GE2024 - Actions To Take Before 4 July 2024

If the polls are right, there’ll be a change in majority government on 4 July. If so, there’ll likely be a Budget later in July, which due to the stretched public finances and Labour ambitions, is expected to increase taxes for some. [EDIT: Labour has confirmed there won't be an emergency Budget in July].

What actions might you take before 4 July to help ensure you’re not caught out by these changes?

Capital Gains Tax – Rate Increases

Current rates of 10%/18%/20%/24% might increase closer to, but not as high as, income tax rates of 20%/40%/45%.

For example, if you’re in the process of selling a buy-to-let residential property expecting to pay a 24% capital gains tax rate, you may want to ensure you exchange before 4 July to save an increase to say 30%. The effective date for capital gains tax is exchange, not completion, so if you can only exchange before 4 July this should be sufficient.

Action: If you agree this is likely to happen you may want to ensure you exchange on sales of chargeable assets, such as second residential properties, before 4 July.

Pension Contributions – Threshold Decreases

The current recently introduced more generous thresholds of up to £60k per tax year of total contributions enjoying income tax relief and no maximum on your pension fund pot value, will probably be dialled down by a Labour government.

We’d expect any contributions paid and pension pot values already enjoying these rules to continue to benefit from them, with conditions. For example, when a pension pot maximum was initially introduced existing pots over the maximum remained tax free as long as no further contributions were made.

It’s also possible the 40% and 45% tax relief is reduced to 20%, often mentioned, but so far not adopted by any government even during the financial crash.

Action: Subject to Independent Financial Adviser advice, make further pension payments before 4 July. For example, if so far this tax year you’ve paid say £10k into your pension scheme, you might want to try making a further maximum £50k, whatever is affordable/advisable, before 4 July to obtain maximum tax relief for this tax year.

Tax Avoidance Clamp Down

The truth about public bodies trying to demonstrate results is that they end up going for ‘low hanging fruit’. For HMRC this often translates in going to the taxpayers they already know about and digging deep hoping they'll give in.

A classic example is the recent campaign against weak research and development - R&D - tax relief claims. HMRC has attacked many genuine claims as part of their sweep up picking on certain easily identifiable claim types, hoping the less financially robust who can’t afford the professional fees or who simply don’t have the time, will give up. The real culprits not necessarily caught within the rigid simple crtieria managing to avoid scrutiny.  

Action: At the minimum, ensure you retain evidence of tax claims and that your bookkeeping is simple and clear, so when asked it’s easier to respond to queries and you don’t have to give in because it’s hard to reply.

Preparing a good tax return is a skill. All tax returns should be prepared with possible queries in mind, so provide explanations where needed enabling HMRC to see what is happening; it may make the difference to encourage HMRC not to write to you for clarifications.

NB The current government has now matched Labour's anti-avoidance pledge, so there's more reason to act.

VAT On School Fees

This is a definite promise from Labour. The exact increase in cost of school fees is unlikely to be simply 20% because the school will recover VAT on many of its costs and may also decide to absorb some of the potential price increase.

Action: Much has been said about you can do to reduce your exposure to any increase, the simplest and most robust is to pay school fees in advance before 4 July. However, do consider the possibility of the school failing and therefore losing your fees completely!

After 4 July 2024

It's worth noting that the above actions may turn out not to be needed immediately, but are still worth considering over the next few months. [EDIT: For a later Budget now expected in the Autumn].

In addition, despite recent assurances that taxes won’t increase, the public finances are fragile which Labour might later declare worse than expected, paving the way for certain other popular increases. 

Action: Keep in touch with your On The Spot Accountant to ensure you're kept up to date.