It has been widely reported that the new Labour chancellor, Rachel Reeves, will be looking at taxation and many individuals are now wondering what taxes she will raise to manage public debt ...
One area that could see significant changes is Capital Gains Tax (CGT). Currently, the headline rates for CGT are 20% (24% for residential property), but Labour may consider increasing these rates to align with income tax rates, which are currently 20%, 40%, and 45%.
This could have a significant impact on individuals who earn income from selling assets, such as stocks or property. If you have been considering selling any assets in the near future, it may be wise to do so sooner rather than later to avoid potential tax increases.
Pensions could also be in Labour's sights, as we have seen in the past with former chancellor Gordon Brown's £5bn annual tax raid on company pension schemes. While Labour recently backtracked on their plans to reintroduce the Lifetime Allowance for pensions, it's possible that they could introduce other measures to increase tax revenue from pensions.
This could include imposing inheritance tax (IHT) on uncrystallised pension funds or taxing uncrystallised funds on investment income and gains. If you have a large pension fund, it may be worth speaking to a financial adviser to explore potential strategies to mitigate any potential tax changes that may be coming.
While they have promised to continue with the Foreign Income & Gains (FIG) regime, they may remove the transitional measure of the 50% reduction in tax on foreign income in 2025-26. This could have a significant impact on non-doms, who may see a substantial increase in their tax bills.
Additionally, Labour may also consider removing the reduced 12% rate on bringing previously unremitted offshore income and gains to the UK in 2025-26 and 2026-27. This could result in a costly exodus of non-doms from the UK, as 30% are already considering leaving due to potential tax changes.
One way Labour could mitigate the non-dom exodus is by reforming Inheritance Tax. By widening the base through the restriction of reliefs, but reducing the rate, Labour could potentially generate more tax revenue while also making the UK a more attractive place for non-doms to reside. This could include imposing IHT on UK resident non-doms, which could discourage others from coming to the UK.
It's also worth noting that Labour's manifesto was relatively silent on tax reform, with the only mention being a promise to maintain stability in the rate of Corporation Tax. However, many argue that what is needed is a reduction in Corporation Tax to boost confidence and investment in the UK. If Labour does not address this issue, it could have a detrimental effect on the economy and potentially lead to job losses!
While the specifics of Labour's tax plans are still unclear, it's evident that they will have to raise taxes to manage public debt. Potential reforms could include increases in Capital Gains Tax rates, changes to pension taxation, and measures to target non-doms.
It's essential for UK residents to stay informed and plan accordingly to mitigate any potential tax changes. Only time will tell what taxes Labour will raise.
It's clear that they will have a significant impact on us all.
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