On Wednesday 26th November, chancellor Rachel Reeves will deliver her much-anticipated autumn budget, where she’ll reveal her borrowing and spending plans for the coming year.
This budget comes later than expected, as the government suggested it needed more time to formulate a strategy for long-term tax reform, in keeping with the nation’s current financial situation.
The overarching aim of this budget? To close the estimated spending gap of £40 billion which has occurred through stubbornly high inflation and sluggish economic growth.
In their original manifesto, Labour pledged not to raise taxes, and specifically not to increase income tax, VAT, or National Insurance. The October 2024 announcement did see a deviation from this (with national insurance and rates for selling assets increased) but this year, it is hoped the manifesto promise will be honoured.
Chance would be a fine thing, say some authorities on this subject (including the Treasury and the Institute for Fiscal Studies), many of whom deem tax rises as ‘inevitable unless economic indicators improve’.
A likely alternative, however, is that adjustments will be made to those taxes not deemed to affect 'working people' (e.g. inheritance or capital gains) as well as wider thresholds and allowances, which will allow Labour to generate revenue whilst not necessarily breaking their manifesto promise.
Supposedly, stamp duty might come into this, with speculation rife that it is soon to be replaced with a national property tax (according to the Guardian). This would be paid at 0.54 per cent by those selling properties over £500,000, and would increase to 0.81 per cent for sellers of properties over £100,000.
Another possible change, which was initially proposed by Resolution Foundation think tank, is to broaden the scope of National Insurance to encompass rental income. This eight per cent levy would help raise an extra £2-£3 billion. It is, however, feared that this increase in costs (which would reduce landlord profitability) might simply be passed on to tenants through higher rents.
In the autumn 2024 budget, capital gains tax was largely left alone, but this has raised speculation that the allowance (which has already been lowered from £12,300 to £3000) could be targeted this autumn. This shrinking of the tax-free allowance has raised some concerns with landlords, as it would inevitably make selling investment properties more expensive.
As for what else to expect in the autumn budget, it is not outside the realms of possibility that the inheritance tax threshold will be reduced from £325,000, where it has been since 2009. This would increase the percentage of estates which pay inheritance tax (currently at 40%) from the current 4% level. Alternatively, the treasury may keep the threshold the same, but increase the rate from 40% - which would essentially mean higher bills for those paying inheritance tax, but no change in the number who are. These changes are proposed alongside adjustments to gifting rules (whereby you need to live longer after gifting a property before it becomes tax-free) alongside the inclusion of pension savings in estates from 2027.
Finally, we could see off the back of next month’s announcement, an extension of the freeze on the ‘stealth tax’ thresholds, where rising wages drag more people into higher tax brackets. This is proposed as a possible means to generate more revenue, although it remains to see if this – and indeed any of the aforementioned policy changes – come to fruition.
What all of these approaches essentially point towards, is a wider shift in how we will perceive and experience renting, property ownership and sales/buying decisions going forward.
As a result, it might be prudent for homeowners and landlords at this point to seek to consult from financial advisors, tax specialists and property experts, all of who will be able to assist with formulating a positive way to approach and respond to this evolving fiscal landscape.
For more information on the Maidenhead property market, please contact Braxton on 01628 674 234 or email property@braxtons.co.uk