With less than three weeks left before the budget, it is possibly the last time to prepare for any potential change to the tax system.
A few potential highlights could include:
1) Capital Gains Tax (CGT)
Capital Gains Tax is often a key focus of Labour’s tax policy reform. Potential changes include:
- Alignment with Income Tax: CGT rates for higher earners may be aligned with income tax rates, leading to higher taxation on gains for wealthier individuals.
- Reduced Allowances: The annual CGT exemption could be cut, bringing more capital gains into taxable brackets and increasing the tax liability on investments and property sales.
- Private Residence Relief (PRR): Labour may abolish PRR altogether. This would result in taxpayers being liable for CGT on the sale or disposal of their primary residence.
2) Inheritance Tax (IHT)
Inheritance Tax is another area where Labour could seek reforms. Possible adjustments include:
- Higher Rates and New Bands: Labour may introduce additional IHT bands or increase existing rates to ensure wealthier estates pay more.
- Reduced Exemptions: A review of IHT exemptions, such as the residence nil-rate band, could lead to reductions, potentially increasing the tax burden on larger estates.
- Residuary Pension Funds: Labour may consider removing the IHT exemption for pension funds passed on after death. These funds are currently exempt from IHT, but removing this exemption could lead to pension funds being included in the deceased’s estate.
Conclusion
With Labour now leading the UK government, a period of change in the tax landscape is imminent. The government’s tax policies are expected to place a greater emphasis on fairness, targeting the wealthy and large corporations, while offering relief to lower-income households. While the precise details of these changes will emerge in the coming weeks, preparation and awareness of these potential changes could be useful to plan for.
As always, if you need help and advice, please get in touch and we will be happy to help.
