What Could Change & How Could The UK Budget 2024 Affect You?

The upcoming UK Budget, scheduled for 30 October 2024, may introduce changes that could impact your financial planning — particularly around your pensions, investments and/or inheritance strategies. While nothing is confirmed, the government is reportedly exploring ways to raise revenue, and potential reforms to tax reliefs and thresholds are widely discussed.

Below, we examine four key areas that may be addressed in the Budget and what these possible changes might mean for how you manage your wealth in the future.

1. Capital Gains Tax (CGT)

There is widespread speculation that CGT rates could be increased to align more closely with income tax rates. Currently, CGT is taxed at lower rates than income, but this gap may narrow as the government looks for additional revenue sources.

Financial planning considerations post Budget:

If CGT rates rise, those with significant gains from investments, property or business disposals could face a larger tax burden when selling these assets. This could reduce the overall returns and make timing transactions more important. If you are planning to sell high-value assets, the CGT impact be a key factor in your decision making.

2. Pensions Tax Relief

Changes to pensions tax relief are frequently discussed in Budgets, and this year is unlikely to break the mould.

There is speculation about the introduction of a flat-rate tax relief system, which would reduce the benefits currently enjoyed by higher-rate taxpayers. A reduction in the tax-free lump sum available upon retirement is also a possibility.

Financial planning considerations post-Budget:

If a flat-rate system is introduced, the tax relief on pension contributions may become less advantageous for higher-rate taxpayers. This could reduce the overall tax efficiency of pension savings if you are in the higher-rate tax band.

Similarly, a potential change that may apply to all taxpayers is a possible reduction in the tax-free lump sum. This would affect how much you can withdraw from your pension without incurring taxes. This may have an impact on how you structure your pension and retirement income in the future.

3. Inheritance Tax (IHT)

Inheritance tax has long been a subject of debate. Many make calls for simplification, while others argue for increasing the burden on larger estates. The 2024 Budget could see changes that do both. That could be through changes designed to raise revenue through higher taxes on wealth transfers; or simplification that may close existing reliefs.

Financial planning considerations post Budget:

If the Chancellor tightens IHT rules, this could mean higher tax bills when passing on wealth to future generations. For those looking to protect family wealth, this would have an impact on estate planning. Reviewing your estate plan and considering options such as trusts or gifting strategies could help mitigate future IHT liabilities.

4. National Insurance Contributions on Pension Contributions

There is a possibility that the Budget could reduce or eliminate the National Insurance (NI) savings on employer pension contributions. Currently, employers benefit from NI savings when contributing to employees’ pensions, but this could be removed to raise additional funds.

Financial planning considerations post Budget:

If NI savings are reduced, employers may lower their pension contributions to offset the increased costs. This could reduce the growth of employees’ pension pots, especially if there is a reliance on employer contributions for retirement planning. For those affected, you might need to reassess how much you personally contribute in the future to ensure your retirement savings stay on track.

The 2024 UK Budget could introduce several significant changes that may directly affect how you manage your finances, particularly around pensions, investments, and estate planning.

With potential reforms to CGT, pensions tax relief, and inheritance tax, it would be prudent to review your financial strategies to ensure they remain robust in light of any any new measures announced.

About the Author - Jeff Simpson is a Chartered Financial Planner at Hymans Robertson Personal Wealth. Find out more by visiting their website here

The content of this blog is for informational purposes only and does not constitute financial, legal, or tax advice. The potential changes discussed are speculative and based on current information available at the time of writing. Readers should not take any action based on the content of this blog without seeking professional advice tailored to their individual circumstances.