With the return of MPs to parliament after the summer recess, the rhetoric has been increased around the supposed £22 billion “black hole” in public finances.  Both the new Prime-Minister Sir Keir Starmer and Chancellor Rachel Reeves have hinted at tax rises in the first Budget of this new Government which takes place on 30 October.

Whilst the prospect of tax rises is being hinted at, which taxes will change is less clear.  So far, the Government has maintained its pre-election pledges to not increase the rates of income tax, national insurance and VAT, as well as implementing tax increases on private school fees, non-domiciled individuals and hedge fund managers. 

In many interviews, Rachel Reeves has refused to rule out changes to capital gains tax, inheritance tax and pension taxation.  More detail may emerge during the Labour Party conference later this month, but we also may know little further until Budget Day itself.

In the light of these vague comments, what can you do to prepare for these possible changes?

Capital Gains Tax (CGT)

It is possible that the rates of CGT could be increased with effect from close of play on Budget Day.  If you hold “liquid” assets such as quoted shares, you could dispose of those shares ahead of Budget Day.  There is anti-avoidance legislation which matches a reacquisition of shares in the same company made within 30 days of that disposal if you want to “rebase” your shareholding rather than simply divest.  However, if you wish to rebase your shareholding you could consider:

• “Double Bed & Breakfasting” – where you dispose of your shares and your spouse acquires the same number of shares in the same company on the same day.
• “Bed and ISA” – where you transfer shares you hold in your own name into an ISA.  This is subject to the £20,000 annual ISA limit.
• “Bed and Pension” – if you have an appropriate pension, you could consider selling or otherwise transferring shares you hold into your pension.  You need to consider other pension contribution you and, where appropriate, your employer have made as there is an annual allowance.

If you are in the process of disposal of other chargeable assets, it may save you tax to ensure that the disposal is made ahead of the Budget.  The tax point for CGT disposal is the date on which an unconditional contract is entered into.  For land and property disposals this is usually the date of exchange. 

However, it is always essential that you consider the financial and commercial implications of making any disposal.

Inheritance Tax (IHT)

It is possible that IHT could be changed significantly.  As it is a complex tax with far reaching implications, we would not recommend wholesale changes are made to your affairs on a speculative basis.

However, if you are thinking of making gifts direct to relatives or friends, you may wish to undertake these prior to Budget Day. 

If you wish to do this, we strongly recommend that you take tax advice as both IHT and CGT implications will need to be assessed.

Pension Taxation

It is possible that Rachel Reeves will announce a reduction in the amount of tax relief that is available on personal pension contributions.  To counter this possibility, you could consider either maximising your pension contributions or advancing any 2024/25 contributions you were planning to make in the period between 1 November 2024 and 5 April 2025 so they are paid before Budget Day. 

Once again, you need to take advice to ensure that you do not exceed the annual allowances available or you could face an unexpected tax liability.

To discuss any of these options in more detail, please speak to your usual Milsted Langdon tax contact, or get in touch with our team on: advice@milstedlangdon.co.uk.