RACHEL Reeves is under pressure to fill a £50billion blackhole with a all-new tax raids in the Autumn Budget.
Experts have suggested a raft of tax changes could be announced in the speech – but how could they affect you? And what can YOU do now to protect your finance. We explain.
Rachel Reeves could announce a raft of tax changes in the Budget to plug a £50billion black hole in the public finances[/caption]
The Chancellor is under increasing pressure after slow economic growth, U-turns on spending and a weak jobs market have all pushed the government finances further into the red, the National Institute for Economic and Social Research has warned.
Among the ideas on the table are changes to stamp duty, capital gains tax and council tax.
Labour has already pledged not to raise income tax, national insurance or VAT in its manifesto, which means it is considering other options.
Of course, the full details of the Budget will remain under wraps until the day it is unveiled.
But here we explain what could be on the cards and what it might mean for you.
Inheritance tax
Reeves is said to be eyeing up inheritance tax changes as part of plans to fix the nation’s finances.
Some of the options on the table are stopping parents from making unlimited tax-free gifts to kids by capping the value of gifts that someone can pass on to loved ones.
Currently, you can give away unlimited amounts of money and assets to friends or family members without paying inheritance tax, as long as you do so seven years before you die.
If you give money away and then die within seven years then the amount of tax you pay is charged at a tapered rate.
Capping the amount relatives can give to their loved ones could raise millions of pounds for the Treasury.
The tax raised a record £8.2billion last year alone.
Experts have warned that if the measure was brought in it could cause “a fundamental change to the way families pass on wealth”.
Rachael Griffin, tax and financial planning expert at Quilter warned the change “could capture not just large transfers designed to reduce tax bills but also modest, routine support between family members.”
Stamp duty
It has also been suggested this week that the Chancellor is considering plans to replace the current stamp duty thresholds with a new property tax.
Earlier this week The Guardian published a story about how the Chancellor Rachel Reeves is considering a new levy on houses over £500,000.
It said the Treasury has been considering suggestions from a report by thinktank Onward.
In it, Onward recommended that if a property is worth more than £500,000 it would incur an annual tax of 0.54%.
Meanwhile, any home worth more than £1million would pay 0.81% on the proportion of its value over the threshold.
This would replace the current stamp duty thresholds, which are tiered depending on the value of your home.
Currently there is no stamp duty to pay on a home worth less than £125,000.
On homes worth between £125,001 and £250,000 stamp duty is charged at a rate of 2%.
But this rises to 5% for homes worth between £250,001 and £925,000.
The Government has not yet confirmed how the proposals would work but did not rule them out.
It is understood that only homeowners who buy a property after the tax is brought in could be affected by the change, so the tax would not be applied to properties retrospectively.
This means homeowners who already paid stamp duty when they bought their home would not be charged again.
The extra stamp duty for homeowners with more than one property would remain in place and this group would not have to pay the new tax.
Experts have described the change as “designed to radically overhaul stamp duty”.
David Hollingworth, of L&C Mortgages, said: “Many have called for a rethink of stamp duty which can act as a barrier to buying, moving and downsizing.
“Buyers won’t shed any tears for stamp duty but may have to rethink the likely annual cost of owning their own home.
“If that sees a big increase it will have a knock on impact for affordability.”
Meanwhile, property expert Kirstie Allsopp said the Chancellor’s plans to reform stamp duty would have a “destabilising” effect and added it’s “not the place to fly kites.”
Speaking on Times Radio she warned: “It’s not Rachel’s to go after because it’s their homes.
“It’s the roof over their head. And this Government seems to want to punish people for making the sacrifices they’ve made to buy their own homes.”
Council tax
Officials are also said to be considering whether to replace council tax with a local property tax.
This would mean a total overhaul of the current council tax system, which came into effect in 1993.
Currently council tax is an annual fee that is paid to the local council to fund services such as road upkeep and state schools.
People pay more or less depending on where they live and the size of their home.
There have been fears that council tax will be reformed after several councils declared themselves bankrupt and others warned they have just months left before they run out of funds.
But a total reform of the council tax system could take years, so it is unlikely to happen in this parliament.
Capital gains tax
Homeowners with expensive properties could be hit with capital gains tax when they decide to move house, recent reports suggest.
Rachel Reeves is said to be considering ending private residence relief, which stops people from having to pay capital gains tax when they sell their main home.
The change would mean that properties worth over a certain amount would be subject to the tax.
Higher rate taxpayers would pay 24% of the value of any gains they make, while basic rate taxpayers would have to pay 18%, The Times has reported.
If the levy was brought in with a threshold of £1.5million then it wold affect around 120,000.
These wealthy homeowners would be hit with a bill of £200,000 if they tried to move house.
It is not clear from when this change could be introduced or if it would be phased in.
Pensions
Another option that could come under the microscope is tax relief on pensions.
The Chancellor has previously shied away from this option but is said to be reconsidering it as an easy option to raise cash.
Currently you get tax relief on any money you pay into your pension.
This is done through rebates from the Government and the exact amount you get depends on your income tax rate.
For example, basic rate taxpayers get 20% tax relief on any money they pay into their retirement pot.
However, for higher rate taxpayers the relief rises to 40%, or 45% for additional rate taxpayers.
As a result, the system is currently tilted in favour of more wealthy people as they pay more tax.
But reports have suggested that the Chancellor could introduce a flat rate of tax relief.
This would cut the amount of cash higher and additional taxpayers get back from the Government.
However, it could also hit hardworking teachers, nurses and public sector workers who are on modest incomes.
This move could raise billions of pounds for the Chancellor each year.
Official figures show the total cost of providing pension tax relief was £52.5billion in 2023/24, up from £50.1billion the year before, official figures reveal.
Most of this money went to higher and additional rate taxpayers.
Former pensions minister Baroness Ros Altmann thinks the measure is likely to appear in the Budget.
She said: “With a desperate need for more money to be invested in this country, it is inevitable that the Chancellor will be looking at whether this money could be better used in Britain directly, and I do think she will find ways to reduce its generosity.”
But overhauling the pension system would be a major reform, so it cannot be brought in overnight.
This means the Government is unlikely to be able to use it to raise the cash it needs in the short term.
What should YOU do now
None of the potential changes being tabled have been confirmed yet.
The Government has not yet ruled them out but any measures it introduces will not happen until after the autumn Budget at the earliest – and a date has not been set yet.
Don’t make any rash decisions based on the current Budget speculation.
If and when the changes are announced you can decide to act to stop your finances from being hit.
For example, if the changes to stamp duty are brought in from a certain date then you cold move house before this deadline to avoid being hit.
Or if the Government decides to charge Capital Gains tax on high value properties then you could downsize to a smaller house before the change is implemented.
Most of the suggestions on the table will only affect the very wealthy, so you may not even be hit by the tax changes.
There are some things you can do if you’re worried.
Get financial advice
If you are worried about your finances then you should speak to a financial adviser.
They will be able to offer you advice about your situation and explain if any of the measures will affect you.
You can find one using unbiased.co.uk – but remember, you will pay a fee.
Make a will
First, you should ensure your money gets to the right place by making a will, according to Ms Young.
“If you die without a will, your estate will fall under the rules of intestacy, which could mean a higher IHT bill.
“This is especially key for couples who aren’t married, as unmarried partners will not automatically inherit from one another, even if they have lived together for many years.”
Check how to make one in our guide.
Give your finances a makeover
It’s good practice to sit down and take stock of your finances every six months and work out a plan.
Work out all your bills and outgoings and what income you have and factor in any changes, such as bills going up or new income streams.
Think about what you need to do to make the most of your money. For example, do you need to prioritise paying off debts or saving for a house deposit.
Our guide to paying less tax legally could help you avoid giving away more cash to the tax man than necessary.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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