What might Labour announce in their first Budget and how could it affect you?

Next month, chancellor Rachel Reeves will deliver her first Budget since taking office this summer. Both the prime minister and chancellor have warned that the Budget will be “painful”, describing a “£22 million black hole” in the nation’s finances.

Labour have not revealed any specific plans for their Budget, but reports have speculated about some changes that the chancellor might include.

Read on to find out which changes may be announced in the Budget and what they could mean for you, if implemented.

Income Tax, National Insurance, and VAT are unlikely to rise, but Capital Gains Tax may be affected

Labour has already committed to not raising rates of Income Tax, VAT, or National Insurance, but has not revealed any details of other taxes that may be affected. One of the most widely anticipated changes is an increase to Capital Gains Tax (CGT), though exactly how this might change is unclear.

The previous government reduced the Annual Exempt Amount over the past two years, bringing it to £3,000 in 2024/25 (or £1,500 on trusts).

Some expect Labour to bring CGT rates in line with Income Tax rates. This would be a considerable increase to the existing rates, as you can see from the table below.

If Labour chooses to increase CGT rates, this might affect you if you have:

• Rental properties
• Income from dividends
• Stocks and shares that aren’t held in an ISA.

Your adviser can help you to mitigate the impact of any changes to CGT on your wealth.

The government may consider changes to Inheritance Tax

The Inheritance Tax (IHT) nil-rate band has been frozen since 2009, and the previous government announced that the threshold would remain frozen until at least 2028.

So, IHT could be another opportunity for Labour to raise taxes.

MoneyWeek reports that several think tanks have suggested that Labour might consider applying CGT when an individual inherits assets. Other options might be to reduce the nil-rate band, increase the rate of IHT that is due on qualifying estates, or reduce gifting allowances.

HMRC reports that, in 2021/22, only 4.39% of deaths resulted in an IHT liability, so even if Labour does announce changes to the tax, it may not affect you. If it does, though, your adviser can help you to understand what you can do to protect your wealth.

Pensions tax may be reformed as part of the government’s pension review

Labour has committed to conducting a pension review to help improve security in retirement as well as investment in UK companies.

The King’s Speech on 17 July announced that Labour plans to introduce a system for consolidating smaller workplace pension pots. This is because auto-enrolment means each time you start a new job, you could be enrolled into a new pension scheme. Over time, it can be tricky to keep track of multiple pots, sometimes leading to lost pension savings. Consolidating these into one pot could help you to keep track of your pensions more easily, as well as potentially saving you money on fees.

The first phase of the pension review was launched in August, so it’s possible that Rachel Reeves could announce early results from the review in her Budget in October.

The chancellor has cancelled the cap on care costs, but different changes might be in the pipeline

One of Rachel Reeves’ early announcements was to cancel the cap on social care costs. Previous governments had planned to invest £3.6 billion on reforms to the social care sector, to make access to social care fairer. The project was originally intended to begin in 2023 but had already been postponed until 2025.

The chancellor and prime minister haven’t revealed any specific plans to replace this policy other than a “National Care Service”. It’s unclear what this might entail, but we may receive more details in the upcoming Budget.

Depending on how Labour decides to address the issue of social care funding, it may be sensible to factor in the potential cost of later-life care into your financial plan. Having funds set aside for this can provide peace of mind for you and your family as well as a practical solution to a problem that you could face as you grow older.

Labour may build on the previous government’s changes to taxation of non-doms

The previous government had already announced plans to change the tax system for non-doms in the UK. The proposed change would have meant non-doms pay UK tax on foreign income and gains after being a UK resident for four years and a non-tax resident for 10 years.

In their manifesto, Labour pledged to abolish non-dom status entirely and bring in a new system to appropriately tax people who are in the country for a short time. Moreover, they intend to abolish the use of offshore trusts as a way to avoid IHT.

If these changes are announced in the Budget, it may affect your tax position and estate plan if you hold investments or assets in other jurisdictions around the world. Your adviser can help you to review your financial plan in light of any changes that are announced.

Get in touch

To learn more about how we can help you to navigate fiscal changes over the coming years and continue to work towards your goals, please get in touch.

Email enquiries@jesellars.co.uk or call 01934 875 919 to start the conversation.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Workplace pensions are regulated by The Pension Regulator.