With the first Labour Autumn Budget in 14 years just one week away, speculation is rising on what to expect. Chancellor Rachel Reeves has warned of tax rises and spending cuts to a value of £40billion, and capital gains and inheritance tax could be a key target, an expert has said.
Craig Rickman, personal finance expert at interactive investor, said: “As soon as promises not to raise Capital Gains Tax and Inheritance Tax were omitted from Labour’s election manifesto, rumours swirled that hikes could be coming down the track.”
There has been significant speculation about raising headline Capital Gains Tax (CGT) rates, a move that Mr Rickman suggested Ms Reeves “may choose to do.”
At present, Capital Gains Tax rates range from 10 percent to 24 percent, depending on what a person’s rate of income tax is.
However, Mr Rickman noted: “There is some debate around how much revenue this would generate for the Government.”
He continued: “Some have suggested the annual CGT take could even fall, as higher rates might mean investors and landlords are more likely to cling onto assets rather than sell them – especially as CGT doesn’t apply on death.”
Speaking on inheritance tax, the finance expert said: “Given the headline rate of IHT is an already toppy 40 percent, the chances of this being hiked are low.”
Mr Rickman suggested that it would be “more likely” that Ms Reeves will target some of the tax-free allowances.
Mr Rickman said: “But this wouldn’t be straightforward. Plus, any changes to business relief and agricultural relief could irk or pose problems for entrepreneurs and farmers, respectively.”
The nil-rate-band, which refers to the value of assets people personally own on death tax-free, has been frozen since 2009. This has pulled more estates into IHT territory year-on-year. Mr Rickman said: “There is a strong argument for increasing this allowance instead of slashing it.”
Additionally, Mr Rickman said: “The residence nil rate band, which grants some homeowners up to £175,000 tax-free on death, could be scrapped.
“Given how knotty this allowance is in parts – the home must be left to direct descendants and the allowance reduces once assets exceed £2million – I would welcome any move to kibosh it.
“That’s provided the figure is added to the standard nil rate band, giving everyone £500,000, tax-free. After all, it was introduced, in part, to make up for the £325,000 limit being frozen.”
However, Mr Rickman pointed out: “The issue for Ms Reeves here is that this would likely reduce rather than tick up IHT revenues.
“It’s also possible the Government could leave the IHT system unchanged, content to keep tax thresholds frozen and let rising asset prices boost revenues in a stealthy way.”
This tactic, also known as fiscal drag, alone is forecast to double annual IHT receipts to £15billion by 2032-33, according to the Institute for Fiscal Studies.
Mr Rickman continued: “Doing nothing may also pave the way for Labour to start from scratch and launch a considered and in-depth review of the IHT landscape.”
Barclays Bank has urged Britons not to make any “knee-jerk” tax moves while the contents of the Autumn Budget are not yet known.
Lee Platt, wealth planner at Barclays Private Bank and Wealth Management, said: “There are many different possible changes that have been mooted, but until the announcement on October 30, these are all theoretical scenarios – and knee-jerk reactions should be avoided.”
Chancellor Rachel Reeves will unveil the Government’s Autumn Budget on Wednesday, October 30.