Author: Glenn

There is unlikely to be much to celebrate when Rachel Reeves delivers her first Budget on the 30^th of October.

Speculation is rife regarding the likely targets for tax increases. We have listed a few of the more persistent predictions below. But note, these are just predictions and there will no doubt be “surprises” when the Budget details are released.

Personal Taxes and Pensions

Labour has pledged not to increase the main rates of Income Tax, National Insurance (NI), or VAT, but other forms of personal taxation may be impacted. Pensions, in particular, are expected to be a focus. For example:

• There are discussions around reducing the tax-free pension lump sum from its current level (£268,275) to a lower amount, which could raise around £2 billion annually​.
• Flat-rate pension tax relief, replacing the current marginal rate system, may be introduced, which could save the government around £5 billion, but it would negatively affect higher earners​.
• Employer pension contributions could also face National Insurance charges, which may lead to employers offering less generous pension schemes​.

Capital Gains Tax (CGT) and Inheritance Tax (IHT)

CGT rates could be increased, with some speculation suggesting they may be aligned with Income Tax rates, raising the top rate from 20% to as much as 45%. This would significantly impact higher earners and business owners. Another option is introducing a "double death tax," where assets are taxed both via CGT upon death and subsequently through IHT​.

Regarding IHT, Labour might increase the tax rate above the current 40% or reduce the £325,000 nil-rate band. Pension pots, currently excluded from IHT, could also be brought into the fold​. .

Business Taxes

While Labour has ruled out large hikes in business taxes, some changes are expected. For example:

• National Insurance Contributions (NICs): A rise in employer NICs from 13.8% to 14.8% is a possibility, potentially raising £8–9 billion for the Treasury.
• Carried Interest and Energy Profits Levy: Reforms to the taxation of carried interest, particularly affecting private equity, and an extension to the Energy Profits Levy are likely to be part of the Budget​.

Other Measures

• Fuel Duty: For the first time in 13 years, fuel duty may be increased, partly as a move to promote the adoption of electric vehicles​.
• VAT on Private Schools: Labour has committed to imposing VAT on private school fees starting in January 2025, a measure that could generate additional revenue but has sparked debate​.

Overall, the October 2024 Budget is shaping up to include "painful" decisions as Labour looks to tackle the fiscal deficit, with changes focused on wealth and asset taxes, pensions, and potentially significant tweaks to business taxation policies.

Employees with more than one job may be eligible to defer or delay paying Class 1 National Insurance in certain situations. This deferment can be considered if any of the following apply:

• You pay Class 1 National Insurance to more than one employer.
• You earn £967 or more per week from one job over the tax year.
• You earn £1,209 or more per week from two jobs combined over the tax year.

This deferral may allow for reduced NIC deductions of 2% on weekly earnings between £242 and £967 in one of your jobs, instead of the standard 8% rate.

At the end of the tax year, HMRC will review your National Insurance contributions and notify you if you owe NIC arrears.

Most self-employed individuals are also required to pay Class 4 NICs. While it was previously possible to defer these contributions, that option is no longer available. However, you may be able to claim a refund for past tax years.

Most personal pensions set a minimum age at which you can start withdrawing money, typically not before age 55. Some pension benefits can be taken tax-free. Generally, you can withdraw 25% of your pension pot as a tax-free lump sum, with a maximum of £268,275. If you have protected allowances, the amount you can take tax-free, as well as your overall tax-free limit, may be higher.

After making a tax-free withdrawal, you usually have up to 6 months to decide how to take the remaining 75% of your pension fund which will typically be taxed. The options for withdrawing the rest of your pension include:

• Taking all or part of it as cash.
• Purchasing an annuity for a guaranteed lifetime income.
• Investing it for a flexible, adjustable income (known as 'flexi-access drawdown').

It’s important to understand the tax implications of receiving pension income. Aside from the tax-free benefits, pension income is considered earned income and subject to Income Tax under the standard rules. Income tax is also due on the State Pension, employment or self-employment earnings, and any other taxable income.

The Tax-Free Childcare (TFC) scheme helps working families manage childcare costs by providing support through a wide network of registered providers, including childminders, breakfast and after-school clubs, and approved play schemes across the UK. Parents can also contribute to their TFC account regularly and save their allowances for use during school holidays.

The scheme is available to parents with children up to 11 years old, with eligibility ending on 1 September following the child’s 11th birthday. For children with certain disabilities, the age limit is extended to 1 September after their 16th birthday.

Through the TFC scheme, the government tops up parental contributions by 25%. For every £8 contributed, the government adds £2, up to a maximum of £10,000 per child per year. This offers parents annual savings of up to £2,000 per child (or up to £4,000 for disabled children up to age 17).

The scheme is open to all qualifying parents, including the self-employed and those earning minimum wage. It is also available to parents on paid sick leave, as well as those on paid and unpaid statutory maternity, paternity, and adoption leave. To be eligible, parents must work at least 16 hours per week and earn at least the National Minimum Wage or Living Wage. However, if either parent earns more than £100,000, neither can participate in the scheme.

Self-employed individuals are usually required to pay Class 4 National Insurance contributions (NICs) if their annual profits exceed £12,570. For the 2024-25 tax year, Class 4 NIC rates are set at 6% (down from 9% in 2023-24) on profits between £12,570 and £50,270, with an additional 2% charged on profits above £50,270.

Certain groups are exempt from paying Class 4 NICs, including:

• Individuals under 16 at the start of the tax year.
• Individuals over State Pension age at the start of the tax year. If someone reaches State Pension age during the tax year, they remain liable for Class 4 NICs for the entire tax year.
• Trustees and guardians of incapacitated individuals are exempt from paying Class 4 NICs on that income.

The Class 4 NIC rate is lower than the corresponding rate for employees, who pay 8% on the same income levels. Both employees and the self-employed contribute 2% on income above the higher rate threshold.

The majority of individuals pay Class 4 National Insurance via self-assessment.