Are you ready for possible changes the Labour Party might make to your estate taxes? After the July 2024 election, the Labour Party is in power. This has raised concerns about estate tax increases. At MP Estate Planning UK, we know how these changes could affect UK asset owners. It’s vital to keep up with tax law updates under Labour’s rule.
Key Takeaways
- Capital gains tax is charged at 24% for second properties for higher-rate taxpayers, dropping to 18% for basic-rate taxpayers.
- Families inheriting a £1.5m estate with a £111,000 gain could pay an extra £26,640 in tax if capital gains tax upon death is applied.
- Individuals facing a £470,000 property gain could be subject to a £112,800 tax bill, impacting their beneficiaries heavily.
- The Institute for Fiscal Studies estimated that implementing capital gains tax at the point of death could raise approximately £1.6bn annually.
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Introduction to Labour’s Tax Proposals
The Labour Party has introduced many tax proposals to change UK fiscal policy and estate planning. They aim to close tax loopholes and fight against tax evasion. This could bring in an extra £5 billion a year.
Currently, British households are £870 worse off, with the highest tax burden in 70 years under Prime Minister Rishi Sunak. Labour wants to fix this. They plan to give £855 million a year to HMRC to improve tax collection. The National Audit Office believes focusing on tax avoidance could bring in up to £6 billion a year.
Labour’s tax plans don’t include raising main taxes like income tax, VAT, national insurance, or corporation tax. They focus on changing inheritance tax and capital gains tax (CGT). These changes could bring in a lot of money for the Treasury.
CGT reforms could bring in £8 billion in the long run. Changes to inheritance tax on agricultural land and business reliefs could add a lot more to the Treasury. Labour’s tax plans aim for a fairer tax system and better estate planning for the future.
Income Tax and Fiscal Drag
Labour’s tax plans include a big role for fiscal drag. Income tax thresholds won’t change until 2028. This means more people will move into higher tax brackets, paying more tax.
Many more taxpayers will be affected, with four million expected by 2028-29. The freeze on income tax thresholds will make more people pay more tax. This is a way for the government to get more money without raising tax rates.
The UK is already one of the most taxed countries. Tax rates are at a 70-year high. Keeping tax brackets the same means more people will pay more tax. This approach helps the government earn more without raising tax rates directly.
Labour promises not to increase income tax, National Insurance, VAT, or corporation tax. But, fiscal drag is a key part of their plan. Freezing Inheritance tax thresholds means more people will pay more tax. This is especially true for the middle class, helping the government get a steady income.
This shows how indirect tax measures affect people’s wallets, especially when wages don’t keep up with inflation. The freeze on tax thresholds until 2028 means the extra tax burden will last. This affects long-term financial planning for many.
Inheritance Tax Reforms
Labour’s new plans include big changes to Inheritance Tax reforms. They want to tackle offshore trusts to stop people avoiding Inheritance Tax (IHT). Their manifesto doesn’t give clear details on other IHT changes, but they might look at Business Relief and Agricultural Relief closely.
There’s worry about a possible £500,000 cap on inheritance tax relief. This could mean a 40% tax rate for businesses over this limit. Owners might look for other ways to manage their taxes.
Offshore Trusts and IHT
Labour is focusing on offshore trusts to stop people avoiding Inheritance Tax. Business owners might give shares to a trust to reduce their tax bill. But, this method comes with its own risks and a 7-year charge to inheritance tax.
Possible Changes to IHT Reliefs
Changes to tax relief could affect many inheritance tax plans. Gifts, business growth shares, and family estate transfers will be under the microscope. Parents in family businesses might sell shares to their kids to plan for inheritance tax.
Labour also plans to change the way inheritance tax works, which could save money for expatriates. With £7.5bn paid in death duties last year and more people facing this tax, there’s a lot of pressure on everyone involved.
Will Labour increase TAXES on your estate?
Labour’s stance on estate tax increase is not clear yet. But, their manifesto hints at making the tax system stricter, which might affect estates.
Labour aims to bring in £5.2 billion a year by tackling tax avoidance and closing loopholes. In 2022, 68,800 people claimed non-dom status, which could change under Labour’s new tax rules. This could greatly change the taxation forecast for estates.
Labour wants to end non-dom tax status and make inheritance tax rules stricter. The current IHT threshold is £325,000, and Labour is looking to change it. This Labour Party impact could change how people plan their estates.
Labour is also looking at Capital Gains Tax (CGT) rates, currently 24% for property gains and 20% for other assets. They aim to fix a private equity tax loophole, which could bring in £565 million a year. This shows Labour’s focus on estate-related taxes.
The party also plans to freeze income tax thresholds until 2028, affecting seven million more taxpayers. This will indirectly impact estate planning, making it crucial for people to stay updated and adjust their plans.
Even though a direct estate tax increase isn’t confirmed, Labour’s tax plans suggest a need for careful estate planning. At MP Estate Planning, we offer advice on how these changes might affect your goals in the tax landscape.
Conclusion
The Labour Party’s tax plans are making estate taxes a big deal for UK asset owners. The Institute for Fiscal Studies says the new government will likely increase taxes or cut spending to meet its goals. This means a close look at estate taxes is needed, as tax changes could come due to economic pressures.
The Labour Party wants to keep income tax rates the same but close loopholes and stop tax avoidance. This shows how important it is to have good estate planning strategies. They plan to tax consumption, wealth, and capital gains more to boost the economy and create jobs.
At MP Estate Planning, we keep a close eye on these changes to help our clients. We make sure they understand the impact of these changes on their estate planning. Our aim is to keep your estate strong and secure through these tax changes, giving you peace of mind.
FAQ
Q: Will The Labour Party increase TAXES on your estate?
A: The Labour Party might adjust estate taxes. They aim to make the tax system fairer without raising tax rates. This could change how people plan their estates and manage taxes in the UK.
Q: What are the potential changes to Inheritance Tax reliefs?
A: Labour hasn’t given details on other Inheritance Tax reliefs, but changes could affect Business Relief and Agricultural Relief. These changes aim to increase revenue without raising IHT rates.
Q: Are estate tax increases likely under the Labour Party?
A: There’s no clear word on raising estate taxes, but Labour’s plans suggest they might make the tax system tighter. This could indirectly affect estate planning.
Q: What strategies should estate holders adopt in light of Labour’s tax proposals?
A: Keeping up with tax changes and being proactive is key. At MP Estate Planning, we help our clients navigate these changes to keep their estates secure.