Reeves is drawing up plans for her autumn Budget when a string of taxes could get even more punitive. This gives everyone a small window of opportunity to use tax breaks that could soon be curtailed or closed altogether.
Labour has indicated that it will not increase income tax, national insurance or VAT, or restore the pensions lifetime allowance. Everything else is up for grabs.
We asked Julia Rosenbloom, tax partner at law firm Shakespeare Martineau, to set out five things to do with your money today, to stop Labour taxing it even more heavily tomorrow.
1. Max out your Isa allowance. Today, every UK adult can tuck away £20,000 a year in an Isa, with all interest, dividends and capital gains free of tax for life.
Rosenbloom said Isas are a “brilliant tax-efficient wrapper” and today’s allowance is generous. Maybe too generous for Labour’s liking.
Britons have amassed £750billion in Isas, which cost the Treasury £6.7billion in lost tax revenues last year.
Left-wing think tank the Resolution Foundation said Isas do little to do incentivise those on low incomes to save and has called for savings to be capped at £100,000.
Alternatively, Reeves could slash the annual Isa allowance to, say, £10,000.
Rosenbloom’s advice: “Isa savers should make as big a contribution as possible in case benefits are reduced or removed.”
2. Pay into your pension. Again, we don’t know how Labour will tax our pensions but it’s almost certainly going to happen.
Pensions have a heap of benefits. Contributions attract tax relief at 20, 40 or 45 percent, depending on your tax bracket. Reeves could slash that to a flat rate of 20 or 25 percent for everyone.
Savers can also withdraw 25 percent of their pot free of tax from age 55, with further withdrawals subject to income tax. Labour could axe this tax-free cash benefit altogether. Martin Lewis has warned of the dangers.
Any unused pension can be passed on to loved ones free of inheritance tax (IHT) on death (although recipients may pay income tax on the money if you die from age 75). This tax break looks highly vulnerable.
Labour could even cut the annual allowance – the amount we can pay into a pension each year – from £60,000 to £40,000 or even lower. We just don’t know.
Rosenbloom’s advice: “Higher rate and additional rate taxpayers should consider making pension contributions now to max out their tax relief.”
3. Bank any capital gains. If you have any assets that may be subject to capital gains tax (CGT), then watch out. You may soon pay even more tax on them.
CGT is charged on profits when selling a second home or buy-to-let, assets such as antiques, jewellery and Bitcoin, a business, or shares held outside of an Isa.
Bills are already rising as Jeremy Hunt has slashed the annual exempt amount from £12,300 to just £3,000.
Now things could get worse.
Currently, basic rate taxpayers pay CGT at 10 percent or 18 percent on second property sales. Higher earners pay CGT at 20 percent and 24 percent.
Labour may bring CGT rates into line with income tax bands so that basic rate taxpayers pay 20 percent on all disposals, while higher rate taxpayers will pay 40 percent and additional rate taxpayers 45 percent.
Rosenbloom said change is on the way and people need to act fast.
Rosenbloom’s advice: “If you can, consider selling assets or even your business prior to the next Budget.”
4. Escape inheritance tax raid. Inheritance tax bills are already at all-time highs and the number of families caught by the hated “death tax” could rocket under Labour.
Even if Reeves does nothing, IHT bills will continue to climb. The basic £325,000 nil-rate band has been frozen since 2009, catching more families as property and share values steadily increase.
With Labour keen to reduce wealth inequality, IHT is an obvious target for a fresh tax raid. Reeves could scrap the £175,000 main residence allowance, which allows people to pass on the value of their home to direct descendants.
Another option is to scrap gifting allowances, so that any wealth transfers automatically become subject to IHT.
Rosenbloom’s advice: “Your options are limited but it may be wise to make gifts before Budget rules change.”
5. Consider a company structure. The final step is more drastic, but may be worth taking as Labour tax raids bite. Instead of investing in your own name, consider setting up a company structure, as thousands of buy-to-let investors are already doing.
Under Labour, CGT could more than double to 40 percent or 45 percent. In a company, any gains from investment would only be liable for corporation tax, which is currently 25 per cent. Labour has said it won’t hike corporation tax.
Also, companies are not required to pay tax on dividends, bringing further savings.
Rosenbloom’s advice: “Forming a personal or family investment company can save tax. But it is complex so seek advice.”
Whatever your plans, there is no time to lose. Labour has a huge majority and can do what it likes.
