Here we go again – what business owners should bear in mind as Budget Day is set

As Andy Burnham became our seventh prime minister in the last 10 years, I was reminded of the cliché ‘it’s déjà vu, all over again’.

However, what prompted my recollection wasn’t the sight of yet another new prime minister on the doorstep of No 10, but rather the start of intense speculation about what might be in the next Budget, as has been the case before all recent Budgets.

With the date now set for Wednesday, October 28, we could be in for nearly three months of it!

I commented after the last Budget that speculation is not helpful to business and can result in hurried decisions driven by fear of potential tax changes or, alternatively, decisions being delayed until after the Chancellor’s statement.

The prospect of further tax rises is realistic given the difficult financial situation faced by the government, which seems inclined to make additional financial commitments and not reduce spending.

For me, what’s been new this time has been the number of unprompted calls from clients expressing real concern about what might happen.

I thought, therefore, it would be useful to let clients know my thoughts but, just to be clear, I have no better insight than anyone else.

Given that Burnham has reaffirmed the manifesto commitment to not alter the big three taxes (VAT, PAYE and NI), personal taxes to be concerned about are Capital Gains Tax (CGT) and Inheritance Tax (IHT), together with a potential wealth tax.

Given that I am an M&A adviser, most of the clients calling me want to discuss whether the CGT rate will increase. In terms of overall tax paid, CGT is tiny, accounting for only about 1.5 per cent of all tax receipts, and it falls on very few people – according to a recent Sunday Times article, 50 per cent of total CGT payments are made by 5,000 people.

It’s also a voluntarily incurred tax, because if you don’t sell an asset, no tax liability is incurred.

Therefore, as the rate increases, it doesn’t require many people to change their plans before receipts begin to fall.

Logically, therefore, equalising the CGT rate with income tax would make no sense (other than as a political gesture), and significant alterations to rates are also unlikely to be helpful.

Notwithstanding this, my advice to clients is to ensure any current transaction can be completed by October 28, but don’t start a sale process that you might not otherwise have done.

Completing a deal on good terms within that timetable will be challenging unless you are already prepared for a sale and have a buyer lined up.

However, it would be possible to make smaller share purchases, so if you have any minority shareholdings that you want to acquire then doing so ahead of the Budget would make sense.

If the government does want to increase the CGT rate, my advice would be to notify everyone that it will be implemented at a later date.

In the short term, this would significantly increase receipts – in 2024/25, the fear of a potential hike resulted in a significant rise in CGT receipts.

Inheritance tax accounts for even less than CGT. Therefore, if the government wants to significantly increase its IHT receipts, it can only realistically come from a significant alteration to the threshold at which it becomes payable, as opposed to increasing rates for the limited number of estates that pay it.

The new Chancellor’s 1970s namesake Denis Healey was famously misquoted as saying that he ‘would tax the rich until the pips squeak’ and a wealth tax was part of that Labour government’s plan, but the practicalities of taxing assets proved insurmountable.

While not an expert, it seems unlikely to me that in the short time available to this new government a wealth tax could be introduced in 2026, even if it is ideologically committed to it. There may, however, be mentions of such a plan, at which point those likely to be impacted will no doubt start considering other places to live.

Anecdotally, I have had more conversations with clients considering leaving the UK for a lower tax environment than at any other time in my career. Dubai is the location mentioned most often.

By refusing to change any of the big three taxes (which account for 85 per cent of government revenue) this administration is making life very difficult for itself.

I don’t see much room for manoeuvre in CGT, inheritance tax or a wealth tax. I hope that no more business taxes are increased, and that the government has learned its lesson that any increase is very damaging to business.

In addition to the general pressure on government to spend more, there is pressure to increase spending on defence and care. It may be that the new Chancellor tries to ‘fudge’ the fiscal rules to accommodate some additional spending in the hope that economic growth will come to the rescue. However, with the UK’s cost of borrowing already high by comparison with other leading economies, that is dangerous.

The idea of a tax on estates to fund social care has already been floated. I am therefore beginning to wonder whether the specific issues of care and defence might be funded by a new ‘special tax’, perhaps even a temporary one that would enable the government to stick by the commitments in Labour’s 2024 manifesto.

I wish the new Chancellor well and hope that he recognises the dangers of too much speculation.