UK households have been issued an urgent warning to do 7 vital things before Labour’s first Budget is announced on Wednesday.
The Autumn Budget will be the first time the covers have been whipped off Labour’s financial planning in office as it looks to balance the books and also try to spark the almost ephemeral ‘growth’ the UK economy so sorely needs.
And although most of Labour’s plans are still under wraps, we know some of the policy areas which have not been ruled out and which are most likely to form a key part of Labour’s plans based on what Keir Starmer and Rachel Reeves have said in the run-up to this Budget, and what is ringfenced based on their manifesto.
Fuel duty increase
First, fuel duty is expected to form a key part of Labour’s tax raisers. While a much vaunted pay-per-mile tax system to replace bog standard fuel duty has been mooted as a possibility, what’s more certain to happen now is that fuel duty will rise, by as much as 7p per litre.
Fuel duty doesn’t always rise from April 6 when a new tax year comes in and is often changed at any given time in the year, so drivers need to prepare for the rise to come in as soon as this week.
Drivers are being urged to fill up now if possible and to prepare their car to improve its fuel economy, such as removing excess weight, roof racks, trailers, spare tyre or jack where possible.
VAT increase
Then, the VAT increase on private schools is already announced and will form part of the Budget.
The plan to scrap VAT exemption on private schools will be detailed more fully on Wednesday, and it will be implemented from January 1, 2025.
Parents will need to check with their school now and start planning to be able to pay any increase in fees, which could be a rise of the full 20 percent if a school chooses to pass on the whole increase to parents.
ISA rule changes
ISA rules are also one area the government could look at. This is likely to take effect from April 2025.
One such change could be that an ISA lifetime limit is introduced which would cap ISA deposits at £100,000. This would be a huge blow to those using ISAs to shield up to £20,000 from tax every year which over several decades could be worth hundreds of thousands or even millions thanks to compound interest or stocks and shares.
Those who have savings are being urged to ditch it into an ISA sooner rather than later to make use of their allowances now in case they are lowered in future.
Capital Gains Tax changes
Another change is expected to come to Capital Gains Tax.
Capital Gains Tax is thought to be a key battleground. The previous Conservative government has already slashed Capital Gains Tax Allowance in the past two years, down from £6,000 to £3,000 last year while dividend allowances shrank from £2,000 to just £500.
Further changes could see Capital Gains Tax allowance cut again.
Rachel Reeves hinted that she may leave Capital Gains Tax on second homes the same as it is now, but focus on the sale of shares and other assets instead.
If you have stocks and shares, you should assess your financial situation to work out whether you’re leaving yourself liable to pay more Capital Gains Tax next financial year if the rules are changed.
Inheritance Tax changes
Inheritance Tax is another area where Labour is thought to be considering making tax changes.
There is a way you can legally avoid Inheritance Tax: get married.
If you’re married, you can leave all of your £325,000 Inheritance Tax allowance to your spouse, who then in turn can add it to their own when they die, for £700,000 total.
If your estate includes a house, this is increased to £500,000, meaning you can leave your spouse £500,000 including a house and then they can do the same again, leaving a total £1M estate with no tax to pay.
If any of these rules were to be changed on Wednesday, obviously you couldn’t know when you’re going to die, but if for example rules on limits were changed next April, you could in fact get married before April 2025 and maximise your Inheritance Tax threshold.
