Budget speculation – our final round-up

Employment taxes 

NB. National insurance content of this article updated 26 October 2024. 

No sooner had last week’s review gone out than news was spreading (initially via the FT) that the chancellor is planning to extend the freeze on income tax allowances. A further two-year freeze to the thresholds for personal tax would reportedly raise about £7bn in 2029-2030. Adding a two year freeze on the starting point for employer NICs would add an extra £1bn in 2029-30.

The Institute for Fiscal Studies has warned that an extension until 2030 would drag an extra 400,000 people into the basic rate of tax and 600,000 into the higher and additional rates.

The single largest revenue raiser in the Budget is now expected to be an increase in employers' national insurance. The BBC reported on the morning of 26 October that the chancellor is set to increase the employer NI rate and lower the threshold for when employers start paying the tax - with the two measures combined to raise about £20 billion. The article, which quotes a 'government source', does not state explicitly that the chancellor is putting the rate up by two percentage points but that is implied and would be consistent with the amount raised. The government's ready reckoner suggests a two point rise in employer NI would raise just under £17 billion in the 2025-26 tax year - the remainder would presumably come from a lower threshold - the total of £20 billion implies it would fall by about £16 per week from the current £175 per week though no doubt that total is only approximate.

The same article dampens expectations of national insurance on employers’ pension contributions. Previous reports had suggested this was likely but the BBC says Reeves "is not likely to introduce the levy to employers' pensions contributions". This is notwithstanding The Times this week going so far as reporting that the Treasury would be reimbursing public sector employers for the costs of this. The measure, if introduced, would aim to raise £15.4 billion but around £5 billion of this would be needed to fund the costs in relation to employees of the NHS, government departments and other parts of the public sector. The SNP has called for a “cast-iron guarantee” that any changes to NI in the Budget will not impact Scottish public services or reduce the Scottish government’s budget.

Capital Gains Tax

Another story which broke last Friday afternoon was that Business Asset Disposal Relief is expected to be scrapped. Both Bloomberg and the FT reported this, the latter saying ‘Whitehall insiders’ have confirmed it. The IFS recently proposed that BADR be replaced by more generous deductions for investment costs. There is no word yet on whether this is what the government plans. Some reports have speculated that the relief – formerly known as Entrepreneurs’ Relief – may be reformed rather than abolished.

Rumours persist that the Chancellor plans to introduce wider changes to CGT in the Budget but nothing substantively new has emerged in the last week. The most reliable looking report still looks to be The Times on 17 October, suggesting that the Chancellor will raise the main rate of CGT (the 10%/20% one covering shares and other assets) by “several percentage points” but will not change the rate for residential property.

On carried interest the FT report quoting ‘government insiders’ saying private equity managers will not be taxed at the full 45% tax rate on carried interest seems the most reliable. Carried interest remaining within CGT but at a higher rate would seem favourite here.

Predictably a range of groups have stepped up their warnings of the impact increases to CGT would have. These include the Federation of Small Businesses on Business Asset Disposal Relief and the Centre for Policy Studies and the Tax Foundation on CGT rates.

An unsurprising piece of CGT news this week was new data which showed that the UK saw a 16.3% rise in CGT receipts in the third quarter. This has been widely attributed to people triggering disposals ahead of possible rate increases next week.

Inheritance tax

The expectation continues that the Chancellor will introduce increases to IHT in next week’s Budget, based on last Friday’s BBC report that the government “is planning to increase the amount of money it raises in inheritance tax at the Budget” and that the Prime Minister and Chancellor “are considering multiple changes to the tax”.

The BBC said it did not know what the changes would be and, a week on, we are no closer to knowing. But speculation continues to focus on agricultural and business reliefs which Labour is known to have been considering the future of in opposition (including the relief for AIM shares within the business relief). MPs tried to put pressure on the government in a House of Commons debate this week (see below) but predictably the minister was tight-lipped.

Another area of focus is – following last Friday’s FT report – the “seven-year rule” which, according to ‘people briefed on the chancellor’s Budget preparations’, the chancellor is looking at extending to 10 years.

Treatment of gifts is also in the spotlight (for example, in the Telegraph) with speculation that the “unlimited gifts from income” exemption - which allows individuals to make significant tax-free gifts, as long as the gifts are regular and do not affect their standard of living - may be under review. You are reminded that Reeves, back in 2018, mooted shifting IHT to a tax on gifts throughout a lifetime. It’s not impossible she might launch a consultation on more radical changes to IHT (or even capital taxes generally) than those so far rumoured.

Reports this week indicate that the Exchequer collected a record £2.2 billion in IHT in the three months to September. Unlike CGT this is not believed to be people deliberately triggering chargeable events ahead of next week’s anticipated rise but rather a reflection of the continuing freeze in the threshold which is dragging an increasing number of estates into the tax.

Business taxes

Most observers expect more action on the personal tax than the business tax front on Wednesday but there are two areas where something is expected on the latter.

We may hear more about Labour’s plans for business rates reform in the Budget, but perhaps not very much. According to reports this week, the Chancellor is exploring plans to raise the amount paid by online tech giants in order to fund cuts for high street outlets. While news articles have referred to an ‘Amazon tax’ we haven’t yet seen anything to suggest this will be a separate levy. The suggestion seems to be that there will be a consultation with higher taxes on warehouses of the kind Amazon use as one proposal. For some this will no doubt be reminiscent of the last government’s consultation on an online sales tax which led to not very much.

Businesses are probably more concerned about the fate of temporary business rate relief. Leaders of 170 businesses this week called for permanent action on business rates relief in the Budget. In an open letter to the Chancellor, they warned that without action, high street investments “will be curtailed, employment opportunities will be squandered, and ultimately, we will see higher levels of business failures.”

Back on the consultation theme ministers have already said that the Budget will see a draft Business Tax Road Map issued for consultation. No movement is expected on corporate tax rates (Labour have firmly promised not to raise corporation tax as well as retaining full expensing) but this may shed light on how they will deliver the manifesto promise to “[p]rovide firms with greater clarity on what qualifies for allowances to improve business investment decisions.”

The manifesto promise to ‘close the loopholes’ in the Energy Profits Levy will presumably be in the Budget. Labour have said they would extend the sunset clause until the end of this parliament; increase the rate of the levy by 3 percentage points; remove the investment allowances; retain the Energy Security Investment Mechanism.

The Times has speculated that Reeves could introduce a one-off tax to claw back some of the windfall banks have gained by not passing on the Bank of England’s interest rate rises in full to savers.

Property taxes

The chancellor is widely expected to let stamp duty land tax breaks lapse. The SDLT threshold was raised from £125,000 to £250,000 for home movers, including buy-to-let landlords, and from £300,000 to £425,000 for first-time buyers, in the famous 2022 mini-budget. This was not one of the changes Jeremy Hunt reversed when he came in as chancellor but he did say the cuts would expire in April 2025. Reeves is not expected to change this, notwithstanding the pleas of landlords and others.

The Budget will also presumably deliver the manifesto commitment of funding additional planning officers by increasing the rate of the SDLT surcharge paid by non-UK residents.

For business rates, see Business taxes, above.

Other measures

The chancellor is thought likely to publish a plan to tackle the tax gap, including additional resources for compliance and a range of other measures. Hopefully these will include support for HMRC customer services so willing taxpayers and their advisers can get prompt answers to enquiries and process registrations, payments and refunds easily and quickly too.

Nothing new on non-doms since a week ago. Uncertainty still remains about what changes if any Labour will make to the proposals to scrap non-dom tax status put forward by the Conservatives at the last Budget. This follows reporting earlier this month that Reeves could water down Labour’s planned changes amid fears the move would fail to raise any money.

Ending the VAT exemption and business rates relief for private schools will no doubt also be in the Budget.

Reports suggest Reeves is weighing possible tax increases on the gambling sector worth up to £3 billion.

The chancellor has said she will be changing the way that the government measures debt. It is thought this might give the government an extra £50 billion of flexibility to borrow for investment, but the widespread expectation is that only about £20 billion of this will be used at the Budget.