Autumn Budget 2024 Predictions
02/09/2024
Prime Minister Sir Keir Starmer has warned that the Autumn Budget, set to be announced on 30th October 2024, will be “painful” and will require significant sacrifices from the public.
Speaking from the Downing Street garden, he emphasised that the country would need to endure short-term pain for long-term benefits. Although he did not reveal specific details of the Budget, he suggested that those with the “broadest shoulders” would be expected to carry the heavier burden.
Changes to the pensions tax regime may be one area of focus and the rumours are now circulating.
We have heard press rumours regarding tax relief on personal contributions to pensions, tax-free lump sums and inheritance tax treatment. In addition, there is speculation regarding increases to capital gains tax which could increase the tax payable by individuals who sell commercial properties to pension schemes.
It is important to stress that these are only rumours and we have not heard anything concrete.
These changes are part of broader efforts to address the fiscal deficit and ensure that those with greater financial means contribute more. The specifics are yet to be fully detailed, but the reform of pension tax incentives could be a component of the budget’s strategy to increase government revenue without directly impacting working families.
Pension Tax Relief Rumours
The pension tax relief system is designed to encourage people to save for retirement by providing tax relief on contributions. Different rates apply: 20% for basic rate taxpayers, 40% for higher-rate taxpayers, and 45% for additional-rate taxpayers. Companies benefit from corporation tax relief at their prevailing rate.
There has been ongoing debate about changing this system, particularly by introducing a “flat rate” of tax relief for individuals. Rachel Reeves, now a senior figure in Keir Starmer’s cabinet, previously supported a flat rate of 33% when George Osborne was Chancellor.
The 25% Tax-free Lump Sum
The 25% tax-free cash benefit allows individuals with private pensions to withdraw a quarter of their pension pot without paying tax, up to the lump sum allowance (LSA) of £268,275. This was last updated earlier this year and we have not heard of any specific proposals to amend it again.
Capital Gains Tax Speculations
SIPP and SSAS investors looking to sell commercial property owned personally to their pension schemes may benefit by completing before Budget day if capital gains rax (CGT) rates increase. Whilst pension schemes do not incur CGT, the individual vendors may pay CGT at a higher rate when sales complete.
At present, CGT on commercial property depends on an investor’s marginal rate of income tax rate, with basic rate taxpayers paying 10% and higher or additional rate taxpayers paying 20%. The new government might increase CGT to generate more tax revenue while keeping other taxes unchanged.
However, it is important to remember that because pensions are exempt from CGT, once the property is owned by the pension scheme no further CGT accrues.
