Budget Predictions 2024: What to Expect

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24 October 2024

As the 2024 Autumn Budget approaches, anticipation is building around the Labour government’s plans for the next four years. This budget is expected to address key areas such as income tax, national insurance, capital gains tax, inheritance tax, and pension savings. With the cost of living on the rise and economic challenges ahead, these predictions aim to provide insight into potential changes and their implications for taxpayers and businesses alike. Stay informed as we delve into what might be announced with our Tax Expert Laura Cheeseman and how it could impact your financial future.

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Budget Predictions 2024: What to Expect

It seems like only yesterday that we were gearing up for the last budget announcement, and now another one is just around the corner. This Autumn budget is eagerly anticipated, as it will lay the groundwork for the Labour government's objectives over the next four years. With that in mind, let’s dive into some predictions for what we might see announced.

Income Tax:

Labour has consistently pledged not to increase the basic, higher, or additional rates of income tax. Therefore, I would be quite surprised if they were to backtrack and announce increases in this budget.

Currently, the personal allowance and tax brackets are frozen until 2028. This means many taxpayers are being pushed from the basic to the higher tax band without any changes to the thresholds. This shift also impacts other allowances, such as the Marriage Allowance transfer. Given the rising cost of living, it would be a pleasant surprise for many taxpayers if the government were to raise the personal allowance, thereby boosting their take-home pay.

National Insurance:

There have been whispers of potential increases to National Insurance, particularly impacting employers. The constant back-and-forth on NIC rates has made it increasingly challenging for businesses to budget effectively for staffing costs.

While there may not be a direct impact on individual taxpayers, it’s assumed that employers could pass on these additional costs to employees. This could create a lose-lose situation for all involved. A clear, long-term plan for National Insurance over the next five years would be a welcome development.

Capital Gains Tax:

One of the most anticipated topics of this budget is Capital Gains Tax (CGT) rates, which currently sit at 18% and 24% for residential properties, and 10% and 20% for other gains. It seems likely that an increase is on the horizon, but the specifics remain to be seen.

Will the government align CGT with income tax rates, or opt for a flat rate similar to that implemented by Nigel Lawson back in 1988? Whatever direction they choose, I hope they consider the broader implications for the economy, particularly how the housing and stock markets will react if they become saturated as a result of the changes.

Inheritance Tax:

Often dubbed the UK's most unpopular tax, changes to the Inheritance Tax (IHT) regime are expected. Rumours suggest that the residence Nil Rate Band may be abolished, but could we see an increase in the Nil Rate Band in return? The current threshold of £500,000 feels outdated, especially as many estates are valued significantly higher without much effort. In fact, whilst were taking about outdated limits, the current annual gift allowance £ 3,000 should be increased too.

A sliding scale for IHT—starting at 20% and gradually reaching the current 40% rate—could be a fair compromise. Additionally, it would be concerning to see pension pots fall under the IHT umbrella, especially alongside the rumoured reduction in tax relief for pension contributions.

Pension Savings:

Currently, taxpayers can benefit from tax relief on pension contributions, whether directly through their earnings or via Self-Assessment. This can lead to savings as high as 45% for additional rate taxpayers. However, it's anticipated that the government may announce a reduction in the tax relief available, which would be disappointing for many.

Many individuals currently leverage pension contributions to:

Lower their earnings and fall into a lower tax bracket
Mitigate the High-Income Child Benefit Charge
Avoid the 60% tax trap that affects those earning over £100,000

While I do expect the reintroduction of the Lifetime Allowance, it wouldn’t be shocking to see new restrictions on the maximum amount that can be withdrawn tax-free from a pension, currently set at £268,275. A gradual introduction of such restrictions would be more palatable, especially for those planning to retire soon, and who have been saving for their retirement their entire working life.

Final Thoughts:

In recent months, we’ve been slowly drip-fed rumours about potential changes, seemingly testing the waters for taxpayer reactions to fill the current “£22 billion black hole”. While I anticipate tax increases, this budget feels quite different from the optimistic tone of the March announcement, the Conservatives were trying to secure an election win, after all!