Rachel Reeves has been fired but don’t relax. She’s not done yet.
Some of Rachel Reeves’s biggest tax hikes have yet to hit us (Image: Getty)
She hit us with one tax after another during her two-year wrecking spree, but they haven’t all come into force. Some of the most punishing will land next year, with still coming our way after that. Incredibly, even if today’s Labour Chancellor John Healey doesn’t increase a single tax in his Budget on October 28, millions will still pay more tax next April, thanks to the efforts of his predecessor.
Reeves unleashed £70billion worth of new taxes on our jobs, homes, incomes, savings, pensions, capital gains and inheritances. The IMF expects the UK’s tax take to rise from around 38% today to 42.1% of GDP by the end of this Parliament. We used to pay less tax than our European neighbours, but Reeves fixed that. In doing so, she’s crushed growth and economic sentiment, and will soon punch Andy Burnham in the face too.
The Tories began the tax assault to fund the Liz Truss debacle. Rishi Sunak and Jeremy Hunt froze income tax bands, slashed capital gains and dividend tax thresholds, and cut the top rate tax band. Then Reeves really got to work. She hammered jobs, capital gains, high-value homes, non-doms, private schools and much else. She also extended the tax threshold freeze by three years to 2031, dragging more Britons into HMRC‘s clutches every year.
In April this year, she imposed a 2% tax surcharge on non-ISA dividend income above £500. From next April, she’s deal us another low blow, by extending that 2% surcharge to savings interest and rental property income. They will be taxed at 22%, 42% and 47%, depending on your band. And that’s not all.
Thanks to Reeves, the Cash ISA allowance will fall from £20,000 to £12,000 for under-65s from April, although the overall ISA allowance remains £20,000. Over-65s retain the full £20,000 Cash ISA allowance.
Possibly her most controversial move hits next April, when unused defined contribution pension pots become liable for inheritance tax. This could drag another 10,500 estates into paying the hated death tax. Here are eight ways she’ll continue to make Britons worse off.
In 2029, almost three years after Reeves’s exit, her tax raid on pension salary sacrifice will come into force. Is there no end to her?
Stealth tax raids didn’t start under Reeves. Chancellors have been doing it for years. Former Labour chancellor Alistair Darling tapered the personal allowance for people earning more than £100,000 from 2010. It remains with us today.
This cuts the personal allowance by £1 for every £2 of additional income up to £125,140, creating a brutal marginal income tax rate of 62%. Many turn down promotions as a result, as the extra effort and responsibility isn’t worth it.
AJ Bell’s head of personal finance Sarah Coles said fight back making full use of ISAs to shelter investments from dividend and capital gains tax. The under-65s should use the £20,000 Cash ISA allowance before next April’s cut.
Pension contributions can reduce taxable income to keep some people stay below tax thresholds. Married couples can consider splitting assets between them so both partners make better use of their allowances.
Those planning for inheritance tax can also use gifting allowances, including the £3,000 annual exemption, or make larger gifts that fall outside the estate after seven years. Reeves may be gone but her tax legacy is only now beginning to bite. And now we have John Healey to worry about too.