Tax rises are coming – actions to take now

Date: July 29, 2024

Both businesses and individuals should act now to plan for the expected tax rises in October Budget.

In an interview with the BBC this week, Chancellor Rachel Reeves confirmed “I think we will have to increase taxes in the Budget.” This follows confirmation of several tax rises by the chancellor. These include VAT on private schools and the abolition of the tax treatment of furnished holiday lets. Other confirmed tax rises include changing the tax regime for non-doms and an extension and increase to the energy levy.

However, with reassurances that there will be no increases to income tax, national insurance or VAT (for working people) or an increase to corporation tax, which together make up over 70% of tax in the UK, little wiggle room is left.

With a reported £22 billion deficit, the chancellor commented that further difficult decisions including tax would need to be made. This will take place at the Autumn Budget on 30 October 2024.

Tax rises likely on CGT, inheritance tax, pensions and dividends

John McCaffery, Tax Partner and Head of Tax at Alexander & Co Chartered Accountants commented: “These announcements from the chancellor indicate that tax rises will be on investments. Meaning that the areas likely to be taxed further are capital gains tax, inheritance tax, pensions and dividends.

“Such tax increases could significantly impact both businesses and individuals. From exiting or selling a business, succession planning and the sale of shares, to the sale of investment property or holiday homes, as well as personal pensions and company dividends. Taxes are likely to be higher, post Budget.

“Businesses and individuals who have any plans involving these should act immediately. They ought to consider their position and how potential changes in the autumn budget could subsequently impact them. Planning and concise action now will help in the longer term. We have already been contacted by many clients, looking to crystalize assets or exit businesses.”

Whist details are yet to be confirmed, analysts predict higher rates of CGT and changes to pension tax allowances. They also predict an overhaul of the inheritance tax system and increased taxes on dividends.

Tax rises already confirmed

The following tax rises have already been confirmed:

VAT on private school fees

A key election policy, more information has now been published on this. This includes clarity that fees paid from 29.07.2024 for terms starting 01.01.2025 and onwards will also be subject to VAT.

Further information on this is available here, including how trust structures could reduce the overall tax burden.

Tax rises through the abolition of furnished holiday lets

Announced by the previous government, it was confirmed this week that these will be abolished, as originally intended in 2025. You can read more about this here.

Changes to the non-dom regime

The government is to implement a 4-year foreign income and gains (FIG) regime. It will also review other key areas of the reforms which were previously announced by the former government.

The government intends to remove preferential tax treatment based on domicile status. This is for all new foreign income and gains (FIG) that arise from 06.04.2025. Instead, it will introduce a residence-based regime.

The protection from tax on income & gains arising within settlor-interested trust structures will be removed for those not qualifying for the 4-year FIG regime.

A review of offshore anti-avoidance legislation is also intended to be carried out. There will also be a new residence-based regime for inheritance tax. The government intends to replace the current regime with a new residence-based system.

Excluded Property Trusts, where they are used to keep assets out of the scope of IHT, are also being ended by the government. There will not be a formal policy consultation on moving to a residence-based system for IHT.

Actions to take ahead of expected tax rises and how Alexander & Co can assist

Both businesses and individuals should plan now for potential changes and consider how any rises in tax could affect them.

In many cases, it may be beneficial to crystalise assets now, whereas in many instances restructuring may benefit.

Equally important is a review of your personal circumstances and, for business owners, a review of their operations.

To discuss how we can assist you, please contact us by completing the enquiry form on this page. Alternatively, you can email info@alexander.co.uk and we will be in touch.

Depending upon your personal circumstances, there are a wide range of areas where we can assist, these include: