Following recent speeches by the Prime Minister and Chancellor, and the Bank of England base rate reduction on 1st August, here are some of the key tax and fiscal changes in action right now, as well as due to come into effect following the government’s first budget speech on October 30th.

The Prime Minister spoke from the Downing Street garden on August 27th, repeating the government’s commitment to economic growth being its ‘number 1 priority’. He also revealed that the budget coming in October is going to be painful, but precisely how was not laid out any further than in the chancellor’s speech in Parliament on 29th July. This speech was mostly regarding government spending, but there were some key takeaways from both updates:

• On the same day as the budget speech, the Office for Budget Responsibility (OBR) will publish its latest outlook for the economy and public finances. The majority of these changes we expect will come into effect from 6th April 2025, but of course some could be sooner.
• Pledges “not to increase taxes on working people” have been repeated, as defined by either national insurance, basic, higher, or additional rates of income tax, as well as VAT (except regards VAT on private school fees – see below).
• Commitments to the Pensions Triple Lock were maintained (and more recently we have learned the full state pension is expected to rise by £400), however currently the Winter Fuel Allowance in England and Wales is to be restricted to only households who are in receipt of specific allowances, e.g. Universal credit. Assuming eligible, this will start at £200, and move to £300 for household with someone over the age of 80.
• The removal of the non-domicile status from the tax system will come into force from April 2025, at which point anyone who has been tax resident in the UK for more than four years, will pay UK tax on their foreign income and gains.
• Private school fees for education and vocational training, as well as board and lodging, will become ‘VAT-able’ at 20% from 1st January 2025, with anti-forestalling legislation to prevent avoidance by invoicing or paying early. However, some “other closely related goods and services provided for direct use of the pupils”, will remain exempt from VAT. We hope to hear more clarity on this or other exemptions, but in the meantime do contact our VAT director Leo Donovan for more information.

Regarding interest rates, and having reached a 15 year high of 5.25%, the Bank of England took the decision on August 1st to lower the UK base rate to 5.0%. When this will next change is unknown, but what is certain is that the Bank’s Monetary Policy Committee will review at their next meeting on Thursday 19th September. Individuals and businesses may still be considering renewing debt or mortgages, to either save interest payable, or reduce monthly payments. We urge anyone in this position to compare any expected savings from a reduced interest rate, with any termination charges triggered from exiting a current debt product early, and to also speak to a qualified and regulated financial advisor.

For savers, since the base rate has been above 4% for the whole of the 23/24 fiscal year, many are set to pay tax on their savings for the first time. Ignoring interest earned in ISAs (as this is exempt from income tax), taxpayers may benefit from the following tax free savings:

• A £5,000 “starting rate” for anyone in receipt of employment / pension income between £12,570 and £17,570 (however the more you earn, the less starting rate you receive). This is essentially an allowance taxed at 0%.
• A £1,000 personal savings allowance (PSA) taxed at 0% – Available to all basic rate taxpayers, but not in addition to the starting rate.
• A £500 personal savings allowance taxed at 0% – A reduced PSA available to higher rate taxpayers (anyone that has earned more than £50,270).
• Additional rate taxpayers – There is no starting rate or PSA.

Looking at a typical example, if a higher rate taxpayer has £15,000 saved at an interest rate of 5%, interest of £750 is earned. Since the taxpayer only has a £500 PSA, the remaining £250 of interest is subject to 40% higher rate income tax. Tax to be paid = (£750 – £500) x 40% = £100; both the interest and tax should be reported on a self-assessment tax return.

Whilst it’s too late to mitigate for interest earned outside of ISAs in 2023/24, taxpayers are still able to take advantage of a £20,000 annual ISA allowance in 2024/25.

With this in mind, there are some key dates in the coming months:

• 5th October – Deadline to register for a 23/24 self-assessment.
• 31st October – Deadline to submit a 23/24 self-assessment on paper.
• 30th December – Deadline to submit a 23/24 self-assessment online if arranging to have your tax owed be taken via reducing your personal allowance for 25/26 – however you have to owe less than £3,000, and pay tax through a PAYE scheme (employment or pension).
• 31st January 2025 – Deadline to amend a 22/23 self-assessment, and also to submit a 23/24 self-assessment, and pay the balance of any tax owed for 23/24. Any taxpayers who make advance payments toward their next bill, will have to pay half their estimated 24/25 tax liability on this date also.
• 31st July 2025 – For taxpayers who make advance payments toward their next bill, this is the deadline to pay the 2nd half of their estimated 24/25 tax liability.

We hope to soon hear more on these topics, as well as corporation tax, capital gains tax and inheritance tax, whether only the rates of taxation, or the wider reliefs and exemptions available.

Whether you are an individual taxpayer, a company director or shareholder, Shaw Gibbs is available to discuss your needs. If you have any questions regarding the above, and / or your specific requirements, please contact Alex Smith or the team at Shaw Gibbs. We will be glad to assist you.