Autumn Pre-Budget 2024: Considerations for UK-Based Individuals

Tax is just one of a myriad of factors that might be taken into consideration when thinking about taking a particular course of action.  However, it has always been the case that the possibility of changes to the tax regime focuses the mind of the taxpayer on their own position.

Indeed, you will no doubt have struggled not to notice the speculation in the press surrounding the upcoming Budget and what tax changes might be made. In the main, it is currently just that: speculation.

In recent times, we have also seen increasing use being made of anti-forestalling rules (most recently in respect of VAT on school fees) that are intended to remove any tax benefit that might otherwise have been received by taxpayers taking actions after announced tax changes but before they become law.  Alternatively, where taxpayers enter into non-commercial or conditional arrangements in anticipation of changes, these can also be countered.

Taking these factors into account, typically our advice would be not to instigate a new tax strategy prior to a Budget where there is a distinct lack of visibility on what might change.  However, if you had already planned to undertake a transaction in the near future, based on the current rules, the question of whether the timeframe should be accelerated to a pre-Budget completion is a valid one.

The government has stated that it does not intend to increase any of the following:

• The basic rate, higher rate, or additional rates of income tax (20%, 40% and 45%)
• National Insurance (NI) rates for employees
• The full rate of corporation tax
• VAT

In this context, we have set out below some initial thoughts on the key taxes.  These are not designed to be exhaustive and by the same token may not be relevant to your situation.  In addition, you should seek detailed advice before undertaking any transaction to confirm the tax position in your particular circumstances.

Income tax Changes

Whilst the government has committed to not increase the rates of income tax, this still leaves plenty of scope to make changes that impact on a taxpayer’s income tax liability.  For example:

• The income tax thresholds at which the different rates of tax are charged could be changed such that more income falls within the higher and additional rate bands of tax
• Could the threshold at which the personal allowance begins to be lost, be set at a lower level?
• Given the commitment to “working people”, could we see changes to the taxation of investment income, e.g. abolition of the Personal Savings Allowance and/or the Starting Rate for Savings, or changes to the rate of tax on dividends?

Timing in this situation is uncertain, so whilst any changes may be effective from 6 April 2025, the government could decide to make them immediate.  Therefore, if you are a shareholder in a privately owned company that intends to pay a dividend this year, should thought be given to paying this pre-Budget?

Pensions Tax Changes

There is a lot of comment as to how the pension regime may be changed. If you are either able to make further contributions, or are approaching retirement, it would be sensible to understand your options and determine if any action is needed or possible before the Budget. It is currently not clear on the date which any changes would be implemented. Areas of possible change include:

• The introduction of a flat rate of income tax relief on contributions. If you are currently receiving higher rate relief your income tax position may be affected.
• If you are considering making one-off pension contributions this tax year, should these be made pre-Budget?
• Potential limitation on the ability to carry forward unused relief – it is worth considering using up any unused relief if you have not made maximum contributions in the previous three tax years?
• Introducing a fixed amount for the withdrawal of tax free lump sums. The amount you are currently allowed to take tax free depends on the amount in your pension and the amount of your lifetime allowance
• Extending the scope of inheritance tax to include pension funds where a person who dies under age 75
• Other changes to the annual allowance or reintroduction of a lifetime allowance test

Capital gains tax (CGT)

The rate of capital gains tax (CGT) is widely expected to increase, but by how much and when is not known. Perhaps the most likely case is to align the rate of CGT with that for income tax and apply for transactions after 30 October 2024. A mid-year change is not without precedent but in any event anti-forestalling rules can be expected to limit aggressive planning.  As a result you may want to consider:

• Realising gains where possible before 30 October. There are limits on the time before you can buy back an asset and transfers between spouses or connected persons may affect the amount of the gain realised
• Consider any losses you have carefully. It may be wise to defer realisation of losses so as to maximise the rate of relief against gains. However, not all losses are created equal so be careful with losses created by way of a connected party transaction
• If you sold shares in either the 2022/23 or 2023/24 tax years and received (as part of your consideration) new shares and/or loan notes in the acquirer then it is likely that the tax liability associated with these will have been deferred until they are eventually disposed of. However, it may be possible to elect to disapply this treatment and pay tax on the market value of the new shares and/or loan notes at the time of the original transaction and the prevailing rates at that time

This is a complex area and there are a number of factors to consider, including the funding of the Capital Gains Tax liability.  It is also an area where we could see anti-forestalling rules being introduced such that it is likely that action would need to be taken pre-Budget.  Therefore please seek detailed advice.

Inheritance tax (IHT) Changes

Significant changes to the IHT regime are anticipated but there has been little indication of the nature, extent, or timing of what might be done.  Areas to consider are:

• Making gifts. If the current Potentially Exempt Transfer regime is tightened or removed, you may want to accelerate any planned giving now. This is especially the case where the gift will generate a capital gain in your hands.
• Reliefs for business property and agricultural property may be limited. Can the effect of the existing regime be preserved by transferring assets into a trust? There are many ramifications of a trust so please seek detailed advice.
• Take the opportunity to review your Will to make sure it is appropriate for your needs and as efficient as possible.

Generally

Even if there is no action for you to take before the Budget, an overhaul of the tax system is likely to impact everyone and we would encourage you to review your affairs before and afterwards to make sure your financial arrangements meet your needs.

We will be following developments closely and will be happy to advise further on your situation. In the first instance, please contact the partner or director with whom you usually deal.