As the new Labour government prepares for its first Autumn Budget on 30th October 2024, anticipation is growing regarding potential changes to pensions and inheritance tax. The fires have been stoked with the Prime Minister’s recent speech confirming the budget will be painful.
Pensions: A Focus on Fairness and Sustainability
Labour has long championed the need for a more equitable pension system. Under the new government, we may see efforts to address perceived inequalities in the current pension structure, particularly in how benefits are distributed across different income groups.
The new government may revisit the controversial issue of pension tax relief. Labour has previously criticized the current system for disproportionately benefiting higher earners. We could see proposals to restructure pension tax relief to be more progressive, potentially introducing a flat rate of relief that benefits low and middle-income savers more than those at the top. Contributions made before the changes would benefit from the current tax relief arrangement.
Another area of reform could involve changes to the state pension. Labour has previously expressed concerns about the adequacy of the state pension, especially given the rising cost of living. To address this, the government might consider increasing the state pension rate, particularly for those on the lower end of the income scale. Such a move would align with Labour’s broader aim of reducing poverty among the elderly, ensuring that pensioners are not left behind in a rapidly changing economy.
In addition to adjusting the state pension, Labour may also look at private pensions. There has been discussion within the party about the need to ensure that all workers have access to a decent workplace pension. This could lead to enhanced regulation of auto-enrolment schemes, with a potential push for higher employer contribution rates.
It is unlikely there will be changes to the tax-free entitlement people have with their pensions. If the Government did choose to do this, they would almost certainly need to create rules to protect people who had built up an entitlement to tax-free cash under the current rules. Pension rules would also have to changed which makes it almost impossible to make a change like this in the short term.
Inheritance Tax: Targeting Wealth Redistribution
Inheritance tax (IHT) is another area where the new Labour government could introduce significant changes. The party has historically viewed IHT as a tool for wealth redistribution, and under the new administration, we may see reforms aimed at increasing its effectiveness in this role.
Currently, the inheritance tax threshold stands at £325,000 per person, with an additional residence nil-rate band for family homes. However, Labour has previously suggested that the wealthiest estates are not contributing their fair share. To address this, the government could consider lowering the threshold or altering the rates to ensure that larger estates pay more in tax. This could involve a sliding scale where the tax rate increases with the size of the estate, ensuring that those with significant wealth contribute more.
Additionally, Labour might explore closing loopholes that allow some to reduce their IHT liability. This could include tightening rules around gifts and trusts, which are often used to minimize the tax burden on large estates.
Conclusion: Preparing for Change
As the new Labour government prepares to unveil its first Autumn Budget on 30th October 2024, individuals and families should remain vigilant about potential changes to pensions and inheritance tax. These areas are likely to see significant reform, with a focus on making the system more equitable and sustainable in the long term.
Consulting with financial advisors and reassessing long-term plans considering potential changes will be essential steps in navigating this evolving landscape. The Autumn Budget promises to be a pivotal moment, shaping the future of financial policy in the UK for years to come.
You can contact one of the team at Parker Kelly by emailing enquiries@parkerkelly.co.uk, calling the office at 0151 236 7838 or visiting www.parkerkelly.co.uk.
Important Information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. You cannot normally access money in a pension until age 55.
This information is not a personal recommendation for any particular investment.
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What happens next for you and your wealth?
Throughout the campaign, the Labour Party manifesto promised not to increase taxes for working people, which is likely to leave a gap in their spending commitments.
What revenue-raising measures are on the cards?
As Chancellor, there are many levers that Reeves can pull, but speculation has been rising that inheritance and capital gains taxes will be a target. And let’s not forget about pensions, as political parties like to tinker with this area.
One area already pledged is to add tax to private school fees. For many people, school fees are by far their biggest outgoing, and any increase will be a cause for concern.
On a more niche level, there is debate on whether Labour will change the non-dom tax regime and the beneficial tax treatment for executives working in the private equity industry carried interest.
In the coming weeks and months, we will carefully watch changes that could affect your financial goals while hoping that fears over drastic changes to the wealth landscape will be a storm in a teacup.