Labour Government Proposes Significant Tax Changes

Britons have been warned they could face surprise tax bills under potential changes from the Labour government.

Why it matters: The Labour government is considering tax hikes to address a £22 billion budget shortfall, which could impact taxpayers in various ways.

The details:

• Chancellor Rachel Reeves has ruled out increasing income tax or VAT but has hinted at other potential tax hikes.
• Experts suggest that the Labour government may look at capital gains tax, inheritance tax, and pensions as sources of increased tax revenue.
• Taxpayers are encouraged to understand these potential changes and take steps to minimize their tax liabilities, such as using tax-free wrappers like ISAs and pension wrappers.
• Setting aside money to cover unexpected tax bills is also advised.

What they’re saying:

• “Using your tax-free wrappers such as ISA and pension wrappers are even more crucial than ever, as capital gains and dividend taxes could become a much more real prospect for everyone,” advised Chris Rudden, head of UK Investment Consultants at a digital wealth manager.
• “For married couples, use both of your tax-free bands. Generally, assets can be passed between married couples or those in civil partnerships tax-free,” suggested Paul Clifton from a wealth management firm.

Tax lawyer and senior Labour activist Dan Neidle has identified several areas where tax increases could be made, including pension reforms, inheritance and wealth taxes, capital gains and investment taxes, property and real estate taxes, and consumption taxes.

What’s next: As Labour continues to refine its tax strategy, taxpayers are urged to stay informed and take proactive steps to manage their financial picture in light of these potential changes.

Full story

The Labour Government is considering various tax changes to address a £22 billion budget deficit, which could result in unexpected tax bills for many people. While Chancellor Rachel Reeves has ruled out increasing income tax, VAT, or National Insurance, experts suggest that other taxes might be targeted. Chris Rudden, head of UK Investment Consultants at a digital wealth management firm, advises taxpayers to be prepared for potential increases in capital gains tax, inheritance tax, and taxes on pensions.

He emphasizes the importance of using tax-free wrappers like ISAs and pension wrappers to minimize tax liabilities. Mr. Rudden said, “Capital gains and dividend taxes could become a much more real prospect for everyone.

A few of these taxes that are being increased won’t simply come through the normal PAYE system, and you may need to settle a tax bill. It’s worth setting aside some money to cover any unexpected tax bills, as you don’t want to have to make a shock payment that you haven’t budgeted for.”

He also noted that pensions are the most likely target for tax hikes, given the recent reductions in tax-free allowances for capital gains tax.

Tax strategies for potential changes

The Chancellor may consider cutting the 25 percent tax-free portion that people can currently take from their pensions. Paul Clifton, a tax expert from a wealth management firm, suggests strategies for married couples to reduce their tax bills. He recommends using both partners’ tax-free bands and holding income-generating assets in the non-taxpayer’s name if one partner is a high earner and the other is a non-taxpayer.

Mr. Clifton also stresses the importance of planning ahead for inheritance tax, which can impose a significant 40 percent levy on beneficiaries. He said, “With careful planning, this can be reduced or offset, but most ‘deathbed’ planning is ineffective.

So it’s essential to plan ahead.”

As the Labour Government continues to refine its tax strategy, taxpayers are urged to stay informed and take proactive steps to manage their financial picture in light of these potential changes. Seeking advice from a financial advisor can help individuals understand their specific situation and make informed decisions to minimize their tax liabilities.