In her recent podcast appearance on The News Agents, Chancellor Rachel Reeves acknowledged the likelihood of tax increases being announced in the upcoming autumn budget. She reaffirmed Labour’s promise to adhere to its election manifesto pledge of not raising national insurance, income tax, or VAT. However, during the election campaign, Labour candidates avoided addressing the possibility of other taxes being increased, with the Conservatives warning against potential tax hikes under a Labour government.
During the podcast, Ms. Reeves stated, “I think that we will have to increase taxes in the budget.” She did not specify which taxes may be affected in the Labour government’s first budget on October 30th. However, there are speculations about potential targets for tax changes, which Sky News has explored.
Inheritance tax is one of the taxes that are highly anticipated to be altered. Currently, this tax is charged at a rate of 40% on estates valued above £325,000 after a person’s death. The government may consider raising the tax rate or lowering the threshold for inheritance tax payments to generate revenue. There are also discussions about lifting current exemptions, such as those for agricultural land and family businesses. Additionally, the number of years allowed for giving away assets before death, without incurring inheritance tax, may be reduced. In March, a leaked recording revealed that the now Chief Secretary to the Treasury, Darren Jones, suggested using inheritance tax to address wealth distribution and intergenerational equality.
Capital gains tax is another tax that is being closely monitored for potential changes. This tax is imposed on the profit made from the sale of capital assets, including second homes, shares, business assets, and personal possessions worth £6,000 or more, excluding cars. Currently, individuals are exempt from paying tax on the first £3,000 of profits, or £1,500 for trusts. However, the government may consider removing this minimum limit and imposing the tax on currently exempt assets. Similar to inheritance tax, capital gains tax is one of the top contenders for tax changes.
Council tax is another tax that has been a topic of discussion in recent months. In the leaked recording from Mr. Jones, he expressed frustration with the “out of date” council tax system and hinted at possible increases for homes worth over £1 million. During the election campaign, former shadow minister Jonathan Ashworth stated that Labour had no plans to alter council tax bands. Currently, council tax is determined by bands based on the value of homes in 1991, a system that has been criticized by the Institute for Fiscal Studies (IFS) as “absurd” and by the Institute for Government (IfG) as “incredibly poorly designed.” Gemma Tetlow, chief economist at the IfG, suggests that a more sensible approach would be to reform council tax to a more proportional tax on land revenue, instead of relying on the current band system. This could potentially generate additional revenue.
Labour is also reportedly considering changes to business rates, which are charged on most non-domestic properties. Currently, there is relief for small businesses, as well as retail, hospitality, and leisure properties. One possible change could be to base the rates on the value of the land, instead of the current rateable value, which is an estimate of the annual rental cost of the property in April 2021.
Another tax that could potentially see changes is stamp duty. This tax is currently paid on properties valued over £250,000, with higher rates for second homes and non-UK residents. There is also relief for first-time buyers. Labour may consider shifting the focus of this tax from being a one-time transaction tax to an annual land value tax. However, this may be a challenging proposition for the party.
As the autumn budget approaches, there is much speculation about potential tax changes under the new Labour government. However, the details of any proposed tax increases will only be revealed on October 30th. For live updates on politics, stay tuned.
