There is always lots of speculation about what we might face ahead of a Budget, but it has gone into overdrive this year with a new government.
And we are getting big hints from the top of some ‘painful’ announcements about to hit home.
Sir Keir Starmer’s speech earlier this week has made it clear there will be some unpopular decisions in the Budget on October 30. He said it is going to be “painful” and that “those with the broadest shoulders should bear the heavier burden.”
This comes as Labour has found a supposedly £22billion black hole in the Nation’s finances.
While the Government’s manifesto promised not to tinker with National Insurance, Income Tax and VAT. The PMs speech has signalled other tax rises.
We won’t know what until the day but some things that may be on the horizon include:
Inheritance Tax
It’s one of the most despised taxes and already high at 40%, so it is unlikely the rate will rise. But the Chancellor may decide to cut allowances, chop reliefs given to business or ‘tweak’ the gifting rules.
Capital Gains Tax
The Capital Gains Tax (CGT) free allowances have already been cut over the last two years but there could still be room for change. The rate could be increased but that would simply mean investors make a change to their behaviour. And the CGT tax breaks for business owners who are selling could be increased.
Dividend Tax
It has already been slashed from £5,000 to £500 but will it be chopped further? It would be very unpopular with investors along with a potential raise to the rate of dividend taxation. If the Government wants growth, it is going to need to encourage investment, not make it less appealing.
Pensions
Potential changes to pension taxation are speculated about before each Budget. Many in the industry feel pensions have already been tinkered with too much and each new change brings more confusion and apathy towards saving for the future.
Bringing in a flat rate of pension tax relief has been suggested and discussed countless times. There are two distinct camps here: those who think the current system is already fair as you get relief on the tax you pay on the subsequent pounds you earn; while others feel a flat rate of 25% or 30% for all would be fairer.
The other big rumour causing chatter is to chop the current 25% tax-free cash lump sum people are able to get when they access pension pots.
Neither would be popular with savers or help the cause to encourage more saving for later life.
Let’s hope Rachel Reeves does not kick off her first Budget by stifling growth and savings – the opposite of what we need.
But, we will have to wait and see…