The first Budget of the new Labour Government has been announced to take place on 30 October 2024.
Ahead of the budget, Chancellor Rachel Reeves has announced that spending cuts worth £13.5 billion will be required over the next two years.
She explained that this was due to the scale of the previous Government’s overspending, which was unsustainable. The Chancellor said there is a £22 billion black hole in the public finances.
The immediate action Labour will take to deal with this issue includes cancellation and delays of major infrastructure projects.
Key takeaways on tax
According to Ms Reeves, the first Budget will require “difficult decisions” to be made to meet Labour’s fiscal rules, including major decisions on spending and tax.
In correlation with the Labour manifesto, she did rule out raising income tax, national insurance (NI) and VAT, however, a report to close tax loopholes and tax avoidance to recover public finances is intended to be published.
Additionally, changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT) have not been ruled out.
Valuable reliefs, such as Business Asset Disposal Relief, could also be cut to bring in more tax, and this would affect anyone selling their business or a substantial number of shares.
Before the election, in the Spring Budget, the former Chancellor Jeremy Hunt announced the abolition of non-dom status in the UK and the eventual removal of the remittance basis, under a transitional process.
The new Government is set to double down on its plans announcing a “modern scheme” intended only to support people “genuinely in the country for a short period.”
The transitional arrangements due to be in place from April 2025, will not be retained under Labour’s plans and they have confirmed that they intend to end the use of offshore trusts to avoid Inheritance Tax.
This will, they say, ensure “that everyone who makes their home here in the UK pays their taxes here.”
Universal winter fuel payment
During her speech, Ms Reeves confirmed that she would be ending universal winter fuel payments, which are currently paid to all pensions.
She stated that starting this year, individuals who are not receiving pension credits or other means-tested benefits will no longer be eligible for these payments.
Pension tax relief
Rachel Reeves might consider lowering higher rate tax relief on pension contributions and introducing a flat rate scheme that applies to everyone, no matter their income.
There are also rumours that the 25 per cent tax-free lump sum people can currently take from their pension pots might be reduced in the future.
However, nothing has been revealed yet, but we should know once the Budget is delivered.
Office of Value for Money (OVM)
The Government will establish a new watchdog to ensure that all Government spending delivers value for money.
The Chancellor also confirmed to the Commons that a Covid anti-corruption probe will proceed, designed to recover money lost to Covid-related fraud.
If you have any questions following Rachel Reeves’s speech or would like advice ahead of the Budget, please get in touch.
