Budget 2024: Expert predictions

Predictions for business from Charlotte Sallabank, Tax Partner at Katten Muchin Rosenman LLP, about how the expected tax changes may affect businesses indirectly:

“A number of the tax changes expected to be announced in the budget do not relate to businesses directly. For example, the changes most widely predicated relate to capital gains tax and inheritance tax. However, there are a couple of potential changes which may be announced in the budget that could indirectly impact businesses.

Firstly, there has been speculation as to whether the government will make changes to Business Asset Disposal Relief (BADR). BADR enables qualifying business owners to pay a reduced rate of capital gains tax – 10% on the first £1 million of gain. In order to raise tax revenues, the government may decide to either reduce the lifetime limit of £1 million or make the eligibility criteria more strict which could affect the ownership period or the type of businesses that qualify.

Secondly, the government is currently running a call for evidence in relation to taxation of carried interest. The intention of the government is to raise the amount of tax collected in respect of carried interest. The government has said that following the submissions from the call for evidence, it will take a view on the rate of carried interest and announce any changes in the budget. In view of the government’s stated aim of boosting economic growth and being a global leader in financial services, it is unlikely that the carried interest regime will be abolished in its entirety, but amounts eligible for capital gains treatment may be a function of investment managers’ capital deemed to be ‘at risk’.

Whilst both of the above potential changes do not directly relate to the tax position of businesses, the changes may impact the ways in which investors and entrepreneurs choose to engage with particular businesses or industries. The Chancellor has been warned by the Federation of Small Businesses that raising capital gains tax and reducing BADR could have a negative impact on the UK’s economic growth as it would discourage entrepreneurship and investment. Additionally, the Confederation of British Industry urged the Chancellor to consider creating opportunities to allow businesses to invest in their workforce.”

Autumn budget pension tax changes

In recent weeks speculation that Chancellor Rachel Reeves will announce changes to pension tax in the Autumn Budget have intensified. With the budget fast approaching, this has understandably left some pension savers concerned. In light of this, please find comments from Lily Megson, Policy Director at My Pension Expert, calling for savers to refrain from making any rash decisions ahead of the budget.

Lily Megson, Policy Director at My Pension Expert, said, “As we approach the first Labour Budget for over 14 years, speculation around potential changes to pension tax rules has intensified. With talk of a fiscal black hole, Chancellor Rachel Reeves will likely present some drastic changes to balance the books, with rumours that the tax-free lump sum and tax relief are in her sights. Naturally, this has left some pension planners feeling concerned.

“However, it’s important that savers take this as what it currently is – speculation. The resurfacing of old comments from Reeves supporting a flat rate of tax relief – which the government has since distanced themselves from – has fuelled much of these concerns, but any changes to tax relief would be deeply unpopular. Tax relief is a major incentive for retirement saving, and with under-saving already a significant issue, such a move would be bold and potentially very risky.

“Rumours have also caused an increase in savers considering withdrawing their tax-free cash now to ‘get ahead’ of possible changes. But people need to understand that nothing has been confirmed, and any changes announced in the Budget are unlikely to take effect until the next financial year at the earliest, giving them ample time to plan accordingly.

“Ultimately, savers should avoid making rash decisions that could harm their long-term retirement plans. Until we have concrete details from the Budget, the best course of action is to stay calm and make well-informed, considered choices.”

Pension tax-free cash: a reduction in the tax-free pension allowance could devastate many meticulously crafted retirement plans

• The Chancellor of the Exchequer, Rachel Reeves, is reportedly considering reducing the pension tax-free lump sum to £100,000, almost a third of the current limit (£268,275).
• interactive investor (ii) has seen a 58% increase in the volume of cash withdrawals from SIPP accounts that make up part or all of the 25% tax-free lump sum allowance in September (to 16 September), compared to the same period in 2023.
• ii has also seen a 64% increase in the number of ii SIPP customers contributing the maximum £60,000 since the start of the tax year to 23 September, compared to the same period in 2023.

Commenting, Myron Jobson, Senior Personal Finance Analyst at interactive investor, says: “While the move would increase tax revenues as part of efforts to plug the multi-billion pound black hole in the public’s finances, it threatens to devastate many meticulously crafted retirement plans.

“Those approaching retirement who have already mentally allocated amounts above £100,000 for paying off their mortgage and/or repaying outstanding debts would be forced to go back to the drawing board and reallocate cash from elsewhere – or face a longer time burdened with repayments.

“The pension tax-free lump sum is one of the best-loved and most well-understood parts of the pension system. Significant changes to it could risk undermining confidence in pensions, which is the last thing we need as many people aren’t saving enough for a comfortable retirement.

“Planning for retirement is difficult when key pension policy has seemingly become a political football. We need a public confidence boost in state and private pensions, rather than erosion.