The government said during the election that it would not raise the three big taxes: Income, NI, and VAT. What taxes will rise?
Keir Starmer on Tax Rises
Keir Starmer gave a speech on Tuesday to allay fears about which taxes will rise and which will not. And to subdue speculation and market instability.
Will the Budget Be Painful for the Public?
The Prime Minister warned the public that the budget might be “painful” for the public. They stated that their inheritance of the Conservatives was “worse than we ever imagined”. Disputed by the Tories.
Are Taxes Rising?
Rachel Reeves, the UK Chancellor, has already alluded to the fact that she thinks taxes will rise, adding that those with the “broadest shoulders should bear the heavier burden.” Thus, the question is, which taxes are likely to rise?
Capital Gains and the City
City professionals are very nervous about Rachel Reeves laying foundations to raise capital gains, which undoubtedly affects the City.
How Much Could Capital Gains Rise?
Rachel Reeves has indicated that capital gains could rise to levels in line with income tax, sending shivers through the City.
What Is Capital Gains?
Capital gains tax affects the sale of capital assets. The highest rate of capital gains is 28%, which is 17% lower than the additional rate of income tax.
What Would a Rise in Capital Gains Raise?
The IFS (Institute for Fiscal Studies) reports that bringing capital gains in line with income tax could raise around £16.7 billion.
Are There Concerns About Entrepreneurship and the Effect of Capital Gains Rises?
Many in the financial sector and in the wider public are deeply concerned about the rise of capital gains in line with income tax and that the entrepreneurial landscape will be seriously affected. Fewer people starting or creating businesses could reduce the UK’s long-term prospects.
Could Increasing Capital Gains Reduce the Tax Take?
HMRC analysts and many economists say increasing the capital gains tax could be counterintuitive and reduce the UK government’s tax intake.
Labour to Reform Pensions?
Labour has commissioned reports on pension reform, and a specific report by the Fabian Society provided many options. All the options proposed could potentially raise £10 billion.
Are the Rich Currently Benefiting From Tax Reliefs?
The Fabian Society think tank has indicated that the current tax reliefs on pensions benefit the rich more than the poor. The people paying the higher tax rates are at 19% in total but get over half of all the tax reliefs for pensions.
What Would Make the System Fairer?
The Fabian Society reports specific measures, in particular, lowering the tax people pay on income taken from pensions.
Pensions and Inheritance Tax
The Fabian think tank also said pensions should be subject to an inheritance tax. In addition, there should be a flat rate of relief on the contributions people make to their retirement, in contrast to the current tax relief, which consists of relief based on the marginal rate of tax someone pays.
Council Tax Reform
The think tank also stated that council tax should be reformed. Much of the tax is based on valuations done in 1991, which the IFS has said is increasingly inappropriate.
Why Is Council Tax Outdated?
Council tax, based on valuations from decades ago, is out of date, as prices have fluctuated everywhere across the country. This fluctuation has been varied, with some areas experiencing more drastic price increases.
Which Areas Had Higher House Prices?
London topped the charts with prices rising six times more than in 1995, while the North East had nearly three times more. This means that houses in London are in lower bands than they should be and higher in the North East.
What Are the Price Comparisons of Council Tax Across the Regions?
Northern Powerhouse Partnership reported Westminster bills stand at £973 annually, compared to £2,278 in Hartlepool. This shows a drastic difference between prosperous and less affluent regions.
Inheritance Tax and Controversial Reforms
The previous government caused rumors that the inheritance tax would be abolished. This starkly contrasts with Labour, which is considering essential reforms over the tax.
What Does Inheritance Tax Apply To?
Inheritance tax is 40% of estates worth over £325,000. However, there are many exceptions to the rule. These exemptions mean less than 5% of people who die get taxed, and even then, it is usually at a reduced rate.
What Inheritance Tax Exemptions Are There?
Money in defined pension pots can be passed on tax-free, as can agricultural land. Certain shares, such as AIM shares held two years before death, can also be passed on tax-free.
How Much Could the Government Raise to Stop These Exemptions?
The IFS has stated that the government could raise an extra £4 billion by closing all of the loopholes in inheritance tax. With all the facts considered, it is highly likely Labour will make significant changes to taxes and that this will more than likely cause financial pain for the public. It is common for governments to implement less favorable policies at the beginning of their term in the hope the electorate does not fully remember the pain they may have experienced.
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Featured Image Credit: Shutterstock / Yau Ming Low.