Chancellor Rachel Reeves claims to have identified a £22billion “black hole” in the nation’s accounts that she is desperate to fill by hiking taxes on October 30. But tax experts warn that instead of bringing in more funds, her Halloween tax grab could cost the Treasury money instead.
Instead of meekly complying and coughing up, taxpayers are preparing to take evasive action.
UK taxes are at a 70-year high, thanks to the Tories. Reeves may discover there is a limit on how much higher she can drive them, without triggering a huge backlash.
Many wealthy people and entrepreneurs are likely to up sticks and flee Britain for a country with a less punitive tax regime.
But you don’t have to leave the country to reduce your exposure to upcoming tax hikes. Take capital gains tax as an example.
Reeves is widely expected to increase CGT bands in line with income tax.
Today, higher earners pay CGT at 24% when selling a second home or buy-to-let property. Under Reeves’ plans, they will pay 40% or 45%.
This could cost them tens of thousands of pounds extra CGT.
The problem is – from Reeves’ point of view – is that owners don’t have to sell their properties. Labour can’t force them to (at least, not yet).
The decision is entirely up to them.
So instead of selling up and taking a big tax hit, they could simply hang onto their properties. That way, HMRC won’t earn a penny in CGT.
CGT bands change all the time, so many owners could decide to sit it out in the hope that the next government (or the one after that) takes a more lenient view.
They’d rather sit tight than take a big tax hit today. Effectively, they’re going on strike.
In the 2023/24 tax year, the Treasury took £15.4 billion in CGT receipts.
Reeves reckons her CGT hike will raise an extra £8billion on top of that.
Yet according to a report in The Daily Telegraph, new HMRC estimates that by 2027 her plan will actually cut receipts by £2billion. If true, her black hole will only widen.
Similarly, investors holding shares outside of the tax-free Isa may soon face a higher CGT charge on their gains.
Instead of paying 20% when selling shares, higher earners could pay 40% or 45%.
But only if they sell. Many will simply hang onto them.
They might even move abroad. There’s no CGT liability once you’ve lived overseas for five years.
Reeves’ fiscal grab could backfire on a host of fronts. Threats to charge more inheritance tax are driving families to put wealth into trusts, where it has greater protection.
Again, IHT receipts could fall.
Scrapping the Winter Fuel Payment for pensioners has alredy triggered a rush to claim means tested state pension top-up Pension Credit.
Successful claimants will still get their Winter Fuel Payment. Plus a potential £8,000 of other benefits on top.
That’s likely to wipe out the most of the money Reeves saves.
Today, the Financial Times reports that the UK’s biggest company, pharmaceutical giant AstraZeneca, is threatening to move its vaccine research centre to the US, after Reeves axed state aid for the project.
The UK will lose jobs and investment if it does. And HMRC will get less tax. Imagine that happening across a string of industries.
Ultimately, this is bad news for everybody. Labour’s punitive, politically driven tax raids could end up making all of us poorer, starting with the Treasury itself. It’s a huge gamble.
