During the general election campaign, Starmer promised he wouldn’t increase income tax, national insurance and VAT, as well as corporation tax. But he repeatedly refused to tell us which taxes he would hike. So did Reeves, leaving us all in the dark.
We still don’t know, but slowly, a picture is emerging.
It seems likely that Reeves will increase capital gains tax (CGT) bands, to bring them into line with income tax.
In my view, she is almost certain to scrap the exemption that allows people to pass on unused pension free of IHT.
I’ve reported on both of these before.
I’m a personal finance journalist, so I overlooked the impact of Labour’s autumn tax raid on business owners.
Now I’ve checked it out, it gives me the shivers.
Reeves seems ready to launch a brutal raid that will force family business owners to hand almost half of their firm’s value to HMRC when they die, almost certainly destroying the business in the process.
Not only does this risk sending valuable businesses to the wall, it will also deter people from setting up new enterprises in Britain.
And we’ll all pay the price as growth stalls.
Reeves has been given intellectual cover by think tank the Institute for Fiscal Studies (IFS), which recently called for two measures that family business owners say will savage investment in smaller companies.
The IFS has said there is “strong economic case for completely abolishing agricultural and business reliefs”. These reliefs currently save businesses £1.4billion of IHT a year.
Failing that, it suggests capping the reliefs at £500,000, a totally arbitrary figure plugged out from heaven knows where.
This would wreak havoc, if Reeves listens.
Kirsty Limacher, chief legal officer at The Association of Lifetime Lawyers, says Labour’s silence is an ominous sign that “significant IHT changes” may be on the way.
“These could include the scrapping or changing of Business Relief and Agricultural Relief, to raise tax revenue.”
It would mean when the owner successful family business or farm dies, their beneficiaries will be handed a huge IHT bill.
They’d have to hand over 40 percent of its value to HMRC, for Reeves to spend on whatever takes her fancy.
Every year, more than 3,000 family businesses would face massive IHT bills, forcing many to pull down the shutters.
Companies will liquidate, jobs will go, the economy will stutter and most ridiculously of all, overall tax revenues will drop because there will be fewer businesses to pay them.
Small firm lobby group Family Business UK repeatedly asked Labour what it was planning during the election, and it refused point blank to ‘fess up.
No wonder business owners are worried.
Businesses will have to build up huge reserves for when their owner dies, purely to cover an IHT bill. The money would be better off reinvested in the business.
Alternatively, the family will have to sell the business upon their death to cover the tax bill. If they can find anybody to buy it, aside from greedy private equity companies that will no doubt ravage its value and leave it a shell of its former self.
It’s a disaster in the making.
Remember, this isn’t money small company owners have sitting in their personal bank accounts. It’s tied up in the business to be used for investment and growth.
And Reeves may not stop there.
The IFS also wants the new government to take the knife to Business Property Relief on smaller, growing companies listed on the alternative investment market (AIM).
This encourages people to invest in AIM-listed stocks, by shielding their money from IHT on death.
Investing in small businesses is vital, but also risky. Hence the tax break.
If Reeves axes it, more than 1,000 unquoted companies listed on AIM could be starved of the capital they need to grow.
This will hugely erode the UK’s ability to build industries of the future that we urgently need for a thriving economy. Will Reeves act? We won’t know until it’s too late.
Business owners aren’t the only ones in the firing line – Labour may also force ordinary families to pay inheritance tax twice.
