UK Budget Autumn 2024 – Manifesto commitments and speculation

By the time the UK Budget is held on the 30^th of October 2024,  the new Labour government will have already surpassed their first 100 days in power. During this period, they have acted on several manifesto commitments, such as removing the VAT exemption on private school fees and making commitments on public sector pay, and have indicated other potential measures to address the £22 billion black hole in the public finances they claim the Office of Budgetary Responsibility (OBR)¹ uncovered when they took office.

Prime Minister Keir Starmer has set the stage for a challenging Budget, emphasizing that it would be “painful”², claiming that he has no choice given the fiscal black hole and warning that those with “the broadest shoulders should bear the heavier burden”.

This raises the questions: what taxes could be targeted in the Budget, and whose shoulders will be bearing them?

Manifesto commitments at a glance³

• Non-Domiciled Status: Labour has reaffirmed its commitment to abolish non-dom status, replacing it with a modern ‘internationally competitive’ scheme for individuals “genuinely in the country for a short period” and ‘focused on attracting the best talent and investment to the UK’;
• Offshore Trusts: A commitment to end the use of offshore trusts to avoid inheritance tax, ensuring that “everyone who is long-term resident in the UK pays their taxes here”;
• Tax Rates: A pledge to not “increase taxes on working people, … not increase National Insurance, [nor] the basic, higher or additional rates of Income Tax”;
• Capital Gains Tax (CGT): The manifesto is notably silent on CGT, the only direct tax not addressed;
• Private Equity: A pledge to close the carried interest ‘loophole’, where performance-related pay is treated as capital gains;
• VAT and Business Rates: A commitment not to increase VAT but to “end the VAT exemption and business rates relief for private schools”;
• Stamp Duty: An increase in the Stamp Duty surcharge for non-UK residents by an additional 1%; and plans to lower the first-time buyer SDLT threshold from GBP 425,000 to GBP 300,000 from April 2025
• Corporation Tax: A pledge to cap Corporation Tax at the current level of 25% for the entire parliament.

UK Resident Non Domiciled (UK RND) tax regime

Since the election, and the new government’s manifesto commitment to abolish non dom status, a further policy paper was published providing some additional clarity on the new regime. The Government intends to introduce the majority of the policies previously announced by the Conservatives, our summary of which can be found here - https://privatebank.jpmorgan.com/eur/en/insights/wealth-planning/spring-budget-2024-the-end-of-the-non-dom-regime.

Labour confirmed that they intend to⁵:

• Replace the current preferential UK RND regime with a 4 year residence based regime for individuals who have not been resident in the UK for 10 consecutive years prior to their arrival;
• Restrict the availability of protection from tax on income and gains arising within settlor-interested trust structures;
• Provide some transitional arrangements for previously UK RND individuals:

o A Temporary Repatriation Facility (TRF) will be announced, rates and period of availability to be confirmed; this may also be expanded to include stockpiled income and gains within overseas structures;

o Transitionally, for CGT purposes, a rebasing date will be announced in order to allow previous UK RND individuals, who are not eligible for the new regime, to rebase foreign capital assets when they dispose of them;

• Inheritance Tax (IHT), for deaths after 6th April 2025, will be assessed on a residence based test. 

It should be noted that full details are still to be announced and a date for draft legislation being released has not currently been set. The Financial Times recently ran an article speculating that the Chancellor is ready to “water down planned tax raid on non-doms”⁶, this comes amid warnings that “thousands of wealthy foreigners” are looking to leave the UK as a result of the proposed changes.

Capital Gains Tax (CGT)

As CGT was the only direct tax not commented on in the manifesto, this has fuelled speculation that the Budget could see a change in the headline rate of tax or wider reforms. Our summary of the history of CGT can be found here - https://privatebank.jpmorgan.com/eur/en/insights/wealth-planning/the-future-of-tax-in-the-uk-capital-gains-tax

There are a number of avenues the Government could go down in relation to CGT, some of the options include:

• Do nothing

o The speculation may be sufficient to raise funds for the Exchequer and escalate a tax event as investors rush to crystallise gains. In addition, there has been speculation that increasing CGT may actually result in a loss of tax to the Exchequer.⁷

• Rate increase

o Increase the headline rate of CGT on investments from 20%. There has been speculation varying from an equalisation with the income tax rate to a return to a prior rate of tax.

• Loss of CGT uplift on death

o Currently most assets enjoy a CGT uplift in their value at the date of death. There has been speculation that this could be removed potentially materially increasing the tax burden for the estate and/or beneficiaries. ⁸

• A reintroduction of indexation

o Wider reform could be announced, such as a return to applying indexation to sales of assets in order to take into account inflation. This would be more likely if a rise in the rate of CGT were to be announced.

Carried Interest

Labour have pledged multiple times to close the carried interest ‘loophole’ where “performance related pay is treated as capital gains”. The Labour Party have not identified what the new rate will be and “some Labour insiders say a compromise between 28 per cent and 45 percent could be found”9.

When Labour took power they announced a ‘call for evidence’ into carried interest, seeking feedback on the following areas¹⁰:

• How can the tax treatment of carried interest most appropriately reflect its economic characteristics? The government notes that there are a range of circumstances in which carried interest is received, and that the characteristics of the reward will not be the same in all cases.
• What are the different structures and market practices with respect to carried interest? The government is particularly interested to understand how these differences should be taken into account as part of its reforms.
• Are there lessons that can be learned from approaches taken in other countries? While many other countries have specific regimes for the taxation of carried interest, their detail and conditions for access vary.

The responses were to be collated by 30^th August with a further announcement expected on 30^th October at the Budget.

A summary of Carried Interest can be found here - https://privatebank.jpmorgan.com/eur/en/insights/wealth-planning/the-future-of-tax-in-the-uk-carried-interest

Inheritance Tax

In their final Budget, the Conservatives had promised to hold a formal consultation on IHT and any reforms. Labour have since rolled that consultation back to “stakeholder feedback”¹¹, provided following the 2024 Spring Budget, and have carried out further external engagement on IHT policy design over the summer. So far no official policies have been announced.

The Institute of Fiscal Studies (IFS) published an article on “raising revenue from closing inheritance tax loopholes”¹² in April 2024. In it they recommended areas which could be open to reform:

• Removal of Business Relief for AIM shares;
• Imposition of a cap on Agricultural Property and Business reliefs;
• Removal of the IHT exemption from pension pots.

Collectively they estimate that these measures could raise £1.6 billion in 2024/25 and upwards of £2 billion in 2029/30.

Amendment to the debt fund targets

An option which has been teased is the potential for an amendment to the debt targets the Government has pledged to adhere to.

These are known as the fiscal rules and are self-imposed by the Government in order to manage its borrowing within a five year time-frame¹³. An amendment to these rules could give Rachel Reeves, the Chancellor of the Exchequer, more flexibility over tax and spending plans. The IFS has reported that the Government may be considering amending this to allow for more borrowing for investment while staying within the letter of the fiscal rules¹⁴. This could result in a lesser tax take potentially being needed in order to fund spending plans.

Conclusion

Outside of the firm commitments made in the Labour Manifesto, there is very little certainty about the exact outcome and structure of the UK Budget. The Chancellor has committed to only holding one fiscal event per year.  Due to the timing of the 2024 election the Autumn Statement was brought forward from its usual November slot, but delayed until the 30^th October in order to allow for a full forecast from the OBR.

Individuals who believe they may be impacted by the upcoming budget should speak to their independent tax advisors about any actions they could take and how the budget may impact them. Please reach out to your usual JP Morgan contact should you wish to discuss the above in any more detail.

1 https://www.bbc.com/news/articles/c7290yxw8q4o

2 https://www.bbc.com/news/live/c0rw9edy00zt

3 https://labour.org.uk/change/my-plan-for-change/

5 https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary/changes-to-the-taxation-of-non-uk-domiciled-individuals

6 https://www.ft.com/content/7c0bf2de-fb6c-4e05-a760-d5e8da0152fd

7 https://www.gov.uk/government/statistics/direct-effects-of-illustrative-tax-changes/direct-effects-of-illustrative-tax-changes-bulletin-june-2024?trk=feed_main-feed-card_reshare_feed-article-content#capital-gains-tax

8 https://www.withersworldwide.com/en-gb/insight/read/uk-autumn-budget-%E2%80%93-what-might-happen-to-capital-gains-tax

9  https://on.ft.com/4bZkr8X

10 https://www.gov.uk/government/calls-for-evidence/the-tax-treatment-of-carried-interest-call-for-evidence/b8a7b5ae-0fcd-49bc-bfd1-d5cf5f4a8599

11 https://www.gov.uk/government/publications/2024-non-uk-domiciled-individuals-policy-summary/changes-to-the-taxation-of-non-uk-domiciled-individuals

12 https://ifs.org.uk/articles/raising-revenue-closing-inheritance-tax-loopholes

13 https://www.bbc.co.uk/news/articles/cdxl1zd07l1o

14 https://ifs.org.uk/articles/fiscal-rules-and-investment-upcoming-budget