THERE is less than a week to go until this year’s Autumn Statement, leaving many people wondering what the Government will announce.
The Autumn Statement gives an update on the government’s economic plans, which are based on official forecasts from the Office for Budget Responsibility (OBR).
It also gives Chancellor Rachel Reeves the chance to update Parliament on the government’s tax and spending plans for the next year.
Labour’s manifesto promise ruled out hikes to VAT, income tax rates and national insurance in line with its pledge to help “working people”.
The Government has so far refused to rule out several big tax changes, including a council tax reform and new pension rules.
Meanwhile, Sir Keir Starmer’s warning that the Labour party’s first Budget in more than a decade “is going to be painful” has left many wondering what could be announced.
Here we take you through what could be in store.
Income tax
Experts suggest that Rachel Reeves could extend the “stealth” freeze on income tax thresholds for another two years.
The personal allowance, which is the amount that people can earn before they need to pay income tax, is frozen until 2028 but the Chancellor could extend it in next week’s Budget.
As worker’s wages rise in line with inflation this could drag thousands of people into higher tax brackets through fiscal drag.
Government sources have said that doing so would not breach Labour’s general election manifesto, which promised not to increase the rate of income tax.
The move could bring in as much as £7billion a year from 2028 onwards.
Capital gains tax
Another rumour is that Labour will make changes to capital gains tax in its Budget.
Capital gains tax is charged on the profit you make when you sell something that has increased in value.
What is the Budget?
THE Budget is big news and where you’ll often hear announcements about taxes. But what exactly is it?
The Budget is when the Government outlines its plans for the economy including taxation and spending.
The Chancellor of the Exchequer delivers a speech in the House of Commons and announces plans for things like tax hikes, cuts and changes to Universal Credit and the minimum wage.
At the same time, the Office for Budget Responsibility (OBR) publishes an independent analysis of the UK economy.
Usually, the Budget is a once-a-year event and usually takes place in the Autumn, with a smaller update known as the Spring Statement.
But there have been exceptions in recent years when there have been more updates, or the announcements have taken place at different times, for example during the pandemic or when there is a General Election.
On the day of the Budget, usually a Wednesday, the Chancellor is photographed outside No 11 Downing Street with the red box.
She then heads to the House of Commons to deliver her speech, at around 12.30 following Prime Minister’s Questions (PMQs).
Changes announced in the Budget are sometimes implemented the same day, while others may not have a set date.
For example, a change to tobacco duty usually happens on the same day, pushing up the price of cigarettes.
Some tax changes are set to come in at the start of a new tax year, which is April 6.
Other changes may need to pass through Parliament before coming into law.
Sir Keir Starmer has ruled out charging capital gains tax for first-time buyers, which is exempt under the current system.
Experts now predict that the rate charged for higher-rate taxpayers selling a second home will remain at 24%.
But the 20% tax when selling shares or other valuable assets such as paintings or furniture could be increased.
This move may not affect basic-rate taxpayers, who currently pay 10pc, although a change to their thresholds has not been ruled out.
The Government may also alter the current threshold at which capital gains tax is due.
At the moment the first £3,000 you make in profit for selling an item that has increased in value is tax-free.
But this threshold has been reduced several times by the previous Conservative government.
First from £12,300 in 2022-23 then to £6,000 in 2023-24.
Inheritance tax
The prime minster and chancellor could make multiple changes to inheritance tax, which currently has several exemptions and reliefs.
Inheritance tax is currently charged at 40% on the property, possessions and money of someone who has died if they are worth more than £325,000.
Fewer than one in 20 estates currently pays death duties as many estates fall below this threshold.
But the tax raises about £7 billion a year for the Government.
There are several exemptions and reliefs which mean you do not need to pay inheritance tax, including gifts or giving to charity.
It is thought that changes to several of these rules are being considered.
For example, gifts which are given less than seven years before you die may be taxed.
There are also exemptions if you leave land or pasture which is used to rear animals or to grow crops through agricultural relief.
It is not yet confirmed what changes will be made in the Budget on 30 October.
Employer national insurance contributions
Experts have suggested that the Chancellor could impose national insurance on employers’ pension contributions in the Autumn Statement.
Doing so could raise £15.4 billion, which would help to plug a £40billion funding gap in the public finances.
Employers currently pay national insurance for post workers earning more than £9,100 a year.
The amount they pay is equivalent to 13.8% of the employees earnings above this figure.
For an employee earning £30,000 the employer would pay around £2,884.20 in national insurance.
Former pensions minister Sir Steve Webb said that if the government put up the national insurance rate by 1% it could raise an extra £8 billion a year.
But he warns that it could leave millions of workers with lower wages and less generous pensions.
If an employer has to pay more tax then their costs will go up, so they would need to save money elsewhere.
They may do this by giving employees smaller pay rises or by reducing the amount that they pay into employees’ pensions.
Sir Steve said: “Changing national insurance contributions could leave hundreds of thousands of people with a poorer retirement.”
Pensions
The Government has so far failed to rule out changes to the lump sum you can take out of your pension without paying tax.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension – This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year upon retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you’ll need 35 years of National Insurance contributions to get this. You also need at least ten years’ worth to qualify for anything at all.
- Basic state pension – If you reach the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £156.20 per week and you’ll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.
At the moment retirees can withdraw up to 25% of the total value of their pension tax-free, up to a maximum of £268,275.
But Labour is allegedly considering cutting the tax-free amount to £100,000 in a move which could raise around £2 billion.
It is not yet clear how this would work.
Another option being considered is to charge inheritance tax on pensions.
At present pensions are not considered to be part of your estate when you die, which means that you do not need to pay IHT on them.
But some suggest that Labour could change this in a move which could leave grieving families tens of thousands of pounds worse off.
Stamp duty
Stamp duty land tax is due if you buy a property or a piece of land which is worth more than a certain price in England and Northern Ireland.
In 2022 the rate at which people start to pay it was increased from £125,000 to £250,000 for second-steppers.
Meanwhile, for first-time buyers it rose from £300,000 to £450,000.
A discounted rate on property purchase of up to £625,000 was also introduced.
But these higher thresholds are only due to last until March 31 2025, after which point they will return to the original levels.
So far Labour has not committed to extending them.
If the higher thresholds are not extended then it could mean first-time buyers are slapped with tax bills which are £15,000 higher than before.
Cash Isas
Savers have been rushing to open a cash Isa before 30 October to protect themselves from any tax surprises which could be announced in the Budget.
Cash Isas are a tax-free way to save towards your financial future or invest in the stock market.
Every tax year you can save up to £20,000 in one account or split your allowance across multiple accounts.
The tax year runs from 6 April to 5 April.
You can only pay into one Lifetime Isa in a tax year and the maximum amount you can deposit is £4,000.
There is no limit on how much cash you can stash away over your lifetime.
Meanwhile, savers can be forced to pay tax on their nest eggs if they go over the personal savings allowance.
Basic-rate taxpayers can earn up to £1,000 in interest before they need to pay tax on their savings.
Higher-rate taxpayers can earn up to £500 in interest, while additional-rate taxpayers get no allowance.
But The Resolution Foundation, a think tank, has previously suggested that the government should slash the amount that can be saved into an Isa to £1,000.
They argue that by not having a cap the accounts mostly benefit those with lots of disposable income.
Alcohol duty
It has been reported that the Chancellor is considering increasing alcohol duties in the Budget.
Rachel Reeves has not ruled out pushing up the tax on spirits, beer and wine, which would raise an extra £800 million next year.
Alcohol duty is charged on all drinks which are more than 1.2% ABV strength, either at the point of production or when they are imported.
Usually alcohol duty rises each year in line with inflation, unless the Chancellor chooses to freeze it.
Although inflation is set to hit 2% next year, industry sources have said that alcohol duties could be pushed up to more than 6%.
But higher tax could mean higher prices, which could deter drinkers and cause them to buy less.
Fuel duty
Drivers could be hit in the pocket if Labour decides to make changes to fuel duty in the Budget.
Fuel duty rates have been frozen since 2011-12.
It was cut by a further 5p in 2022 by the Conservatives in response to soaring fuel prices at the start of the war in Ukraine.
The RAC has predicted that the 5p cut could be scrapped, which could increase the cost of filling up a tank by an average of £3.30.
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