5 possible tax and pension changes coming in the Autumn Budget

During the general election campaign, Labour repeatedly promised it wouldn’t increase taxes for working people. Money Week reports that the chancellor recently affirmed this commitment, stating that she won’t increase National Insurance, Income Tax, or VAT in the upcoming Budget.

However, the former chancellor Jeremy Hunt previously announced that Income Tax thresholds would remain frozen until 2028, and the current chancellor is unlikely to move from that path.

If Income Tax thresholds remain where they are, you may pay a larger tax bill due to fiscal drag. As your earnings rise, you may pay tax on a higher proportion of your income (or pay a higher rate of tax on your income) even if tax rates and thresholds remain the same.

The basic and higher rates of Income Tax have been frozen since 2021, and the additional rate since 2022. This combined with inflation has led to an increase in the overall tax burden.

So, while the chancellor is likely to keep her promise to not raise taxes on working people in the Budget, maintaining the thresholds will increase the total tax intake.

Labour included a commitment to end the private school fees VAT exemption in its manifesto, and this is likely to be one of the announcements in the chancellor’s Autumn Budget.

This means the cost of sending your children to private schools could increase by up to 20%. Labour has forecasted this could raise around £1.5 billion, which they have pledged to invest in the state education sector.

These changes will likely come into effect in January 2025 and any fees you pay in advance from 29 July 2024 (covering the term starting in January) will be subject to VAT.

The government has so far not indicated any major changes to pensions, other than the inclusion of a Pension Schemes Bill in the King’s Speech and a commitment to a “pensions review”.

While the exact nature of the review has not been confirmed, the bill introduces reforms to improve pension scheme efficiency, flexibility, and governance. It aims to make it easier for you to consolidate your existing pension pots and to help ensure your pension scheme is delivering for your retirement.

Labour has committed to retaining the State Pension triple lock, which ensures the State Pension rises in line with the cost of living each year.

Moreover, Labour could make changes to the 25% tax-free lump sum you can withdraw from your pension, or reintroduce the Lifetime Allowance (LTA), although we think that’s unlikely given the complexity of doing so. There could also be a move to include pensions as part of your estate, meaning they would potentially be liable for Inheritance Tax (IHT).

Another potential option for the chancellor would be to change the age at which you can draw a defined contribution (DC) pension. The current age is 55, rising to 57 by 2028, and this could rise even further in the future.

There has also been speculation that the chancellor may introduce a flat rate of pension tax relief rather than making it available at your marginal rate of Income Tax.

For example, a flat rate of 30% would boost tax relief for basic-rate taxpayers but reduce the tax relief you’d receive if you are a higher- or additional-rate taxpayer.

Labour has not committed to maintaining current IHT rates or thresholds and there is a strong possibility this will be on the agenda in the upcoming Budget.

To increase revenue, the chancellor could raise the IHT rate, reduce the nil-rate bands, eliminate gifting allowances, or modify or remove certain IHT reliefs, such as Business Relief.

Another possibility could be to introduce a “double death tax”. This would entail applying Capital Gains Tax (CGT) in addition to IHT on inherited assets that have grown in value.

Further tax changes the chancellor could implement might include modifications to Stamp Duty and CGT.

In 2022, the previous government temporarily increased the Stamp Duty threshold for first-time buyers from £300,000 to £425,000, with a reduced rate for properties between £425,000 and £625,000.

These increases are set to revert by April 2025. The general nil-rate threshold is also scheduled to revert from £250,000 to £125,000 from April 2025. Labour has indicated it will stick to this reversion and the chancellor is expected to confirm this in the Budget.

Regarding CGT, Labour has made no promises, other than to say that people selling their main home would not be liable to pay it.

As there was no commitment to maintaining the current CGT rates in the Labour manifesto, many have speculated that the rates of tax could rise.

For example, there’s widespread speculation that CGT rates may be aligned with Income Tax rates, meaning you’d essentially pay the same rate of tax on capital gains as you do on income.