MILLIONS of people could see changes to how much tax they pay following the Autumn Budget.
Chancellor Rachel Reeves is facing a series of painful decisions as she tries to raise £50billion to boost the country’s struggling economy.
Chancellor Rachel Reeves will be presenting her Autumn Budget in late November[/caption]
It’s widely thought tax increases will be needed to raise the much-needed cash.
But Labour promised in its manifesto not to raise taxes on working people, so that leaves few levers for the Chancellor to pull.
Instead the ideas on the table include changes to stamp duty, capital gains tax and council tax.
The Autumn Budget has been announced for November 26, when all the planned changes will be unveiled.
Even without increases in income tax, national insurance or VAT, working people could still be impacted by the changes.
Find out how they could affect you – and what you can do now to protect your finances.
Council tax
One of the ideas on the table includes 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.
Council tax is an annual fee paid to the local council to fund services such as road upkeep and state schools.
The amount you pay depends on where you live and the value of your home.
Council tax reforms have been floated after several local authorities declared themselves bankrupt, but a total reform of the system could take years.
Therefore it’s unlikely to happen in this parliament.
Inheritance tax
Reeves is said to be eyeing up inheritance tax changes as one her options.
This could include stopping parents from making unlimited tax-free gifts to kids by capping the value of gifts that someone can pass on to loved ones.
Under current rules 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.
Going for inheritance tax could raise millions of pounds for the Treasury, but experts have warned it could cause “a fundamental change to the way families pass on wealth”.
Cuts to Cash ISA allowances
Reports earlier this year suggested the Government was planning to cut the annual tax-free allowance for Cash ISAs.
Savers currently have a £20,000 allowance they can keep in ISAs tax-free, and this can be split between Cash ISAs and Stocks and Shares ISAs.
The plans would have limited the cash portion of the allowance to encourage investment instead of saving.
They have now been temporarily set aside but not abandoned altogether – meaning they could be revived in the Budget.
Stamp duty
Another rumour swirling is that the Chancellor is considering plans to replace the current stamp duty thresholds with a new property tax.
The plans would see a new annual levy of 0.54% on houses over £500,000.
Plus, 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’s understood that only homeowners who buy a property after the tax is brought in could be affected by the change.
Pensions
Another option for the Chancellor is targeting tax relief on pensions.
The potential changes including cutting higher rate relief, limiting tax-free lump sums, or scrapping the popular ‘salary sacrifice’ schemes.
But pensions experts argue these changes could be a political minefield, with significant risks for working families, public sector employees, and employers.
Currently you get tax relief on any money you pay into your pension 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.
Plus the changes can’t be brought in overnight so it’s unlikely to raise the cash the Government needs in the short-term.
National Insurance on landlords
The Times is reporting Reeves is considering applying National Insurance to rental income for landlords.
Rent is largely exempt from National Insurance currently, but the proposals suggest landlords could pay the same 8% rate as the self-employed on their rental income.
The move could raise around £2.3billion per year.
Capital gains tax
Plus, homeowners with expensive properties could be hit with capital gains tax when they decide to move house.
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.
This 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%, according to The Times.
If the levy was brought in with a threshold of £1.5million then it would affect around 120,000 homeowners.
They would be hit with a bill of £200,000 if they tried to move house.
What should YOU do now
It’s worth noting that none of these potential changes have been confirmed yet.
They have not been ruled out either and we likely won’t know for sure until the Autumn Budget in November.
However, you shouldn’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 could 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.
If you’re worried, here are some things you can do…
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, they do cost money.
Make a will
You can also ensure your money gets to the right place by making a will.
If you die without a will, your estate could face a higher inheritance tax bill.
This is especially key for couples who aren’t married, as unmarried partners will not automatically inherit from one another.
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 taxman than necessary.