- VAT on private school fees and non-dom crackdown
The Labour manifesto committed to scrapping non-dom status, adding VAT to private school fees and increasing stamp duty on buyers from abroad.
The party estimated the VAT move would bring in £1.5billion by 2028, while the other tweaks were projected to bring in billions more together with a vague squeeze on ‘tax avoidance’.
However, questions have been raised about the revenue predictions, with warnings that wealthy people will simply leave the country.
- Employer national insurance
Rachel Reeves looks almost certain to increase employer NICs, despite claims it is a ‘straightforward breach’ of the Labour manifesto.
The Chancellor now seems to be leaning towards hiking the main rate and lowering the threshold when it starts being paid, rather than imposing the levy on contributions made to pensions for the first time.
The measures could raise up to £20billion a year.
There had been alarm from Labour big beasts about a more direct raid on pension pots, with fears firms would be unable to compensate for the extra charges, and retirement funds would simply end up smaller.
Tax thresholds have been frozen since 2021, and are due to stay so until 2028.
Jeremy Hunt also decided to reduce the top rate mark from £150,000 to £125,000.
The OBR has estimated that the policy will bring 3.8million more people into the tax system through ‘fiscal drag’ – where incomes rise to account for inflation but tax thresholds stay the same in cash terms.
Some 2.7million more are expected to pay the higher 40p rate, and 600,000 extra the 45p top rate.
Ms Reeves could hit profits on sales of shares and other assets, which currently face a 20 per cent levy – or 10 per cent when people sell businesses.
Labour appears to have backed off big moves on the headline rate, or second properties.
HMRC estimates that a one percentage point increase in the higher rate of capital gains tax would raise just £100million.
But a 10 percentage point increase or more – as has been mooted in some quarters – could actually cut revenue because so many investors would take action such as delaying sales or quitting the UK.
IHT is charged at 40 per cent on estates worth over £325,000, but that level can rise to £1million for a couple passing property to children.
Abolishing that loophole could potentially raise £2billion a year.
Think-tanks have floated cutting the amount people can draw out of pensions tax-free from £286,275 to £100,000.
Such a change would raise around £2billion a year.
It would affect about one in five retirees.
People could also be restricted from passing on pension pots to relatives.
The dividend allowance means the first £500 received by an investor in a year is tax-free.
But Ms Reeves could opt to scrap that relief, arguing that investments held in an ISA or pension are tax-free anyway and ‘working people’ do not have the resources to contribute to both.
Some years ago Ms Reeves called for a £500,000 lifetime allowance on how much can be held tax-free in ISAs.
The Resolution Foundation has suggested the figure could be even lower at £100,000.
Ms Reeves has also hinted that the annual £20,000 ceiling on contributions is too high, as only the wealthier benefit.
