Chancellor’s Pre-Budget Speech
Bina Gayadien, partner at law firm Spencer West LLP, regarding Rachel Reeves’ speech this morning:
“Rachel Reeves prepares the ground for a tax rising budget later this month, potentially breaking pledges set in labor’s Manifesto. No details were announced today. However, given her fiscal constraints, tax rises for some or all may be bold and unpopular, but necessary according to the Chancellor.
A rise in the VAT rate is unlikely given that it directly impacts the cost of living, but tax increases on capital gains, wealth and pensions are looking more certain. For now the speculation continues.”
A Cap on Lifetime Gifting
With news that the Chancellor is considering a cap on lifetime gifting, Hilesh Chavda, partner at law firm Spencer West LLP comments:
“A cap on lifetime gifting would definitely impact the so-called “Bank of Mum and Dad,” particularly if the cap is set at a low level. Many families rely on lifetime gifts to help children with major expenses such as property purchases, and any restriction could reduce that support.
We’ve already seen an increase in client queries around this topic, which suggests growing concern. Whether gifting now is advantageous really depends on how the measures are drafted. If the rules capture gifts already made, then there’s no benefit to acting immediately. We won’t know until the Budget if this comes in and how it will be formulated.
Ultimately, this could reshape how wealth is passed down to future generations, potentially leading to a reduction in early financial assistance if there isn’t an incentive.”
Comment: Rise in CGT/ Property Tax? Or Wealth/ Exit Tax?
Hilesh Chavda, partner at law firm Spencer West LLP, in relation to The Chancellor’s speech this morning comments:
“Rachel Reeves’ speech this morning marks an unusual step, underscoring the challenging position she currently faces. The emphasis on ‘protecting families’ could be more than rhetoric. It may signal significant policy shifts ahead.
The Chancellor could be signalling changes to Capital Gains Tax, property taxation, and even the introduction of a wealth tax or exit tax. If so, this could represent a major recalibration of fiscal priorities for many.”
Comment – Is the UK pushing about to accelerate an exodus of wealth?
Following The Chancellor’s speech this morning please see comment from Charlotte Sallabank, Tax partner at Katten Muchin Rosenman LLP:
“In view of Rachel Reeves’ statement that ‘each of us must do our bit’ it seems likely that income tax rates will increase, not just an extension of the freezing of the personal allowance, so an increase in the basic rate of income tax can be expected.
There may well also be an increase in the higher and additional rates rather than a reduction in the threshold for these rates, in keeping with her aim that ‘those with the broadest shoulders should pay their fair share of tax’ and there is always the possibility that she will introduce a further rate of tax income tax to tax those that she considers to be the super wealthy.
However, if she does that, coupled with the potential introduction of employer’s NIC on LLP members’ profit shares, there is likely to be an acceleration in high earners moving to more welcoming tax regimes, such as Dubai and Milan, with the tax yoke being borne by those with slighter shoulders.”
Reeves speech “Chancellor will need to be exceptionally careful any moves do not backfire”
Rob Morgan, Chief Investment Analyst at Charles Stanley: “Today’s speech from Chancellor Rachel Reeves confirms what we previously suspected: that significant tax rises lie ahead in this year’s Budget and that areas previously ringfenced by manifesto promises are no longer out of scope.
“While bond markets may have been reassured by Reeves’ further commitment to her fiscal rules, as well as her acknowledgement of the importance of fostering growth, taxpayers will be left feeling distinctly uneasy.
“Only the major taxes have the revenue-raising potential to fill a large portion of the hole in the government’s finances. With unwanted inflationary consequences of raising VAT and corporation tax a likely no-go area with many businesses already struggling, it leaves income tax and national insurance firmly in the cross hairs for a broad increase.
“In addition, we can expect a series of other measures targeting wealthier individuals. Yet the Chancellor will need to be exceptionally careful any moves do not backfire once their impact on investment and growth are considered.”
Comment – Incentivising Wealth and Business
Please see comment from Hudda Morgan, partner at law firm Spencer West LLP, regarding Rachel Reeves’ speech this morning:
“It has been clear that tax rises are ahead of us but the words of the Chancellor this morning that stood out to me most were:
‘If we are to build the future of Britain together, we will all have to contribute to that effort.
‘Each of us must do our bit for the security of our country and the brightness of its future.’
There is a perception that the super-rich pay less tax than is their fair share, largely stemming from their particular sources of income, which are often taxed at lower rates than income from employment. Achieving true collective responsibility and contribution would therefore have to look at increases in capital gains tax, or annual wealth taxes.
How successful these will be will entirely depend on where thresholds are set. Introducing a new wealth tax would be complex, slow, and possibly costly to implement and follows quickly after recent changes to the non-dom rules.
The risks are high, possibly disincentivising business investment – the very driver of the economy that the government wants to protect, or investment from overseas, resulting in lower long run growth and employment. People make financial decisions over a lifetime, and constant changes inevitably affect confidence and discretionary spending.”
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