In a recent announcement to parliament, the Chancellor confirmed the current year deficit in the government finances of £22bn.
She set out some of the reductions in public expenditure to close the deficit but hinted that there may be tax increases required to balance the books.
Specific measures announced
Aside from requesting budget savings from her ministerial colleagues, Rachel Reeves confirmed the following:
- The winter fuel payments from now on will only be sent to persons claiming pension credits or other means-tested benefits.
- VAT at 20% will be added to private independent school fees for terms commencing after 1 January 2025. This will also include fees paid in advance, on or after 29 July 2024, for 2025 fees.
- From April 2025 the favourable tax treatment of Furnished Holiday Let (FHL) properties are to be abolished. From this date, FHL properties will be treated the same as other property businesses.
- From April 2025, the government will remove the outdated concept of domicile status from the tax system and implement a new residence-based regime which is internationally competitive and focused on attracting the best talent and investment to the UK. The government will implement the 4-year foreign income and gains (FIG) regime announced by the previous government at the Spring Budget. However, this approach left several advantages for existing non-doms, which the government is committed to ending. The government will also review other key areas of the previously announced reforms to ensure the new regime is both fair and as competitive as possible.
The Chancellor also re-confirmed that the basic, higher and additional rates of income tax, National Insurance rates and VAT will NOT be increasing.
Which taxes could be increased?
With income tax, National Insurance and VAT taken out of the equation, there are still numerous taxes that could be increased.
With a promise to avoid taxing working families, tax increases are likely to focus on CGT and Inheritance Tax.
For example, it would be a fairly simple matter to treat capital gains as income and charge tax at the highest marginal income tax rates rather than the present lower CGT rates.
The Chancellor could also reduce or withdraw the generous Business and Agricultural IHT reliefs or withdraw or reduce the seven year Potentially Exempt Transfer relief.