10 taxes Rachel Reeves could hike in autumn Budget – how they hit you | Personal Finance | Finance
Reeves has already refused to rule out further tax increases, and with the nation’s finances on a knife edge, she may have little choice. Here are 10 possible lines of attack.
1. Extend the income tax freeze to 2030.
The current freeze on income tax thresholds will continue until 2028. Reeves could extend it until the end of the decade, dragging millions more into higher tax bands through “fiscal drag”. More workers would exceed the frozen personal allowance and pay 20% tax, including many low income pensioners, while millions more will start paying tax at 40% or 45% as incomes raise but tax thresholds don’t.
Likelihood: High. The government needs money, and this stealth tax has already raised tens of billions.
2. Target pension benefits.
Pensions tax relief costs the Treasury tens of billions a year, making it a juicy target. Reeves could slash tax relief on pension contributions by capping it at a flat 25% for all earners. She might also cut the £60,000 annual allowance or scrap the popular 25% tax-free lump sum benefit.
Likelihood: Moderate. Cutting the annual allowance back to £40,000 would be easy. But slashing tax relief or tax-free cash would trigger an almighty backlash from voters.
3. Cut the Cash ISA.
Reeves has already floated cutting the £20,000 tax-free Cash ISA allowance, possibly to £4,000. This would hit savers hard, particularly pensioners who rely on ISAs to pay a reliable tax-free income.
Likelihood: High. Reeves has confirmed that ISAs are under review, so a cut is on the table.
4. Hike capital gains tax (CGT) rates.
Capital gains are currently taxed at lower rates than income, but Reeves could scrap this advantage, forcing investors and landlords to pay up to 40% or 45% on their gains. Today they pay just 24%.
Likelihood: High. Following her benefits raid, Reeves will be under pressure from Labour members to target the better off. Yet this may raise less than she thinks, by deterring entrepreneurs.
5. Attack inheritance tax (IHT) gifting rules.
Currently, people can pass on wealth tax-free if they survive for seven years after gifting it. Reeves could extend this to 10 years or scrap it altogether, and make all gifts subject to IHT.
Likelihood: Pretty high. Reeves could say she is targeting those with the “broadest shoulders”, and call the overhaul much-needed “simplification”.
6. Increase Fuel Duty.
Fuel duty has been frozen for over a decade, but Reeves may finally increase it. This would drive up the cost of petrol and diesel, hitting drivers and businesses alike, but delight Ed Miliband.
Likelihood: Moderate. Politically risky, but Reeves could raise £5billion a year and justify it on environmental grounds.
7. Lift stamp duty on second homes and buy-to-lets.
Reeves could increase stamp duty for landlords and second-home buyers, making property investment even less attractive.
Likelihood: High. Reeves did this in her autumn Budget and could easily come back for more, while claiming to strike a blow for first-time buyers.
8. Equalise National Insurance (NI) rates.
Once someone hits the 40% tax band of £50,270, their NI rate drops from 8% to just 2%. Reeves could jack it up to 8%. Alternatively, she could make pensioners pay NI on salaries and dividends.
Likelihood: Moderate to low. It would be unpopular and break a manifesto pledge. Although it would raise billions.
9. Tighten self-assessment penalties.
The £100 fine for missing a tax return deadline hasn’t changed in decades. Reeves could increase it to £500 or even £1,000 to encourage compliance and raise £1billion a year.
Likelihood: Moderate. A simple, easy revenue-raiser with little public backlash. Plus it would encourage more to file on time.
10. Introduce a wealth tax.
The Labour left is clamouring for this one. It looks like an easy win, bash the rich and grab their cash. Some reckon a wealth tax could raise up to £250billion in five years.
Likelihood: Low. It would be hugely controversial and very tricky to implement, but as public finances go from bad to worse, the pressure on Reeves will grow.