UK Autumn Budget 2024: what tax measures can the UK expect?

A month on from Sir Keir Starmer's Downing Street rose garden speech warning that the first budget of the new Labour government on 30 October would "be painful", the chancellor, Rachel Reeves, at the Labour party conference signalled it would be a budget with ambition and for growth. The prime minister also reiterated earlier in September that the government's number one priority is economic growth and "all decisions will be made against that objective".

Business tax 'road map'

It is expected that a business tax "road map", which will be published at the Autumn Budget 2024, will focus on the growth agenda and creating a stable environment for business tax. It will confirm the government's commitment to cap the main rate of corporation tax at its current level (25%) for the duration of this parliament and retain full expensing for plant and machinery.

The chancellor in her conference speech in September also reaffirmed Labour's commitment in its election manifesto not to increase National Insurance contributions (NICs), VAT or the basic, higher or additional rates of income tax. 

However, as these three taxes contributed around three-fifths of all tax revenues in 2023-24 and the chancellor has a large fiscal black hole of £22 billion to fill, the tax measures announced will need to have a significant impact – and are likely to be wide ranging – and some of the changes could even take effect from the day of the Autumn Budget.

Capital Gains Tax 

Speculation has mounted over possible tax measures in the Budget, with changes to Capital Gains Tax (CGT) widely expected. Possibilities for new CGT measures range from increasing the rates to making changes to annual allowances or reliefs, such as business asset disposal relief (BADR). 

There is speculation that the government could increase CGT rates to align more closely with income tax rates – currently 20%, 40% and 45% – and that BADR, which the former Conservative government had said it would review, may also be under scrutiny. It remains unclear whether any changes will take effect from the Autumn Budget or from 6 April 2025, but there has been precedence in previous budgets for changes to take effect from midnight on Budget day, supported by anti-forestalling provisions.

Another option that the government may consider is to abolish the favourable CGT uplift when assets are passed on upon death. Under the current rules, assets are uplifted to their market value on the date of death of the transferor, so that when the assets are later disposed of CGT is only due on any increase in value from the date of death of the transferor (rather than when the assets were originally acquired by the transferor).

Unsurprisingly, the concern around CGT rates and reliefs has led to a flurry of deal activity in order to complete asset disposals in advance of the Budget in order to lock in the current CGT rates, reliefs and allowances.

Employer's NICs

While the chancellor and prime minister have repeated their manifesto pledge that Labour will not raise taxes on "working people", there has been some recent press speculation about employers having to pay more NICs.

Darren Jones, the chief secretary to the Treasury, in late August told Times Radio: "We will have to consider some tax measures at the Budget on 30 October, while honouring that promise to the public not to increase income tax, employee National Insurance or VAT."

The reference to employee NICs leaves the door open for potential changes to employer's NICs – with possibilities including increasing the current rate (13.8%) and imposing employer's NICs on employer contributions to pension schemes.

Pensions tax reform

Another potential target area is pensions. Stakeholders such as the Association of Consulting Actuaries and the Pensions and Lifetime Savings Association have already shared their thoughts with the government. The Institute for Fiscal Studies has also explained, in its review of raising revenue from reforms to pensions taxation, why capping up-front income tax relief for pension contributions would not be a desirable reform. Alternative options include reducing the £268,275 (tax free) lump-sum allowance, revisiting the IHT exemption for defined-contribution pension wealth on death, removing the option of salary sacrifice and imposing employer's NICs on employer contributions to pension schemes. 

These reports, along with others, show how complex this area is. While a "quick win" for the chancellor might be attractive, it is hoped that she will take a measured approach and announce a review of pensions tax that will take account of the potential impact of any change on the public sector (including the NHS) and the wider and increasing problems of the cost of living and retirement adequacy.

Inheritance Tax

Inheritance Tax (IHT) applies primarily on death when the value of the estate is over £325,000 but also to gifts made to individuals within seven years of death – and to some lifetime gifts – and has for several years been in the spotlight for reform (stretching back to the Office of Tax Simplification work into IHT in 2018 and 2019). It has generous reliefs, such as uncapped business property relief (BPR) and agricultural property relief (APR), which allow some assets to be passed on free of IHT (or with a reduced bill).

The easiest option to increase the yield from IHT would be to increase the current 40% rate or decrease the level at which an estate comes into the IHT net. Other possible options include making changes to lifetime gifting allowances (perhaps extending the seven-year timeframe before gifts pass free of IHT), reducing the rate of BPR or limiting APR to landowners who farm their own land, exposing large landed estates that leave the farming to their tenants. These could all yield some revenue without increasing the headline rate.

In relation to Labour's plans to reform the non-doms rules, the pre-announced removal of domicile from the IHT system, so that all taxpayers will be subject to IHT on their worldwide assets after 10 years' residence, is almost certain to be confirmed at the Budget.

There have been rumours that the associated plan to abolish "excluded property settlements", which allow individuals to protect their assets from IHT even after they had become deemed "domiciled", might be rolled back in response to fears it would lead to an exodus of wealth. While this is possible, the chancellor has criticised what she has described as the excluded property settlement "loophole" in the Conservative's proposals for UK inheritance tax changes for non-doms published at the Spring Budget 2024 – and she would stand exposed to her own criticism of the policy were she to reverse Labour's plan for its abolition.

Employee incentives

Tax-advantaged employee share plans offer valuable tax reliefs, and it is important that the impact of any wider tax changes, particularly any changes to capital gains tax, on such popular and much valued plans are carefully considered.

It is also to be hoped that an update on the call for evidence on proposed improvements to tax-advantaged all-employee share schemes and other outstanding consultations will be provided at or around the time of the Budget.

Energy Profits Levy

Among the tax measures already announced, the rate of the Energy Profits Levy (EPL) will increase to 38% from 1 November 2024, as outlined in the chancellor's July statement on public spending inheritance. The EPL will be extended for a further year to 31 March 2030. The main 29% investment allowance for qualifying expenditure incurred on or after 1 November 2024 has been reduced (alongside the extent to which capital allowances can be taken into account in calculating levy profits). The chancellor is expected to announce further details in the Autumn Budget.

Taxation of carried interest

The chancellor has also been clear that she is committed to closing the carried interest "loophole". Following the call for evidence published after her July statement and ongoing dialogue with stakeholders over the summer, further details are expected to be outlined in the Budget of the plan to reform carried interest. This may include a policy decision alongside a formal consultation with stakeholders.

Carried interest is already taxed at 28%, higher than gains from residential property (24%) or from other chargeable assets (20%). An increase seems likely, but there remains scope for the chancellor to roll back from proposals to tax carried interest at income tax rates (45% for the highest earners) if the feedback from the industry stakeholders has been sufficiently worrying. As a sector, managers of private equity and venture capital have shown themselves more willing and able than most to "jump ship" for more attractive tax regimes.

Non-dom rules reform

The policy paper published following the chancellor's July statement gave an outline of the reform to the taxation of non-doms and full detail of the reform is expected to be published at the Budget. As outlined above, it will be interesting to see how far the chancellor goes in relation to Labour's plan for reform.

VAT on private school fees  

The July statement confirmed that, as of 1 January 2025, VAT would be levied on private school fees and charitable rates relief would be removed for private schools. Draft legislation, an explanatory note and an accompanying technical note has already been published on the removal of the VAT exemption.

Osborne Clarke comment

The chancellor faces a difficult balancing act at the Budget. Depending on where they are directed and their severity, tax rises can affect economic growth – which both the prime minister and the chancellor have stated is the government's number one priority. However, the chancellor is faced with a huge hole in the nation's finances to fill and is constrained by the pledges Labour has made as to what taxes it can target. Although it is early days in this government's tenure with several more budgets to make good on its manifesto pledges, the first budget of a new parliament is a pivotal time to make big announcements and it is certain that change is afoot.