Labour has warned of a “painful” budget coming this autumn which could see taxes increased for people of all ages and pensioners won’t escape the pain.
State pensioners could face tax rises worth almost £14,000 from Wednesday when the new Budget is finally announced.
Labour has ruled out tax rises on Income Tax, VAT or employees 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 which include state pensioners will be stumping up as much as £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.
Keir Starmer and Rachel Reeves will unveil ‘painful’ tax rises (Image: Getty)
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.
Keir Starmer said “things will get worse before they get better” (Image: Getty)
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 this Wednesday.
PM Keir Starmer called the upcoming budget “painful” and said it will be “needed for the long term good”.
In a pre Budget speech in Birmingham on Monday, The Prime Minister also set out his approach to a for “working people”.
Ministers have been facing repeated questions over the Government’s definition of “working people”, after Labour’s election manifesto pledged not to increase taxes on working people – explicitly ruling out a rise in VAT, national insurance and income tax.
They have come under pressure to spell out precisely who would and would not fall under this definition, given the extent of expected tax rises due to be announced this week.
Sir Keir told the audience: “Trust in my project to return Britain to the service of working people can only be earned through actions, not words.
“Change must be felt. But every decision that we have made, every decision that we will make in the future, will be made with working people in our mind’s eye, people who have been working harder and harder for years just to stand still.
“People doing the right thing, maybe still finding a little bit of money to put away, paying their way, even in the cost-of-living crisis.
“But who feel that this country no longer gives them or all their children a fair chance.
“People stuck on an NHS waiting list, whose town centre is blighted by antisocial behaviour, who can’t afford to buy a place that they can call home, or can’t afford the home they have because of the mortgage bombshell.”
