There is little doubt that the first Labour Budget is going to be painful because Keir Starmer has already warned us so. There has been much speculation in the media with dire predictions of what is to come especially if you have wealth. Starmer has gone on record for saying that he doesn’t want to increase taxes for “working people.” That means he wants to tax people with wealth who are financially independent and do not need to work to live.

 

As the Labour Party has ruled out any increases to Income Tax, VAT, National Insurance and Corporation Tax that leaves Inheritance Tax, Capital Gains Tax, Council Tax, savings, pensions and alcohol duty as probable targets for tax increases.

 

 

However, it is important to understand that governments leak news, especially bad news, in advance of Budgets in order to test public opinion. If there is a lot of negativity they tend to scale back on their plans or abolish them altogether. So you really have to bear this in mind as much of the pre-Budget news is pure speculation. The reality is that it will be a tax raising Budget which will be mainly focused on taxing the rich. What is likely to happen is that the worst proposed tax changes either won’t happen at all or will be reduced in scope.

 

Another factor to bear in mind is that some tax increases are announced which do not come into force immediately. Although the Budget is on 30 October some of the tax increases will not apply until 6 April 2025 or in later tax years. Some of the speculated tax changes would be especially unfair if applied part way through a tax year.

 

So how can you prepare for the Budget? The reality is there are limited ways to reduce your taxes when you do not know what changes will be made in the Budget and from what date/s tax increases will apply.  Nonetheless, the following actions are worth considering before 30 October.

 

• Maximise your pension contributions for the current tax year (usually £60,000 but could be more or less than this amount so check it out yourself or consult a tax specialist). This is because the annual allowance may be reduced on 30 October.
• If you have a large pension and you are aged 55 or more, consider withdrawing a tax-free cash lump sum of up to 25% before 30 October if you were already considering doing it anyway and you have plans for spending the money. By large pension, I mean one worth considerably more than £400,000. This is based on speculation that Labour may reduce the maximum tax-free cash lump sum to £100,000 which I personally doubt.
• If you are already planning to sell an asset such as an investment property, shares, a business etc then consider selling it before 30 October in case the rate of Capital Gains Tax is increased in the Budget.
• If you are considering emigrating from the UK you have probably left it too late unless you have already spent less than 182 days in the UK this tax year so far. You would have to meet the strict terms of the Statutory Residence Test as well. Again it’s best to consult a tax specialist on this.
• You may like to consider transferring your pension overseas into an offshore pension such as a QNUPS or a QROPS. It may be too late to do this unless the Chancellor gives you time in the Budget for any proposed tax increases on pensions like a Lifetime Allowance to be re-introduced such as not being effective until 6 April 2025 at the earliest. Specialist advice from both an overseas pension specialist and a tax specialist will be required. Also, such planning is likely to take more than six months to implement in practice.

 

These are just a few ideas that may help you with forward tax planning before the Budget. Hopefully, it won’t be as painful as Starmer has forecast.  My gut instinct is that it will not be as bad as the doom and gloomsters in the media have predicted. After all bad news sells, right? You know it makes sense.*

 

 

*RISK WARNING

The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this blog is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. The Financial Conduct Authority does not regulate tax planning, estate planning, or trusts.  This blog is based on my own observations and opinions.