We count ourselves lucky that our election cycles in the UK, although perhaps feeling lengthened by the run up to them, only actually run for six weeks. The swift transfer of power on 5 July following Keir Starmer’s Labour victory felt like a re-set after the last few years and the Prime Minister and his new Chancellor, Rachel Reeves, have lost no time in getting going over the last few weeks. Time is short to achieve much ahead of the summer recess, swiftly followed by the conference season in September. The Chancellor has, however, commissioned a ‘spending audit’ from the Treasury ahead of announcing a Budget date.
Given the challenges across a swathe of spending priorities, tax rises are expected later in the autumn. With their manifesto promises not to raise income tax, national insurance or the VAT rate, most commentators’ attention is focused elsewhere. In the latest edition of our newsletter, we feature a discussion of the key areas to look out for as the government sets out its programme. While continuing frozen thresholds on income tax until April 2028 means more people will come into the higher and additional tax brackets, that’s about the only certainty. There have been rumours around capital gains tax (CGT), some inheritance tax reliefs and offshore trust arrangements and of course the promise to bring private schools into the VAT regime. Businesses can expect policies within the next six months designed to underpin an avowed purpose to ‘drive investment for growth’.
The day to day business of managing the tax burden goes on regardless. One area that can cause confusion is around what counts towards adjusted net income and how some allowances affect what tax you actually pay. Income covered by both the personal savings allowance and dividend allowance counts towards your adjusted net income and even a small amount can have a significant impact on your tax position. Understanding some key income thresholds could make the difference. You need to report accurate figures to HMRC, either on a self-assessment return or using your personal tax account. Moving savings or dividend income into an ISA or increasing your pension contributions can mitigate the impact.
While CGT may come under scrutiny in the autumn Budget, Labour has already guaranteed they will not extend tax to the sale of a main residence. It’s not always clear, however, what qualifies as a main residence throughout a period of ownership or whether periods of absence will affect the status of a sale. If you own more than one property or have been away from your property for a period of time, understanding the rules around nominating a main residence and how reoccupation could benefit your CGT position is crucial. HMRC will make a nomination for you if none is made.
We discuss these issues and other stories in our latest July/August 2024 newsletter.