In a recent statement from Downing Street, Prime Minister Sir Keir Starmer warned that the upcoming October budget will be "painful" for many, with the government planning to make “big asks” of the country. Starmer emphasised the importance of short-term sacrifices for long-term benefits, suggesting that those with the “broadest shoulders” will bear the heaviest burden.
While specific details remain scarce, Sir Keir reassured the public that National Insurance, VAT, and Income Tax rates will not increase. However, other tax measures are expected to come under scrutiny.
What Could Change?
With the October 30th budget looming, there is speculation around several potential tax adjustments that could impact both individuals and businesses. Below are some areas that may see changes:
Freezing of Tax Thresholds
One approach the government may continue to pursue is freezing tax thresholds. By maintaining existing income tax thresholds while wages rise, more people will find themselves paying higher tax rates. Income tax thresholds have already been frozen until 2028, and this freeze could be extended further, leading to increased tax revenue for the government without explicitly raising rates.
Increase in Capital Gains Tax
Capital Gains Tax (CGT) rates are currently lower than income tax rates, making them a potential target for reform. The government may decide to align CGT more closely with income tax rates, which could generate significant additional revenue, particularly from those who benefit from investments and asset sales.
Changes to Pension Tax Relief
At present, pension savers receive tax relief based on their income tax rate. However, there is speculation that the government may introduce a flat rate of pension tax relief. Such a change would reduce the tax benefit for higher earners, potentially raising funds for the government while also creating a more equitable system.
Increase in Inheritance Tax
Inheritance tax (IHT) is another area that could see reform. The government might choose to increase the overall IHT rate or limit the reliefs currently available. Any changes here could significantly impact estate planning and wealth transfer strategies.
How Could These Changes Affect You?
For individuals and businesses alike, the potential changes in the October budget could have significant financial implications. Whether through increased capital gains tax, restricted pension relief, or extended tax threshold freezes, it's vital to understand how these adjustments may affect your personal or business finances.
At Rushtons, Chartered Accountants we are closely monitoring developments and will provide updates following the budget announcement. If you have concerns about how these potential changes could impact your financial situation, we encourage you to get in touch. Our team is here to offer personalised advice and help you prepare for any upcoming changes.
For more information, or to discuss your individual circumstances, please feel free to contact us.