As another Autumn Budget approaches, we would like to share our thoughts on what we are hearing in the profession. It is worth noting that we cannot be sure of anything, and we would never base advice on rumours; therefore, the following should not be treated as advice.
So where are we? We are now 12 months on from a budget that surprised even the most pessimistic of financial commentators. That being said, much of what was announced has either yet to come into force or is too early to determine the ultimate result. The changes to Agricultural Property Relief and Business Property Relief, alongside other Inheritance Tax alterations, do not come into force until April 2026, and the significant change that will see pensions being included in estates will be a further 12 months down the road from that.
We still have a Labour government that pledged not to touch Income Tax, National Insurance, or VAT in their manifesto, and having completely changed the shape of Inheritance Tax and Pension Legislation last year, there is little left to be touched. That said, the country still has a rising debt issue, inflation is still ahead of where the Bank of England would target, and there is a significant deficit that needs addressing, around £30bn-£50bn if some commentators are to be believed.
The last introductory note before we get into some technical thoughts is that there is never smoke without fire, that is, these rumours that pop up pre-budgets are never completely made up. In the lead-up to budgets, ‘spitball’ meetings are held at Whitehall. The core purpose of these is to throw as many ideas at the wall as possible and see if anything sticks. They are free-thinking sessions where little thought is given to the second and third-order effects. Some of these ideas get out of Whitehall and end up in the press, often touted as being ‘under serious consideration’, and then public opinion is gauged off the back of this. Whether these leaks are intentional or not, they certainly allow governments to get a good idea of how people, and the polls, would react to certain budgetary announcements.
Pension Legislation
The core rumour this time last year was around abolishing the ability to take a tax-free lump sum from pensions. After not altering this last year, the rumours are once again flying around. Internally, our stance has not changed. We don’t believe any government is brave enough to do this overnight, that is, stand up on the 26th of November and say that as of midnight last night, nobody is entitled to a tax-free lump sum from their pension. What could be a possibility is that they set out a plan to phase it out, or they allow protections for those already with pension assets, or those above a certain age, say within 10 years of being able to access pensions.
Since the idea of taking tax-free cash from a pension was introduced, it has been altered by various governments over various decades. The only thing that has remained consistent is that when changes have been penal, protections and transitional reliefs have been put in place. To back this up, the complete removal of tax-free cash would not only throw millions of people’s retirement plans into chaos, but it would also be almost impossible to administer a change like this overnight.
If a change like this is to be brought in, the very earliest they could do anything would be the end of the tax year, and even this would provide us sufficient time to speak to our clients and take any action that was necessary.
This topic is so well documented in the news outlets because it would affect so many people. News outlets need content that people will read, and this is an area that ticks that box. Whilst it might be difficult to do, we would encourage tuning out as much of this noise as possible.
Capital Gains Tax
Capital Gains Taxes were increased 12 months ago, from 10% and 20% up to 18% and 24% for basic and higher rate taxpayers, respectively. It is unlikely, but not impossible, that 12 months on, we would see further tinkering. Any changes here would probably be a complete overhaul, which would be difficult to predict what this would look like. One thing that could happen is a removal of the CGT reliefs on death, that is, at the moment, if you die with an unrealised gain, the gain and any CGT dies with you and is neither payable nor passed on.
Inheritance Tax
Like with pension legislation, any significant changes around Inheritance Tax would unlikely be implemented overnight. What could be changed immediately could be the introduction of a lifetime gifting allowance, increasing the 7-year clock for gifts made, or removing the taper relief that is currently available on gifts. None of these would be nice, but we also don’t see the need to rush out to gift on the basis of these rumours.
Whilst on the morbid topic of dying, there was also mention at one point of the removal of the ability to alter a Will posthumously using a Deed of Variation. Often, a Will is varied for tax purposes, so removing this could see tax intakes increase.
As with any Labour budget, there will always be rumours around wealth tax. These have not been helped by Ms Reeves stating that those with the ‘broadest shoulders’ should contribute more towards balancing the books. That was followed by Rachel also saying that ‘we’re not going to be introducing a wealth tax’ and seemingly hinting towards the fact that her hardest-hitting plans were put in place last year, rather than significantly more change this year. Where wealth taxes have been introduced abroad, they have been unsuccessful, so we don’t think that is the answer to Labour’s problem.
Flat Rate of Pension Tax Relief
Pension Tax Relief in this country is generous, but that means it is also expensive, costing around £50bn per annum for the government. It is also seen as benefiting higher earners more than anyone else, so it is quite “un-labour”. That being said, everyone benefits from having full pension tax relief on personal pension contributions; that is, if you pay tax at 20%, you receive tax relief at 20% and if you pay tax at 48%, you get 48% tax relief. Rachel Reeves has previously floated the idea of tax relief reform and moving to a flat rate of tax relief, possibly 25% or 33%. This would not only save the country money at a time when it is needed, but it would (or should) encourage basic rate taxpayers to pay more into their pensions.
This is another possibility for Ms Reeves to consider, but one that would definitely not be implemented overnight, and with the amount of change that would be needed to various pension systems, one that would be unlikely to be pushed through by April 2026, also.
Other Taxes
One interesting suggestion, could see a key pledge being broken. It has been suggested that she could increase all income tax bands by 2%. This would break her promise of no changes in income tax, National Insurance, or VAT. The suggestion, though, is that she would then cut NI by 2% so that for the ‘working people’ they would feel no change. The target is retirees. Most retirees will pay some amount of Income Tax on their pension income, but they will not pay National Insurance and therefore wouldn’t benefit from any offset, resulting in an increased tax take.
Labour managed to stick to their pledge last year by increasing employers’ NI rates rather than the individuals’ NI rates. There is a possibility they could target this area again, potentially removing employers’ NI relief that is granted on pension contributions, but, again, this would be difficult to implement overnight.
ISA Changes
Finally, Labour has talked at length about boosting investment in UK businesses. We saw the suggestion of a British ISA (BISA) at one point, whereby your ISA allowance increased if you were investing in British Businesses. This has since been shelved, but the rhetoric of encouraging investment remains. There is a suggestion that Labour may look to cut cash ISA allowances moving forward to actively encourage more into Stocks and Shares ISAs, which they believe would naturally lead to at least a portion of these investments being made into British companies.
Furthermore, as this was being drafted, it came out in the papers that they might enforce a minimum UK investment holding in a Stocks and Shares ISA. In our opinion, this is just another rumour that has been dropped, knowing it will catch people’s attention. This would be difficult to impose, as how do you define what a British business is? The FTSE 100 is sometimes called a proxy for the UK investment market when, actually the majority of those 100 companies are overseas companies that are listed in the UK.
With ISA changes, these have always been implemented at the start of a tax year, so any changes are likely to have until at least April 2026 to plan for.
Summary
Is there anything you should be doing? No, we would not recommend that anyone take any significant action as a result of these rumours.
The above is all high-level speculation, but we’re conscious that this is at the forefront of a lot of our clients’ minds, so hopefully it has been informative. If we get wind of something concrete, we will of course be in touch.
Footnotes
None of the above should be treated as advice.
