October budget: Comment

With Labour’s first Budget in 14 years coming up in October, please see comment from Charlotte Sallabank

“As Labour has previously ruled out raising NIC, income tax and VAT, obvious options for raising revenue is to amend the capital gains tax or inheritance tax regimes. There is speculation that the government may raise capital gains tax rates to align those rates with income tax. The Institute of Fiscal Studies estimates that doing so could raise approximately £16 billion. However, it is likely that raising capital gains tax by such a percentage would cause people to either sell their assets more quickly before any new rates come into effect or delay selling their assets. In relation to inheritance tax, Labour has said that they are looking to ‘close loopholes’ These comments may relate to the fact that inheritance tax is currently a domiciled based system and also the government’s dislike of the use of offshore trusts in inheritance tax planning. The government intends to replace the domicile based regime with a new residence-based system from 6 April 2025.This will affect the scope of property brought into UK inheritance tax for individuals and trusts.

As for other items that will be included in the Autumn Statement, the government is currently running a call for evidence in relation to taxation of carried interest. The intention of the government is to raise the amount of tax collected in respect of carried interest. The government has said that following the submissions from the call for evidence, it will take a view on the rate of carried interest and announce any changes in the Autumn Statement. In view of the government’s stated aim of boosting economic growth and being a global leader in financial services, it is unlikely that the carried interest regime will be abolished in its entirety, but amounts eligible for capital gains treatment may be a function of investment managers’ capital deemed to be ‘at risk’.”

Charlotte Sallabank is a tax partner at Katten Muchin Rosenman UK