Market News

BY James Rodger

Eight key areas Rachel Reeves could target in the Spring Statement have been revealed - with more tax hikes "highly likely". HMRC shake-ups could be coming for everything from inheritance tax to National Insurancer under Labour Party government Chancellor Ms Reeves.

The Chancellor framed the £41.5bn of tax rises in her maiden Budget as a “once in a Parliament” emergency intervention to help plug a £22bn “black hole” in the public finances. Ms Reeves promised business leaders that she was “not coming back with more borrowing or more taxes”.

But ministers have declined to repeat that promise, and experts are warning more tax rises are “highly likely” in the Spring Statement on March 26. Here are the five most tempting taxes that could be in Reeves’ crosshairs.

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Lifetime ISAs could be scrapped

The Commons Treasury select committee said it would be hoping to establish whether the lifetime Isa was still “fit for purpose” in 2025 and whether it needed an overhaul – or even to be abolished.

Tim Stovold, expert at Moore Kingston Smith believes the review is the "nail in the coffin" for Lisas. He said: "One of the questions in the Lisa consultation is 'should we just scrap it?' Whenever a consultation asks this, it's softening us up for it to be scrapped."

Lifetime Isas were unveiled in 2016 by the then chancellor, George Osborne, and went on sale the following year. You must be 18 or over and under 40 to open one. You can pay in up to £4,000 each year until you are 50 and the government will add a 25% bonus to your savings, up to a maximum of £1,000 a year.

Pension tax relief reform

Reeves wrote in 2016 that a flat rate of 33 per cent would be "a welcome boost for basic-rate taxpayers and a cut in the savings subsidy for higher earners". Stovold noted: "Pensions are enormously expensive to the Treasury. Reducing tax relief would be one way of containing it."

Standard Life retirement savings director Mike Ambery, said that it would have been a “potentially powerful tool in the chancellor’s revenue-raising kit”.

However, he added that “it seems the challenges and complexities proved too great for this Budget”.

Inheritance tax

The inheritance tax seven-year rule is “under threat” in Rachel Reeves’s Spring Statement, wealth advisers have warned. Tax experts said they had seen an increase in clients giving chunks of their wealth to family members amid fears the rule would be extended to 10 years or scrapped altogether in a renewed drive from the Chancellor to raise revenue.

Inheritance tax is usually paid at a rate of 40pc on an estate above the nil-rate band, which is currently set at £325,000. But the “seven-year rule” allows a person to pass down money or assets tax-free or at a reduced rate up to seven years before death.

Nimesh Shah said: "People have already taken preventative action on the seven-year front. Reeves could go back to inheritance tax to raise money. One way is to extend it to 10 years or abolish it completely and introduce a lifetime gift allowance."

Ian Cook, expert at Quilter Cheviot added the gifting rule could be "the next easy target" for the Government. Jason Hollands, managing director at Evelyn Partners, said changes to giving away money “couldn’t be ruled out”.

He added: “The number of conversations has certainly increased significantly in recent months, driven by moves against pension assets. It would be potentially a very negative move if they pushed [the number of years] up further.

“You can see why a government talking about growth could dress up a change as less of a tax raid, and more a way of encouraging people to do more gifting now, so money is spent in the real economy, rather than being sat in mature assets.”

An HM Treasury spokesman said: “Gifting assets is a normal part of the inheritance tax system.”

Cash ISA

There are rumours that the Government could reduce the annual cash ISA limit from £20,000 to a smaller amount, like £4,000 or £5,000, impacting high-saving individuals. Tim Stovold, partner and head of tax at Moore Kingston Smith, pointed out that one of the key questions in the consultation could be whether to scrap the Lifetime ISA altogether.

He told the Telegraph: “Whenever a consultation asks this, it’s softening us up for it to be scrapped. Everyone will say it’s an unnecessary complexity in the tax system. Lisas are at risk, and removing them could raise a few pounds for the Treasury.”

Income tax thresholds

Sanjay Raja, Deutsche Bank's chief UK economist, told The Telegraph that extending the freeze was likely in the upcoming Spring Statement. Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg, said it "wasn't beyond belief" that Labour could reduce income tax thresholds "given their direction of travel so far".

Potential VAT expansion

Another potential tax change involves expanding VAT to cover university education or private healthcare. As these services are often privately run, VAT could be applied similarly to how it was recently introduced for private schools.

Capital Gains Tax increase

During the Autumn Budget, Ms Reeves increased the main rates of Capital Gains Tax (CGT) from 10% and 20% to 18% and 24% respectively.

Jason Hollands, managing director of Evelyn Partners, a wealth adviser, suggested the rates could be “nudged up” a bit more. He said: “It can’t be ruled out. There was even talk of aligning with income tax, but that would be very damaging for entrepreneurs. Could they come back and add a little bit more? It’s possible.”

National Insurance contributions

Shah said reversing Jeremy Hunt's cut was the "most obvious area" Reeves would look at to raise funds.