On 30 October, chancellor Rachel Reeves will deliver Labour’s first Budget for the new Labour government. There has been a lot of speculation about what may or may not be included in Labour’s first Budget announcement, particularly after the prime minister stated it would be “painful”.
As specialist and regulated advisers we know that speculation, is rarely helpful. So, to help you prepare for Labour’s first Budget, read on to learn about some of the widely expected changes that could be included and how they might affect you.
Labour’s first budget – National Insurance, Income Tax, and VAT rates are unlikely to rise, but many expect changes to Capital Gains Tax
In its manifesto, Labour committed to holding Income Tax, National Insurance, and VAT at the current rates.
The government has made no promises about Capital Gains Tax (CGT), though. Morningstar reports that changes to the CGT rates are widely expected, though Labour has not shared any details on what it may be considering for this yet.
The Morningstar report suggests that CGT rates could be increased in Labour’s first budget to align with Income Tax rates. This would be a considerable increase from the 2024/25 CGT rates, as you can see below.
Basic-rate taxpayers (Annual income of £12,571 to £50,270)
- Income Tax: 20%
- CGT: 10% (18% for gains on residential property that is not your home and on carried interest).
Higher rate (Annual income of £50,271 to £125,140)
- Income Tax: 40%
- CGT: 20% (24% for gains on residential property that is not your home, 28% for gains on carried interest).
Additional rate (Annual income over £125,140)
- Income Tax: 45%
- CGT: 20% (24% for gains on residential property that is not your home, 28% for gains on carried interest).
Changes to CGT could affect you if you own rental properties or stocks and shares that are not held in an ISA. No matter what changes Labour decides to announce to CGT, if any, your financial planner can help you to manage your wealth tax-efficiently.
Labour has announced a pension review to help provide greater security in retirement
The Labour manifesto promised to reform pensions so that schemes would provide greater security in retirement. The points the party has committed to or mentioned so far include the following.
Maintaining the State Pension triple lock
The triple lock is a commitment by the government to raise the State Pension each year in line with the highest of:
- Inflation, as measured by the Consumer Prices Index (CPI)
- Average wage growth
- 5%.
In its manifesto, Labour promised to uphold the triple lock commitment, so the State Pension will continue to rise in line with the cost of living in the coming years.
As such, it may be sensible to check your State Pension forecast and see if you have enough National Insurance credits to be eligible for the full State Pension. If not, your planner can help you to decide on the steps to take to maximise your income in retirement.
Helping to consolidate smaller pension pots
In the King’s Speech in July, details emerged about Labour’s proposed scheme to help tackle the “small pots problem”.
The issue is a result of the auto-enrolment scheme, as you could be enrolled into a new pension scheme each time you move jobs. If you move jobs several times during your career, you could end up with multiple small pots that you are no longer paying into, making it tricky to keep track of your workplace pension savings.
By making it easier to keep all your pension pots in one place, you are more likely to be able to keep track of your retirement savings and plan more effectively for your post-work years. If you are a business owner, though, this might affect how you manage your staff’s pensions. So, it may be sensible to consult your financial planner after the Budget announcement.
Labour has announced that it plans to abolish non-dom status and replace it with a fairer tax system
In its manifesto, Labour included plans to change the way non-doms are taxed in the UK by abolishing non-dom status entirely. Moreover, it intends to end the use of offshore trusts as a way to mitigate Inheritance Tax (IHT).
According to FTAdviser, new tax rules known as the “foreign income and gains regime” will come into force from 5 April 2025. The new rules will mean that someone can move to the UK and not be taxed on foreign income and gains for the first four years that they are resident here. If they remain resident in the UK after the first four years, they will then be taxed as a UK taxpayer on all of their assets.
If you have been a resident of the UK for tax purposes in the previous 10 years, you won’t be eligible for the new regime.
If you are concerned about how changes which might be announced in Labour’s first Budget could impact on your wealth planning we are here to help. It is unwise to make changes to your financial plan based on speculation prior to the Budget being announced. There is no guarantee that the above changes will be brought in or when they may take effect.
After the Budget has been announced, we can review your financial plans and look at how the changes could affect you, we can also also offer guidance on how to tweak your financial plan so that you can continue working towards your long-term goals tax-efficiently.
To arrange an initial meeting with no obligation, please contact us at hello@rpgcc.co.uk or call 020 7870 9050 to speak to us. You can also visit our web chat in the bottom right corner; we respond personally during office hours or you can leave a message out of hours. The RPGCC team is always just a click or call away.
Important – please note
This article is for general information only and does not constitute advice. The information is provided for general information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation and the Labour election manifesto. All of the above is subject to change.
The Financial Conduct Authority does not regulate tax planning or trusts.
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.
