Parameters Survey. We asked you what changes to exemptions, allowances and thresholds you expected to see over the next 4-5 years. Fiona Bond analysed your responses.
The Labour government’s recent admission that it has been left with a £22 billion shortfall in public finances and the Prime Minister’s statement that we can expect a ‘painful’ Budget, has stoked speculation that Chancellor Rachel Reeves will look to make significant changes to the tax regime in her first Budget this autumn.
The Chancellor has ruled out changes to income tax, VAT and national insurance in this Budget, which has raised speculation that capital gains tax (CGT) and inheritance tax (IHT) will be potential areas for the Treasury to raid and paraplanners are in agreement that these could both fall under Labour’s scrutiny.
According to the Professional Paraplanner Parameters Survey, nearly three quarters (74%) of paraplanners expect capital gains tax rates to rise, compared to just 2% who believe they may decrease over the next five years. A further 24% said they expect there to be no change.
One paraplanner commented: “Whilst there has been much speculation surrounding a new Labour government changing pension reliefs and allowances, I believe the CGT regime will continue to be the main focus which is less complicated to change from the government’s standpoint.
“That said, I expect there to be increased pressure to make some changes to the IHT regime given there has been very little change for many years.”
Another added: “I don’t expect radical changes but I do expect CGT rates to up in line with income tax rates.”
Currently, CGT starts at a rate of 10%, or 18% on residential property, on profits above £3,000. It then rises to 20% on any amount above the basic tax rate or 24% on residential property. The rates are considerably lower than income tax, which critics have pointed out can benefit wealthier people.
As one paraplanner noted: “The Labour party will restrict tax relief for higher earners and other tax benefits deemed to be only for the wealthy such as CGT.”
More than a third (35%) of paraplanners also believe the government will lower the CGT exemption amount, more than double the 15% who are expecting it to increase.
However, one paraplanner said that after reducing the CGT annual exemption from £12,300 to £3,000 in the space of two years, they may look to scrap it altogether.
Inheritance tax and business relief also under the spotlight
The survey also revealed that more than a quarter (26%) of paraplanners expect the 40% inheritance tax charge to increase, significantly above the 6% who are predicting a decrease. However, 68% of respondents expect the government to hold steady and keep the tax charge at its current rate. Meanwhile, half of those surveyed said they expect Labour to maintain the inheritance tax nil rate band thresholds, while 31% are predicting an increase and 19% are forecasting a decrease.
A third (33%) of those surveyed also said they expect Labour to reduce business relief, versus 60% who expect it to remain unchanged and 7% who are anticipating an increase.
“Inheritance tax and business relief are bound to change. Business relief was introduced by the Labour government so it’s likely to increase,” one paraplanner said.
However, others were of the view that Sir Keir Starmer will be reluctant to “rock the boat” by unveiling radical changes so close to coming into power and will rely mainly on fiscal drag to plug the public finances.
More than three fifths (61%) said they expect the national insurance rate to stay unchanged over the course of Labour’s rule, nearly double the 31% who said they expect it to increase.
One respondent said: “Whilst the government will need to find funds from somewhere, they won’t want to rock the boat being newly elected so letting allowances decrease in real terms is a low key way to do that.”
Another told Professional Paraplanner that Labour will make use of “stealth taxes” to increase revenue, while avoiding tax increases which risk upsetting the general public.
Pension changes
Pensions have long been a source of debate for political parties, with the pensions industry bemoaning the constant tinkering and changing of goalposts.
While Labour’s party manifesto did not go into detail about its pension plans, it recently pledged to undertake a review of the pension landscape, claiming it could unlock billions of pounds for investment in the UK economy.
When asked what could happen to pensions tax relief, more than three quarters (77%) of paraplanners said they expect the rate to remain unchanged, with just 17% predicting an increase and 6% expecting a decrease. However, more than half (51%) said they expect Labour to reduce the pensions tax relief higher rate and 58% expect the pensions tax relief additional rate to decrease. This compares to just 6% and 7% respectively who expect the rates to increase.
Meanwhile, a fifth (20%) expect the government to lower the pensions tax free cash.
One paraplanner commented: “The majority of pensions will stay the same I think, but the tax free amount may be reduced.”
Another said: “The ability for pensioners to access tax free cash from pensions could be the only allowance to change and that will be in a negative way again to raise revenue.”
In addition, a fifth (21%) of paraplanners are forecasting a drop in Pensions Money Purchase Annual Allowance, which currently sits at £10,000 for the 2024/25 tax year.
