What changes can we expect with the Labour government and from the October 2024 budget?

Now the Labour Government is in place the obvious next step was for a budget to be called to start implementing the changes they had pledged to make as part of their manifesto.

The question was all about timing and there is always the chance that some changes may come into force on 30^th October 2024.

So what can we expect?

Tax: Income tax

Expectation: No change

Labour has pledged not to raise income tax as part of their manifesto, although they have since said that the ‘There’s not a huge amount of money’ after issues identified with previous government, we don’t expect them to go against the original pledge but we never know.

They have committed to keeping the income tax thresholds unchanged until 2028. This means as inflation leads to increases in income the tax free balance won’t also increase meaning more tax will be paid at a higher rate.

Tax: Corporation tax

Expectation: No change

Labour have ruled out increasing the Corporation Tax rates above 25% and pledged a “roadmap for business taxation” within six months of taking office. This should give us an idea of planned changes over the coming years.

The Conservatives brought back the marginal relief that means If your company made more than £250,000 profit, you’ll pay the main rate of Corporation Tax of 25%.

If your company made a profit of £50,000 or less, you’ll pay the ‘small profits rate’, which is 19%. If you profits fall between £50,000 and £250,000 you will fall within the marginal rate.

Let’s se if the new government looks to simplify this.

Tax: VAT

Expectation: Some change

Although we aren’t aware of significant changes to the current VAT system e.g. VAT registration threshold or the VAT rates, we are expecting a change to VAT on private school fees.

The government has published draft legislation which charges VAT at 20% on education and boarding services provided by private schools for a fee. However, the government says that the changes will not impact pupils with the most acute special educational needs, where those needs can only be met in private schools.

It will likely impact private school fees from January 2025.

Tax: Capital Gains Tax

Expectation: Changes incoming

If you are currently in the process of a capital sale for example sale of a property or shares in a business you may want to look to accelerate this process as the expectation is that the capital gain rates will increase significantly.

Potentially as high as matching personal tax rates of 20% within the basic rate band (earnings up to £50,270 (including personal allowance of £12,570)) the current rate is 10% on certain assets.

The higher rate of tax currently set at 20% will also likely increase.

It is yet to be confirmed whether the business asset disposal relief (previously known as Entrepreneurs relief) will be changed. This relief allows business owners (assuming certain criteria is met) to benefit from a 10% tax rate on the first £1 million of profit.

Tax: Inheritance Tax

Expectation: Changes incoming

Labour's manifesto mentions a plan to stop the use of offshore trusts for avoiding inheritance tax (IHT). While offshore trusts can be legally set up for various reasons, Labour's proposal is based on a 2018 Conservative report highlighting that tax avoidance is a common use of these trusts.

Inheritance tax is also an area where significant reforms are expected. Potential changes might include reducing the benefits of agricultural and business property relief. These reforms could start with a consultation in the autumn.

Tax: Stamp Duty Land Tax

Expectations: Some change

If you’re a non-UK resident individual and you buy residential property in England or Northern Ireland you currently pay a surcharge of 2% on top of the SDLT rates paid by UK residents. The changes proposed by Labour will see the surcharge increase to 3%.

The next big question is timing?

We are unsure whether these changes will come in immediately after the 30^th October 2024 announcements or whether they will come in to place 6^th April 2025.

If you want to discuss anything in more detail contact a member of the team who will happily chat this through and discuss how the potential changes could impact you.

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