Rachel Reeves reveals significant alterations to fiscal guidelines, intending to unlock billions of British pounds
The upcoming UK Autumn Budget, scheduled for 30 October, is expected to include several tax changes that could impact various sectors. Here's a breakdown of the potential tax hikes or changes related to pensions, inheritance tax, capital gains tax, and VAT on private school fees:
Pensions
Changes to pension taxation, such as limiting the rate of income tax relief on pension contributions or reducing the tax-free lump sum, have been discussed. However, these changes are complex and politically sensitive, which might deter the Chancellor from implementing them.
Inheritance Tax (IHT)
The government is considering reforms to IHT, including caps on lifetime gifts without incurring tax. The possibility of extending the seven-year timeframe or removing certain reliefs like business relief for AIM-listed portfolios is also being explored. However, these changes are difficult to implement and might not yield significant revenue. The IHT allowance remains frozen at £325,000 until 2030, making more individuals liable for IHT.
Capital Gains Tax (CGT)
The CGT rates have increased for individuals and trustees to 18% and 24%, respectively. There are plans to further align these rates with income tax rates. As a result, CGT receipts are expected to rise significantly, potentially reaching £25.5 billion by 2029/30.
VAT on Private School Fees
There is no specific mention of VAT changes on private school fees in the current discussions. The government's stance is generally focused on other areas like income tax, National Insurance contributions, and business rates, without indicating an increase in VAT rates or their application to private education services.
However, Labour has confirmed that it will add VAT to private school fees from 1 January 2025 to help fund more teachers in the state sector, potentially leading to costs increasing by up to 20%.
Overall, the Autumn Budget aims to balance fiscal discipline with economic growth, but these tax changes could have significant implications for various sectors and individuals. The primary purpose of these changes is to allow the government to fund additional investment, particularly in infrastructure projects like roads and railways.
The personal allowance and income tax thresholds have been frozen until 2028, leading to taxpayers being dragged into higher tax bands as their salary increases with inflation. Fiscal drag, the silent tax collector, is expected to result in taxpayers paying a larger annual bill regardless of tax rates.
Rachel Reeves, the Chancellor of the Exchequer, will modify the UK's fiscal rules in the upcoming Budget. If the latest rumors are true, Reeves could extend the freeze on the personal allowance and income tax thresholds until the end of the current parliament. This modification will enable the release of billions of pounds for infrastructure spending.
Prime Minister Keir Starmer has warned that the Budget will be "painful" and involve "tough decisions". Labour is reportedly looking to raise £40 billion through a combination of spending cuts and tax rises. The markets are being closely watched in relation to the proposed changes.
Jeremy Hunt, the Shadow Chancellor, expressed concern that increasing borrowing could lead to higher interest rates for longer periods, potentially affecting families with mortgages. The change in fiscal rules will be made to alter the way debt is measured.
The expected change will allow up to £50bn of extra borrowing for major infrastructure projects like roads and railways. The extra borrowing will be used over the course of Labour's term in power, not just for projects in the upcoming Budget.
Rachel Reeves confirmed the change during a trip to the International Monetary Fund's annual meetings in Washington.
- In the upcoming UK Autumn Budget, the possibility of altering personal allowance and income tax thresholds remains under discussion, which could lead to taxpayers being moved into higher tax brackets due to inflation.
- The Labour party has proposed adding Value Added Tax (VAT) to private school fees starting from 1 January 2025, aiming to generate funds for increasing state school teachers.
- In the realm of finance and business, the Chancellor of the Exchequer, Rachel Reeves, is planning to modify the UK's fiscal rules, potentially extending the freeze on personal allowance and income tax thresholds, aiming to free up billions of pounds for infrastructure spending.
