The Autumn Statement 2024: No Pain, No (Capital) Gain?

So… What’s Happening?

There’s under five weeks to go until the Chancellor issues her Autumn Statement, the first from this Government. Labour frequently used the word ‘change’ in its election campaign, something which many are expecting this statement to deliver to plug the estimated £22bn “black hole” in the public purse.

But, having committed to not increasing the rate for any of the main revenue-generating taxes (Income Tax, VAT, National Insurance, Corporation Tax), there’s uncertainty around how the Government plans to achieve this.

Here, we’ve outlined some rumoured changes that may interest you. Just remember; our crystal ball is as hazy as anyone else’s…

Capital Gains Tax (CGT)

For several years now there’s been ongoing speculation around possible changes to CGT. Over the past two tax years alone, we’ve seen the tax-free Annual Exempt Amount (AEA) shrink by more than 75%, from £12,300 to £3,000.

CGT rates are significantly lower than Income Tax rates, which is seen as a driver for avoidance (i.e. by taxpayers framing what might ordinarily constitute income as a capital gain). A quite radical change (that has been done before) would be to align CGT rates with Income Tax, to better protect tax revenues.

This type of change isn’t guaranteed to increase tax revenue over the long-term. Higher CGT rates encourage taxpayers to hold onto assets. However, announcing an increase to happen on a future date can generate a short-term tax windfall, as people rush to benefit from existing rates. To that end, we’d put this on the ‘maybe’ pile. Instead, some more realistic options to do with CGT could include:

• Business Asset Disposal Relief (BADR) – formerly known as ‘Entrepreneurs Relief’, BADR is a CGT relief which caps the tax rate on eligible gains at 10%, benefitting higher rate taxpayers otherwise subject to a 20% rate. This relief has already been targeted in previous years – back in 2020, the lifetime limit for eligible disposals decreased from £10 million to £1 million. It remains to be seen whether or not the Government will now choose to abolish it entirely.
  
  
• Private Residence Relief (PRR) – for the majority of taxpayers, PRR works by exempting any capital gain made on the disposal of their main home from CGT. It’s not being suggested that this relief will be withdrawn, but it’s possible that a cap may be introduced, impacting sales of higher-value properties.
  
  
• Long-Term/Short-Term Gains – another option for the Government could be to introduce a system where gains made on assets held for shorter periods of time are taxed at a less favourable rate than those held for longer periods. This would have a similar impact as aligning CGT rates with Income Tax.

Pensions

Another area that might come under the spotlight is pensions. Change in this area may come from a reduction to the tax-free lump sum allowance (LSA), since this would be easier to implement. That said, Labour suggested that this would not happen in the run-up to the election.

Another possibility could include a cap on the overall rate of income tax relief available on contributions, which would mean you won’t be able to claim as much tax relief on your pension if you are a higher and additional rate tax payer.

There’s also been talk of pension reforms in relation to inheritance tax, and the rules around how a pension inherited from someone dying before the age of 75 is entirely tax-free. If this were to be changed, it could raise a significant amount of tax revenue. Speaking of which…

Inheritance Tax (IHT)

What Happens Now?

As mentioned earlier, this is currently speculation – we’ll only know the facts when Rachel Reeves publishes her statement on 30 October. Once that’s done, as usual we’ll bring you the lowdown on all the key announcements.