How to Prepare for the 2024 Budget

The Budget 2024

The upcoming Budget announcement will be the first time that the Kier Starmer's new Labour government get a chance to unveil their plans for the country's finances for the rest of their term.

It is a hugely anticipated event, not least because it represents the first time that a Labour government have had a chance to do so in more than a decade, but also because it follows a particularly vitriolic political campaign in which Tory spending under Rishi Sunak was one of the criticisms the challengers levelled at him.

They claim that there is a "black hole" in the country's finances totalling some £22bn, and look to be pursuing a regime of intense austerity and a tightening of fiscal policy in order to plug it. So what does this mean for you, and what should you do in terms of financial planning?

What is expected in the October budget announcement

First off, there are a couple of things that have been released already. Notably, the introduction of VAT on private school fees from the new year. This is one that has kicked up a bit of a fuss, even though most schools aren't passing on the full 20% increase to parents.

We're not here to comment on how fair it is or isn't, but it's clear who this policy is meant to go after. There has also been an announcement of confirmation that there will be stricter rules on non-domiciled UK citizens, or those who live abroad.

Capital Gains Tax

The most high profile change is a suggested increase in capital gains tax. This currently sits at 10% for basic rate taxpayers and 20% for higher rate taxpayers. In addition basic rate taxpayers are liable for 18% tax on the sale of a rental property and higher rate tax payers 24%.

The proposed changes would increase all of these - there is talk of these going as high as 40%, which would bring them close in line to income tax rates (20%, 40% and 45%). Debate on whether this is fair aside, its impact would be on all kinds of investments, particularly those long held with large amounts of unrealised gain: think for example older people with long held investments, or entrepreneurs.

It is unlikely that this is brought fully in line, although it will almost certainly be increasing. You can read our existing guide on capital gains tax here.

Inheritance Tax

One of the largest talking points for most left-wing politicians is the tax levied on assets passed down on death. Many feel that this is an antiquated and unfair mechanism to keep the wealth within the same families and rewards unproductive endeavours. However, it is also double taxation - taxing assets that have already been taxed, and holds back the fair and rational desire to provide for one's children on death.

That being said, only a very small percentage of the country have enough assets to qualify for inheritance tax, although this may change. There are talks to apply IHT to pension savings, something that has thus far been exempt. Given that this will be on defined contribution pensions which make up the vast majority, there is little to be done about this, and it remains a long-term financial planning strategy.

Income & Dividends

While there looks increasingly likely to be a freeze on income tax bands, for better or worse, it is somewhat possible that there is a change to dividend tax rates. These are currently taxed lower than regular income - these don't just cover the dividends from stocks held, but also from businesses to their owners.

However, it is pertinent to note that these are paid after corporation tax, and so business owners are already paying double taxation on these proceeds. This is certainly possible, but probably not the most obvious place for Labour to go after high earners.

Entrepreneurs Relief

This is a particularly contentious one - there are currently tax incentives to selling your first business up to a maximum of £10m - recently rebranded as BADR (Business Asset Disposal Relief), this has historically been one of the largest incentives for new business owners to set up in the UK.

Its removal would be a large blow to the startup and small business industry in the country and cause many small business owners to reconsider their domicile status.

What should you do to prepare?

This is the question that everyone is asking. There has been great talk lately of the "brain drain" we are experiencing as many of the resourceful and wealthy start making arrangements to leave the country. They often draw attention to the capital gains tax and entrepreneurs relief changes to justify their decision, and it is interesting to see how this will affect our tax base.

The Laffer curve, a famous concept in economics, explores the point at which increasing taxation at a certain level actually reduces the government's revenue from tax, as its counter productive for the output of the economy. While we're not quite suggesting we're there yet, it is concerning the level of uproar being caused.

That being said, it's vitally important that you don't make rash decisions around your portfolio or financial planning based on speculation. Incurring tax bills on rumours is not smart long term financial planning.

The way we like to think of it is that you should now be encouraged even more to hold onto your assets and let their gains accumulate without realising them for as long as possible. Let that compounding happen before the tax, and in future these changes might also be reversed.

Will any of them be reversed?

There is no point relying on this and historically, tax increases are very rarely reversed. That being said, some of the more aggressive policies will fly directly in the face of the main tenets of Conservative government, so if (when) they come back to power, it is possible that some might change.

As above though, it is important to not rely on this happening. More incentive to hold onto your investments and wait and see!

How can you track the impact of these changes?

You can follow along with the budget from 12:30pm on Wednesday the 30th October 2024. The contents will be well documented in the news, and most changes shouldn't even come into effect until the new year, so you will have some time to consider the effects on your portfolio.

You can track the progress of your investments on your Strabo dashboard - we will soon be introducing some more detailed tax tracking that allows you to work out how much tax you owe on the various investments you hold.

Wrapping up

So there you have it - we're waiting in anticipation as you are to see what happens at the end of the month. As above, don't make any big changes to your portfolio and continue to follow the same basic principles you always have (and we tell you to!) and you will be completely fine.

For any questions on any of the above, please feel free to reach out directly to hello@strabo.app