Prime Minister, Sir Keir Starmer’s, recent speech on what to expect from the government’s Budget in October has fuelled rumours that tax changes could be announced in the Autumn Statement.

Starmer warned that the Budget was “going to be painful” and that “those with the broadest shoulders should bear the heavier burden”.

Industry experts have been speculating on which areas of tax the government could be looking at to plug the shortfall in public finances.

Capital gains tax

One of the most cited potential changes was to capital gains tax (CGT), with Forvis Mazars partner, Nicholas Nesbitt, stating that increasing the CGT rates now seems “the most likely course of action”.

“A probable worst-case scenario would be an alignment of CGT rates with income tax rates,” he continued.

“An alternative would be to extend the regime of having different tax rates for different assets (residential property, investment, business assets etc.).

"Ultimately, we expect that if rates are to increase, this may be coupled with an increase in the Business Asset Disposal Relief limit on selling businesses from £1m.”

From a financial planning perspective, it may make more sense to realise gains within investment portfolios now at the known rates, instead of deferring the issue with little likelihood of future reductions, Nesbitt noted.

“Where clients don’t anticipate requiring the funds in the near future, they may consider deferring realising gains to death but that is somewhat restrictive from an investment perspective and could be a potential area of attack as well,” he added.

However, while Quilter Cheviot chartered financial planner, Ian Cook, acknowledged it might make sense to realise some gains now, he warned that this decision should be made carefully, weighing the current market conditions and long-term financial goals.

Inheritance tax

Changes to inheritance tax (IHT) could also be on the agenda, Cook said, with potential reforms that might close existing reliefs or increase tax rates.

“If you’re planning to pass on significant assets, it might be beneficial to review your estate plan now,” he continued.

"Consider making use of current IHT exemptions, such as annual gift allowances, and explore options like setting up trusts to manage and protect your wealth for future generations.”

Nesbitt added that, as the number of estates paying IHT has been increasing, it was no surprise that change to this might worry people.

“We do not expect that the 40 per cent headline rate of IHT will change, and we don’t expect the limits (known as Nil Rate Bands) to decrease,” he said.

“However, we do think that the government may look to tighten rules on gifting money away, perhaps by taxing gifts over a certain size, or introducing a lifetime limit of gifts.

"Some other areas that the government could look at are removing Business Relief on AIM assets, and limiting Agricultural Property Relief.

“Given the uncertainty over how the government might look to change IHT legislation, and given that IHT planning typically involves significant decisions that can impact individual’s long-term financial position, we are being cautious about undertaking planning in this area currently.

“However, where individuals have planned to make certain gifts, we are discussing with them whether such gifts should be made over the coming months."

Pensions tax

Pensions tax changes are often rumoured in the lead-up to governmental Budgets and financial statements, as they provide a potential opportunity to raise large sums of money for the government.

While it appears unlikely that Labour will reintroduce the lifetime allowance (LTA), rumours of changes to tax relief on pension contributions and/or alterations to the lump sum allowance (LSA) have spring up.

"Pension tax relief is another area that might see changes,” commented Cook.

“There have been discussions about altering the rate of tax relief on pension contributions, which could affect how much you can save tax-efficiently for retirement.

“Currently, higher-rate taxpayers benefit from pension tax relief, but this could change if a flat rate is introduced.”

Nesbitt added that while a flat relief on pension contributions was a potential consideration, this had been discussed previously and is technically difficult to implement.

“The more likely areas are reducing the LSA and addressing the taxation of pensions on death,” Nesbitt argued.

“Following the abolition of the LTA, the LSA is no longer linked to any wider legislation and therefore the government could easily reduce the amount of tax-free cash individuals can take from their pensions.

"The taxation of pension death benefits has long felt anomalous – you get tax relief on contributions; you get tax-free investment growth, and you can pass the funds tax-free on death.

“Given the level of wealth stored up in pensions, we expect that the new government may seek to tax pension funds on death moving forward.

“Any consideration around taking lump sums from pensions should weigh up the individual's objectives and the various tax consequences of drawing the lump sum.”

Wealth tax

Following Starmer’s comments on the wealthiest individuals bearing the largest burden with any potential new changes, some have speculated that a wealth tax could be introduced.

However, Nesbitt noted that this would be a “very complex taxation” to introduce and would be very different to the UK’s current tax approach.

Despite this, it “shouldn't be completely ruled out as there are examples of this being introduced in other countries”, Nesbitt warned.

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