Last month we highlighted the likely areas for change with Labour’s first budget due on 30th October. Chancellor Rachel Reeves is expected to be tough, with spending cuts and tax hikes likely to feature.
Ms. Reeves has already hinted that tax rises will be part of the plan, despite Sir Keir Starmer reaffirming in the Labour manifesto that income tax, national insurance, and VAT would remain unchanged – a promise he reiterated as recently as last month.
With this context in mind, we thought it would be a useful reminder to explore which taxes could be targeted.
Inheritance Tax
Inheritance tax is one of the top candidates for reform. Currently, it stands at 40% on estates valued over £325,000. The government could opt to raise this rate or lower the tax-free threshold to boost revenue.
At present, several exemptions exist for agricultural land and family businesses, but these could be scrapped to widen the tax base. Another potential change could be to increase the length of the period following the gift of assets that the associated value can still be assessed in an estate, making survival beyond the current 7 year period necessary in order to completely remove the value of gifted assets from the estate.
In a leaked recording from March, Treasury Chief Secretary Darren Jones suggested that inheritance tax could be used to promote wealth redistribution and address intergenerational inequality.
Capital Gains Tax
Capital gains tax is applied to the profit made from selling capital assets, such as second homes, shares, business assets, and personal possessions valued over £6,000, excluding cars.
At present, individuals are exempt from paying tax on the first £3,000 of profits, or £1,500 for trusts. However, the government could eliminate this exemption and impose the tax on assets that are currently exempt.
Much like inheritance tax, capital gains tax is widely discussed as one of the likely targets for reform in the upcoming budget.
Business Rates
Labour is reportedly considering reforms to business rates, which currently apply to most non-domestic properties. There are exemptions and reliefs in place for some sectors, including small businesses, retail, hospitality, and leisure properties.
One possible change under review is shifting the basis of business rates from the current rateable value—an estimate of the property’s annual rental cost as of April 2021—to the value of the land itself. This approach could provide a fairer system and potentially relieve pressure on businesses operating in high-rent areas.
Stamp Duty
Stamp duty is currently charged on properties valued over £250,000, with higher rates for second homes and non-UK residents, while first-time buyers receive relief. The tax is often criticised for discouraging people from moving, which contributes to older homeowners staying in larger, more expensive properties.
Labour may consider shifting stamp duty towards an annual land value tax instead of taxing property transactions. While this could encourage mobility and better use of housing, it may be a tough proposal to sell within the party due to potential opposition to such a fundamental change