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Labour has ruled out tax rises on Income Tax, VAT or National Insurance – but Prime Minister Keir Starmer has warned the country that the “£22bn black hole” needs to be fixed, which means other tax rises are inevitable.
While the increase to VAT on private school fees was already in Labour’s manifesto, other tax rises could be on the way which weren’t – and not just the cut to the Winter Fuel Allowance.
Labour Chancellor Rachel Reeves is expected to look at several key taxes which she could increase – and if so households will be stumping up £13,925 more every year.
Inheritance Tax is the first tax Labour is expected to look at. Right now, Inheritance Tax takes 40 percent of every £1 over £325,000 in your estate.
Either the percentage could be increased, or the threshold lowered from £325k, to raise money.
A 5 percentage point increase on an estate worth £1M would be equal to another £3,375 in tax once the £325k threshold is accounted for.
Capital Gains Tax is another area which Labour could look at. As it stands, people don’t pay tax on the first £3,000 of profits from selling second homes, business assets, shares and personal property worth over £6,000 (cars not included).
Right now, the tax is 18 percent on profits from second homes, or 10 percent on other chargeable assets like shares if you’re in the basic income tax band, ie earn less than £50,270 per year.
An increase from 18 percent to 24 percent has been mooted as a possible money raiser by some experts, or a reduction in the Capital Gains Tax allowance . A reduction in the allowance from £3,000 to £1,500 would mean another £1,500 added to your Capital Gains Tax bill.
Council tax, or a rejigged property value tax, has also been speculated. Labour is not expected to change Council Tax bands, but a tax on property worth more than £1M has been put forward by some experts.
Stamp Duty for first time buyers is going to be changed in April 2025, this is confirmed. Right now, a temporary threshold change for stamp duty means first time house buyers pay £0 stamp duty tax on any property worth under £425,000.
This is set to revert back to £300,000 in April 2025 and Labour has already confirmed this.
From April you would pay £8,750 for a sole residence worth £425,000.
On top of these, another confirmed change is the cut to Winter Fuel Allowance. This will see state pensioners £300 worse off by default this winter, as the benefit has been scrapped for most people thanks to much stricter eligibility rules, meaning you need to already be claiming another benefit to qualify for the handout.
In total, the confirmed changes could leave a household £9,050 worse off, but some mooted tax changes could add another £4,875 bringing the total to £13,925, not including any possible land taxes or council tax tweaks.
Rachel Reeves will confirm any tax rises in October’s budget, which is due on October 1.
PM Keir Starmer called the upcoming budget “painful” and said it will be “needed for the long term good”.
He said: There is a Budget coming in October, and it’s going to be painful. We have no other choice, given the situation that we’re in.
“Those with the broadest shoulders should bear the heavier burden, and that’s why we’re cracking down on non-doms.
“Those who made the mess should have to do their bit to clean it up – that’s why we’re strengthening the powers of the water regulator and backing tough fines on the water companies that let sewage flood our rivers, lakes and seas.
“But, just as when I responded to the riots, I’ll have to turn to the country and make big asks of you as well, to accept short-term pain for long-term good, the difficult trade-off for the genuine solution.
“And I know that, after all that you have been through, that is a really big ask and really difficult to hear. That is not the position we should be in. It’s not the position I want to be in, but we have to end the politics of the easy answer – that solves nothing.”
Former minister Robert Jenrick, who is also a Tory leadership candidate, accused Sir Keir of “shamelessly attempting to rewrite history” and having “laid the groundwork for huge tax rises”.
Outgoing Conservative Party leader Rishi Sunak wrote on X: “Keir Starmer’s speech today was the clearest indication of what Labour has been planning to do all along – raise your taxes.”
Green Party co-leader Carla Denyer said: “Enduring more economic pain and hardship isn’t what people voted for. They were told they were voting for change, not voting for things to get worse before they get better.
“Labour needs to be honest about the fact that they could choose to make things better for everyone if they were bolder and braver.”