CHANCELLOR Rachel Reeves has declined to rule hiking key taxes after the Prime Minister warned of a “painful” Budget in October.
Ms. Reeves has refused to rule out increases to both inheritance and capital gains tax.
When questioned on tax increases during a visit to central Scotland on Wednesday, Ms Reeves told broadcasters she would be making “difficult decisions in a range of areas”.
Inheritance tax (IHT), colloquially known as the “death tax”, is a tax on the estate (the property, money, and possessions) of someone who has died.
Capital gains tax is the money you pay to HMRC when you sell something that has gone up in value, such as stocks and shares, or a second home or even artwork worth £6,000 or more.
Speculation on the Budget’s content continues after Sir Keir Starmer argued “those with the broadest shoulders should bear the heavier burden” during a speech from Downing Street’s rose garden on Tuesday.
Labour has faced criticism following Sir Keir’s speech, with Tory leadership candidate Robert Jenrick claiming the Government has “laid the groundwork for huge tax rises”.
Rachel Reeves said today: “The UK economy is just emerging from the recession that we entered into last year, and two quarters of positive economic growth is not going to reverse more than a decade of economic stagnation.
“Unless we grow the economy, we’re going to continue to be in a situation where taxes are at too high a level and public spending is not sustainable.
“We’ve got to break out of this doom loop, which is why growing the economy is the number one priority of this new Government.”
Asked directly whether she could rule out an increase in inheritance and capital gains tax, she replied: “I’m not going to write a Budget two months ahead of delivering it.
“We’re going to have to make difficult decisions in a range of areas.”
The Chancellor will lay out the government’s tax and spending plans when delivering her Autumn Statement on Wednesday, October 30.
Inheritance tax is a tax on the estate – the property, money and possessions – of a person who’s died.
The standard IHT threshold is £325,000.
So, no IHT is due if the estate’s value is below this amount.
Anything above this threshold is taxed at a rate of 40%.
However, this rate can be reduced to 36% if at least 10% of the estate is left to charity.
An additional threshold, known as the Residence Nil-Rate Band (RNRB), is available if the deceased leaves their home to direct descendants (children or grandchildren).
As of the 2024/25 tax year, this can add up to £175,000 to the existing threshold, potentially increasing it to £500,000.
It is widely expected that the Chancellor will announce changes to inheritance tax in her statement.
There is speculation that the government might increase the rate, or the thresholds could be lowered, meaning more people would be subject to the tax.
However, Labour may consider shortening the period before death, during which gifts can be made without triggering inheritance tax.
At the moment, gifts made more than seven years before death are exempt from IHT.
Those made within seven years of death could be subject to IHT on a sliding scale, known as “taper relief”.
The Sun’s Head of Consumer Tara Evans reveals the top predictions for the Autumn Statement:
Winter Fuel Payments
Chancellor Rachel Reeves has already announced that Winter Fuel Payments will be limited to those receiving pension credit and certain benefits. The benefit is worth up to £300 per year and currently is available to everyone over state pension age and those on certain benefits.
No rises to some taxes
Keir Starmer promised there would be no rises to National Insurance, Income Tax, Corporation Tax or VAT as part of Labour’s manifesto in the election race.
Inheritance Tax
It has been predicted that the Chancellor Racheal Reeves will make changes to inheritance tax rates or thresholds. One suggestion is the potential shortening of the gift period before death for tax exemptions.
Pensions
Pensions featured very high up in the King’s Speech, was this a hint at how high on the agenda it will feature in the budget? Experts say there are a number of options, including reintroducing the lifetime allowance cap. Ms Reeves has previously campaigned to reduce the tax relief that higher earners get on their pensions and to introduce a flat rate of 33% instead. Another possible option is changing the rules around pensions and inheritance tax.
Capital Gains Tax (CGT)
There is speculation that the £3,000 tax-free allowance could be scrapped or there may be an extension of CGT to other assets.
Business Rates
There are rumours of reforms to support small businesses, possibly basing rates on land value.
Fuel Duty
Possible rise in fuel duty, reversing the freeze since 2011 and impacting household costs. The Sun has backed drivers as part of its Keep It Down campaign since the start of 2011.
Capital gains tax is the money you pay to HMRC when you sell something that has gone up in value, such as stocks and shares, or a second home or even artwork worth £6,000 or more.
It’s the gain you make that’s taxed, not the amount of money you receive.
For example, if you bought a painting for £5,000 and sold it later for £25,000, you’ve made a gain of £20,000 (£25,000 minus £5,000).
Some assets are tax-free.
You do not have to pay capital gains tax if all your annual gains are under your tax-free allowance.
Currently, people do not have to pay tax on the first £3,000 of profits or £1,500 for trusts.
However, Labour could remove the minimum limit and impose the tax on assets currently exempt in a bid to plug holes in UK finances.
As with inheritance tax, it is one of the taxes that is most talked about as being targeted.
Currently, the capital gain tax owed by a basic rate taxpayer depends on the size of the gain, their taxable income and whether their gain is from residential property or other assets.
If this amount is within the basic income tax band, you’ll pay 10% on your gains (or 18% on residential property and carried interest).
You’ll pay 20% on any amount above the basic tax rate (or 24% on residential property and 28% on carried interest).
If you’re a higher or additional rate taxpayer you’ll pay:
Labour previously said it would reintroduce the Lifetime Allowance for pensions, which caps the total amount you can save into your pot tax-free.
This proposal was dropped at the last minute during the election campaign, but Labour may consider other pension tax reforms instead.
Ms Reeves has previously campaigned to reduce the tax relief that higher earners get on their pension, and to instead introduce a flat rate of 33%.
Currently, you get tax relief at your marginal rate of tax, so a flat rate of 33% would mean higher earners would get less relief.
This has led some financial commentators to speculate that this reform could be in scope for the Autumn Statement or future budgets.
Business rates levied on properties that aren’t first homes, including shops, offices, pubs, warehouses, factories, holiday rental homes, and guest houses, could also be overhauled.
During the election campaign, Prime Minister Sir Keir Starmer pledged to overhaul the system to support small businesses. These changes could be announced in the Autumn Statement.
The Treasury has also refused to rule out a rise in fuel duty, which could prove a shock to household finances.
The levy hasn’t risen since 2011 and was even slashed by 5p in March 2022.
It was The Sun’s Keep It Down campaign that secured a 12-month extension to the temporary fuel duty cut in March last year.
Motor association the AA has warned that for low-paid workers, losing this tax relief could result in an additional £171.60 in annual fuel costs.
Meanwhile, Labour confirmed in the election race that it would not make changes to National Insurance, income tax, corporation tax or VAT – so we are unlikely to see any of these taxes rise.
