Chancellor John Healey delivers his first Budget on Wednesday 28 October, and there has been no shortage of rumour about what it will contain, what has been ruled out, what is being talked about and what it could mean for individuals, families and business owners.
The good news for most people is that the main rates of income tax, National Insurance and VAT look set to stay where they are. The Government has also committed to keeping the main rate of corporation tax capped at 25%.
That leaves capital gains tax, inheritance tax reliefs and high-value property as the areas where most of the speculation sits and where most of the fiscal movement may occur.
Capital gains tax
Capital gains tax is paid on the profit when you sell or give away an asset, such as a second home, a share portfolio or a business. The main rate is currently 24%, against a top rate of income tax of 45%, and some in Government have called for that gap to be closed.
Reports in the media suggest the Chancellor will not raise the capital gains tax rate but there are ways of increasing capital gains tax while keeping the main rate of tax the same.
There has been talk of removing the “uplift on death”. At present, when someone inherits assets such as shares, the gain built up during the previous owner’s lifetime is not subject to capital gains tax.
Taking that exemption away could leave families with a significant tax bill when they come to sell without any changes to the main rate of capital gains tax and would be felt most by investors, landlords and business owners planning a sale.
Capital gains tax is one we have been watching closely in recent years. Speculation that the rates could move closer to income tax rates has been a topic at most recent budgets.
Although it appears to have been ruled out for this budget, anyone thinking about selling a second property, a share portfolio or a business could see a noticeably bigger bill with potential changes to the rules, despite the tax rate remaining stable.
Our advice is to assess assets held currently sitting at a gain and plan for a potential sale and not to panic at this late stage before next week’s budget.
The tax rise that doesn’t make the headlines
Income tax rates may be safe, but the thresholds at which each rate starts are frozen until April 2031. That means a pay rise or an increase in your pension can push more of your income into a higher tax band, even though the rates themselves have not changed. The personal allowance is under review, but nothing has been promised.
The frozen thresholds are the quiet tax rise that often go under the radar. Every time a salary or pension goes up, more of it is taxed at a higher rate. Simple steps like pension contributions or Gift Aid can make a real difference.
Inheritance tax and family businesses
The changes to agricultural property relief announced in 2024 could be revisited, although it is not yet clear whether business property relief would also be affected. Since April this year, full relief has applied only to the first £2.5m of qualifying farm and business assets.
For farming families and family business owners, the inheritance tax rules have already changed a lot in the last two years. If the reliefs are revisited, it’s worth checking that succession plans and wills still do what you want them to.
Property, banks and business rates
High-value homes could be targeted in this Budget. A council tax surcharge on properties worth £2m or more is due from 2028, and there is speculation that it could start at £1.5m instead.
Banks could face a higher bank surcharge, currently 3%, and oil and gas companies a further windfall tax. Wider reform of business rates, including Small Business Rates Relief, is also being discussed. The Government is targeting an extra £10bn a year from the tax gap by 2029/30, so individuals and businesses should expect more HMRC compliance checks.
Plan now, act after the facts
Until the Chancellor sits down on 28 October, so much of what has been talked about remains speculation. Use the time before the Budget to review your position, rather than rushing into decisions.
Our message would be ‘Don’t make big decisions based on rumours. Have a conversation with your adviser now, so you’re ready to act quickly once the details are confirmed’.
HB&O’s tax team will be covering the Budget live on the day. If you would like to talk through how it could affect you, your family or your business, please get in touch with the team at [email protected].
