Six big changes to expect from Reeves’ Budget and how they’ll impact your finances
Chancellor Rachel Reeves has set the stage for tax increases in her autumn budget on November 26, and everyone from homeowners to retirement savers may be in her sights.
High inflation and an estimated £30bn fiscal deficit are putting pressure on the government and ultimately the country’s finances.
In his speech at Downing Street earlier this month, Reeves said that “each of us must do our part to ensure the security of our country and the brightness of its future.”
This was seen as a sign of tax rises to come, especially as the chancellor said he should “take on the world as I find it, not as I want it”.
The rumor mill has been going on for months and with the latest financial update just two weeks away, here are the key policy changes expected in the Budget and how they could affect your finances.
Income tax increase
Labour’s main manifesto when it came to power last year was that it would not increase national insurance (NI), income tax or VAT.
Reeves has already increased employer NI contributions in the 2024 Budget and an income tax increase is now expected to follow.
There are rumors that the Treasury is considering the idea from the Resolution Trust to increase income tax by 2p and reduce employees’ NI by the same amount; The think tank says it could raise £6bn and hit higher earners than what Labor defines as “working people”.
But Sarah Coles, head of personal finance at Hargreaves Lansdown, said this would not only affect working NI but also self-employed people paying income tax.
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He said: “They pay NI, but it’s a different class at a different rate, so they pay 6 per cent on profits from £12,570 to £50,270, and 2 per cent on profits over £50,270. By cutting NI only for employed people, the system will place a greater burden on the self-employed.”
Commentators also suggested the Chancellor could instead add 1p to the basic tax rate, taking it from 20 per cent to 21 per cent.
Laura Suter, personal finance director at AJ Bell, said it would cost taxpayers up to £377 a year in extra tax and anyone earning £50,270 or more would face maximum losses.
He said: “While it is possible to raise income tax rates across the board, higher and additional rate taxpayers already have a disproportionate share of income tax revenue. What’s more, increasingly aggressive rates are deterring people from getting promotions and advancing their careers.”
“An increase in the basic rate is easier to position as a shared burden as it would affect almost all workers, pensioners and some savers.”
Restriction on retirement rights
Reeves had already announced last year that retirement savings would form part of the inheritance to be used in inheritance tax calculations from 2027.
There has always been speculation about restrictions on pension tax relief for high earners, but recent rumors suggest the Chancellor may reduce the amount of tax relief employees can receive by contributing to their pension through salary sacrifice.
It has been suggested that such a move would mean the average worker could be affected by £210 a year.
Antonia Medlicott, managing director of Investing Insiders, said: “The Chancellor risks undermining confidence in the system, which could deter people from saving or push high earners into riskier products as they look for alternative ways to save tax.”
Mansion tax
The mansion tax is popular with most Labor MPs and was a party policy under former leader Ed Miliband.
Reeves had previously ruled out a manor tax as shadow chancellor.
But there are now rumors that an effective mansion tax could be introduced, by charging council tax on the sale of homes worth more than £1.5 million, or even a 1 per cent annual tax on properties worth more than £2 million.
According to Knight Frank’s calculations, just over 150,000 properties in England and Wales would be involved in the £2 million today, particularly around London.
property tax reform
Many home buyers will be hoping for changes to stamp duty, especially after thresholds rose in April and the cost of buying property soared.
Reeves will also come under pressure on property taxes after Conservative Party leader Kemi Badenoch said in a speech at the party conference that the Conservatives would abolish stamp duty if they returned to government.
This seems unlikely given the high levels of revenue the tax generates for the Treasury, but there are rumors that a new national property tax could be introduced to replace stamp duty on home sales over £500,000, shifting the cost from buyers to sellers.
Rightmove figures show just under a third of homes for sale in England are priced above £500,000 and will be subject to the proposed new annual property tax.
But this will again hit London the hardest; 59 per cent of listings here are asking prices over £500,000, compared to just 8 per cent in the north-east.
Johan Svanstrom, managing director of Rightmove, suggests shifting the burden of stamp duty to the seller could be good for first-time buyers, but any savings could be offset by higher asking prices.
He added: “If responsibility for property taxes shifts to sellers, the government will really need to consider how to phase the transition to avoid a mass market slowdown. Those who have recently paid stamp duty as buyers and those who will face paying property taxes as sellers in the future will be clearly disadvantaged.”
Reeves is also said to be considering replacing council tax with a new percentage charge capped at at least £800 on the annual value of a property.
home owner taxes
Landlords are already facing additional regulations from the Tenants’ Rights Act and faced higher stamp duty in the previous Budget.
Another tax crackdown could be coming for landlords as the Treasury is rumored to be now considering charging NI on rental income.
Ben Beadle, chief executive of the National Association of Residential Landlords, said: “The private rented sector is a key driver of workforce and social mobility. It enables people to move for work, access higher education and seize new opportunities – all things the government wants to encourage as part of its growth agenda.
“Instead, landlords face further speculation about tax increases that will deter investment, reduce supply and ultimately increase rents.”
ISA reform
Reeves is keen to increase investment in the UK and British stocks.
One way to do this would be to cut the cash ISA allowance to encourage more money to flow into stocks and shares ISAs; but there is no guarantee that this will mean investing in British companies.
There are reports that a £12,000 cash ISA limit could be introduced and the allowance could be cut by almost half.
Sarah Coles, personal finance manager at Hargreaves Lansdown, said: “This will be bad news for diligent savers. If they are saving short-term, cash is the right home for their money, so through no fault of their own they will have to pay more tax.
“If they have a longer time horizon and still have cash, then the reason they haven’t invested yet is not tax related.”
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