes to stamp duty land tax.