Exploring Potential Tax Reforms: Labour’s Budget Proposals on the Horizon

What tax increases might the Labour administration implement in the upcoming fall budget?

During their electoral campaign, Labour committed to not raising national insurance, income tax, or VAT, yet they avoided confirming whether they would hike other taxes.

Political journalist @alixculbertson

Wednesday, July 31, 2024, 5:

Chancellor Rachel Reeves has acknowledged that increases in taxes are expected to be declared in the fall budget.

She confirmed that Labour intends to adhere to its campaign promise of not increasing national insurance, income tax, or VAT.

Throughout the election period, Labour candidates consistently sidestepped inquiries about potential hikes in other taxes, while the Conservatives cautioned that a Labour government would likely implement increases in additional taxes.

On Wednesday, following the disclosure of various cost-cutting initiatives, Ms. Reeves mentioned on The News Agents podcast, “I believe we will need to raise taxes in the upcoming budget.”

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She declined to specify which taxes might increase under the Labour government's initial budget set for October 30.

Sky News examines potential targets.

Further Details on Council Tax

Shadow Minister Confirms Labour Has No Plans to Alter Council Tax Bands

Birmingham City Council has sanctioned reductions amounting to £300 million and has approved an increase in taxes by 21% spread over the

Council Tax: How Could Insolvency Impact Our Payments?

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Estate tax

This tax is highly likely to undergo modifications.

When a person passes away, their estate is subject to a 40% inheritance tax on any portion exceeding £325,000.

The government might raise the tax rate or decrease the threshold for inheritance tax to generate additional revenue.

Presently, various exclusions exist, such as those for agricultural property and family-owned enterprises, but there are considerations to potentially expand the scope to encompass these areas as well

The government might consider shortening the period during which assets can be transferred prior to death without incurring inheritance tax.

An audio leak from March exposed the current chief secretary to the Treasury, Darren Jones, suggesting that inheritance tax could serve as a means to "redistribute wealth" and tackle "intergenerational equality".

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Tax on capital gains

Capital gains tax is levied on the earnings obtained from the sale of capital assets, such as vacation properties, stocks, business assets, and personal items valued over £6,000, with the exception of automobiles.

At present, individuals are exempt from paying taxes on the initial £3,000 of earnings, while trusts receive this exemption on the first £1,500.

The threshold might be eliminated, and taxes could be applied to assets that are presently not taxed.

Inheritance tax is currently one of the most discussed taxes being considered for reform.

Further reading: Rachel Reeves indicates that challenging choices lie ahead. The Chancellor accuses Jeremy Hunt of misleading the public about the state of Britain's finances.

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Municipal

In the disclosed audio from Mr. Jones, he expressed his irritation with the "antiquated" council tax system and suggested that properties valued at over £1 million might face higher taxes.

During the election campaign, ex-shadow minister Jonathan Ashworth informed Sky News that the Labour Party had no plans to alter the council tax bands.

Council tax is determined by categories that reflect the 1991 property values, a system the Institute for Fiscal Studies (IFS) has criticized as "absurd" and the Institute for Government (IfG) has called "incredibly poorly designed."

Gemma Tetlow, the leading economist at the Institute for Government, suggested that council tax could undergo a rational reform by transitioning from the current tiered system to a more proportional tax based on land value.

She noted, "Implementing that wise structural change could also generate additional revenue."

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Commercial property taxes

The Labour Party is reportedly considering reforms to business rates, which are applied to the majority of commercial properties, although certain sectors like small businesses, retail, hospitality, and leisure currently benefit from exemptions.

A modification could be implemented where they are tied to the land's worth rather than the existing rateable value, which is a calculated estimate of the annual rental cost of the property as of April 2021.

Transaction tax

Stamp duty is levied on property purchases above £250,000, with increased rates for additional homes and foreign buyers, while first-time buyers benefit from a tax relief.

It presently acts as a deterrent for relocating residences and contributes to why seniors are staying in costly, bigger homes.

Labour might consider reforming the tax system to center on an annual tax on land values rather than on transactions, although this proposal may meet with resistance within the party.

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