What does the Budget mean for Tax in Northern Ireland?
There’s plenty of speculation about potential shifts in the UK tax landscape, from possible increases in Capital Gains Tax (CGT) to inheritance and pension tax relief adjustments.
Wilson Nesbitt Tax Director Liam Coulter, discusses what we could see on Wednesday 30 Oct.
Capital Gains Tax: Is an Increase Coming?
Current rates of Capital Gains Tax are historically low, making a rate hike seem likely.
There’s also been talk of potential changes to CGT exemptions, like capping the Private Residence Relief to gains up to £1 million or introducing new taxes on the disposal of assets upon death, which could be added to inheritance tax (IHT). While a wealth tax has been ruled out, tweaking existing taxes on assets could be a less controversial path for the government.
Reducing Tax Reliefs: A Revenue-Raising Option
A full-fledged wealth tax may be off the table, but there are other ways to increase government revenue—like cutting back on existing tax reliefs. For example, reducing the generous reliefs associated with ISAs could bring in additional revenue. The current regime costs the government around £5 billion annually, and some have suggested imposing a lifetime cap on the value of funds held in ISAs. Similarly, reducing tax relief on pensions or setting a cap on the Private Residence Relief for CGT could generate significant savings.
Changes to Private Equity Carried Interest Taxation
Another area poised for reform is the taxation of private equity carried interest (profits earned by fund managers). Currently, this income is taxed as a capital gain at a rate of 28%. If the government moves to tax all capital gains at income tax rates, carried interest could face a much higher tax burden. Alternatively, a higher fixed CGT rate, like 33%, could come with new qualifying conditions that allow some carried interest to continue being taxed as a capital gain.
Prolonging Fiscal Drag: Extending the Freeze
The Chancellor has already extended the freeze on income tax thresholds until 2028, pushing more taxpayers into higher tax brackets over time. Extending this freeze further could help balance the books, especially as more people move into the higher tax bands due to inflation. Adjustments to thresholds for certain benefits, like the High-Income Child Benefit Charge, could help smooth the impact of this freeze.
Property Taxes: SDLT and Council Tax Changes
The Labour government has committed to increasing the Stamp Duty Land Tax (SDLT) surcharge for overseas buyers by 1% to curb the purchase of new builds by non-residents. Meanwhile, the elevated SDLT nil-rate bands for first-time buyers and others are set to expire in March 2025, likely increasing the overall SDLT revenue. Council tax reforms, like a revaluation of property values that haven’t been updated since 1991, could also be on the horizon.
Reforming Pension Tax Relief: A Tough Nut to Crack
Pension tax relief costs the government around £50 billion a year, making it a tempting target for reform. While politically sensitive, options include reinstating a lifetime allowance, capping tax-free lump sums, or introducing new limits on employer contributions. While such changes would raise funds, they could also be controversial, especially among high earners.
Inheritance Tax: Potential Overhaul Ahead
The Chancellor may look to simplify Inheritance Tax (IHT), potentially abolishing the Residence Nil Rate Band in favour of a higher main Nil Rate Band. Other changes could include introducing progressive IHT bands or reducing business and agricultural reliefs. While a complete removal of business reliefs is unlikely, technical adjustments could make them more targeted, possibly reducing relief for large estates or AIM shares.
Preparing for Change
Once the government provides concrete answers, it’s time to contact an adviser who can guide you based on your personal circumstances.
We can help, get in touch.
Get in Touch
Wilson Nesbitt’s expert Tax team can provide early advice, reduce the tax payable where possible and take the hassle of reporting out of your hands. For further information and a fee quote contact Tax Director Liam Coulter and our team; 0800 840 9293 / lcoulter@wilson-nesbitt.co.uk