According to the Guardian, the chancellor, Rachel Reeves, needs to find somewhere between £20 billion and £50 billion if she’s to balance the books in her Autumn Budget.
After high-profile changes to Inheritance Tax (IHT), U-turns on welfare cuts, and smaller tweaks to Capital Gains Tax (CGT), pressure is building. Many Labour backbenchers are calling for a so-called “wealth tax”.
Such a move, whatever it looks like, could prove logistically tough and politically risky. And yet, a recent MoneyAge article suggests that 75% of UK adults would support one.
Keep reading to find out how likely such a tax is and what it might mean for you.
Survey results show that the issue is polarising, but a wealth tax would have its supporters
The MoneyAge report is based on the introduction of a 2% tax on wealth exceeding £10 million. In a YouGov poll of 4,142 British adults:
- 49% “strongly” supported its introduction
- 26% “somewhat” supported it
- 6% were “strongly” opposed
- 7% were “somewhat” opposed.
While men and women are equally matched in their support for the tax, men are much more likely to be opposed. Older respondents were more likely to voice opposition than younger people, while Labour voters were more likely than Conservatives to support the tax.
There are several pros and cons for Rachel Reeves to consider.
While the tax might raise much-needed revenue, the plan could also backfire. A wealth tax is likely to be very costly and time-consuming to implement. So much so that it might not be completed during this parliament.
It might also hamper the UK’s economic growth, not least if the wealthy choose to leave Britain for a “safer” tax environment.
Back in 2024, the Adam Smith Institute predicted a so-called “millionaire exodus” and calculated a drop of 20% in the share of the UK population who are millionaires by 2028.
Source: The Adam Smith Institute
While it’s true that millionaires leaving the UK also take their money with them, is the supposed exodus actually occurring?
While increased taxes for the wealthy might mean they have less money to spend and invest (even if they remain in the UK), there is a counterargument. Those affected might feel compelled to adjust their risk profile or increase their investment amounts, in the hope of offsetting a tax rise, ultimately helping growth.
The UK isn’t the only country wrestling with a wealth tax conundrum. Spain’s wealth tax dates back to the late 1970s, while France is also looking into adopting the measure.
According to Sky News, a 2% tax on assets exceeding £10 million could raise around £24 billion for the Treasury.
Other potential tax changes might be more likely in the short term
While a wealth tax might raise some much-needed funds from the date of implementation, Labour’s problems might be more pressing. For that reason, other tax changes are likely this autumn.
Key areas likely to see tax rises or stealth raids include IHT, CGT and ISAs.
Inheritance Tax
Rachel Reeves has already confirmed that pensions are to be brought into the IHT net from April 2027. But further changes to IHT could be imminent.
We often talk about the value of gifting to reduce your potential IHT liability, and the government could decide to put a cap on the value of these gifts. Currently, you can gift as much as you like during your lifetime, and you generally only pay tax on those gifts if you die within seven years of the date the gift is made.
If you die within three years, IHT is paid at the full rate of 40% with taper relief applying between three and seven years. The rates of taper relief could, therefore, be up for review.
Finally, an extension to the current IHT rate freeze is also a strong possibility. The so-called “nil-rate band” has been at its current level since 2009. While the current freeze is due to end in 2028, this could be pushed out further, to 2030, say. A similar freeze would then be likely for the residence nil-rate band.
Capital Gains Tax
Changes to CGT have been predicted for some time now. The Annual Exempt Amount has already fallen significantly, from £12,300 to just £3,000 in four years. In that time, though, the Treasury’s CGT take has fallen.
Reeves might decide more drastic action is called for, and a rise in CGT rates to put them in line with Income Tax may well be on the cards.
ISAs
Cash ISAs are clearly in the chancellor’s sights, a part of her plan to increase investment and encourage economic growth.
With more than £300 billion currently saved in Cash ISAs (according to the Telegraph), moving even some of this into Stocks and Shares ISAs could help.
One way to “encourage” this change would be to lower the Cash ISA Allowance.
The ISA Allowance currently stands at £20,000 across all ISAs held, but the Lifetime ISA has a lower £4,000 threshold. Might the Cash ISA Allowance drop to be in line with this?
Get in touch
For now, Budget speculation is just that. Be assured that we’ll be watching the announcements closely, but in the meantime, patience is key. Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage your long-term financial plans, whatever the Autumn Budget brings.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
