What tax rises might be announced in Labour’s ‘painful’ autumn Budget?
There are still two months to go until Chancellor Rachel Reeves stands at the House of Commons despatch box to deliver Labour’s first Budget for 14 years.
Unsurprisingly, officials are remaining tight-lipped about what might be announced – not least because many decisions haven’t been made yet, and likely won’t be for a while.
One of the few things we do know about the autumn Budget is that it’s going to be ‘painful’.
That’s according to Prime Minister Keir Starmer himself, who told Brits to brace themselves for a rough ride in a speech delivered in the garden outside Downing Street yesterday morning.
Naturally, the information vacuum surrounding the Budget has been filled with speculation about who that ‘pain’ is going to be impacting the most.
Certain avenues have been ruled out by the government, which narrows down the possibilities for what will emerge on October 30.
Much of the attention has been focused on two specific sources of revenue: inheritance tax and capital gains tax.
Speaking to reporters in Scotland today, Reeves refused to rule out an increase to either tax.
She said: ‘I’m not going to write a Budget two months ahead of delivering it. We’re going to have to make difficult decisions in a range of areas.’
What is capital gains tax?
Capital gains tax (CGT) is paid on the profit you make when you sell something – as the name suggests, it’s a tax on the capital you’ve gained as a result of the sale.
It’s not paid on everything you might sell though, mainly just big stuff: personal possessions worth £6,000 or more (except your car), property that isn’t your main home (affecting landlords, for instance), and business assets.
You also pay it on any shares that aren’t in an ISA (Individual Savings Account) or PEP (Personal Equity Plan), as well as a few other ‘chargeable assets’. Find all the details on the government website here.
The Telegraph reported today that middle-class clients of wealth managers are rushing to sell off their property and shares now, in anticipation of a CGT hike in October.
According to the newspaper, there are suggestions the levy might be brought into line with income tax – which could mean the higher rate jumps from 20 per cent to 45 per cent.
What is inheritance tax?
Inheritance tax is paid on the property, money and possessions of someone who has died.
It doesn’t affect people whose estate has a value of less than £325,000 or those who leave everything above that threshold to their spouse, civil partner, or certain good causes.
As with most things in the world of tax, there are a heap of different exemptions, margins, and fine details. You can read about them on the government website.
The current standard rate for inheritance tax is 40%. Any changes would likely only affect a small portion of the population – in 2020-21 less than 4% of estates in the UK paid the tax.
What other changes is Starmer likely to make that will affect finances?
In Labour’s manifesto ahead of the election, the party pledged to ‘not increase taxes on working people’.
It was quite a vague promise – it’s not clear who exactly they meant by ‘working people’, or the range of taxes that were counted within that description.
However, the manifesto does specify some taxes that they wouldn’t raise: VAT, national insurance, and income tax.
The PM has also said he will not increase corporation tax, meaning the biggest potential revenue raisers for the government have largely been cut off.
Aside from inheritance tax and capital gains tax, there has been speculation that changes could be made to pension tax breaks.
A recent report from left-of-centre thinktank the Fabian Society suggested reducing and redistributing the tax relief for pensions could raise at least £10 billion a year.
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