UK at ‘tipping point’ as Labour tax raid looms - just 10 weeks to save your wealth

The Labour government is after your wealth. Especially if you're a pensioner. Reeves went in hard and early by whipping away the Winter Fuel Payment and scrapping the proposed £86,000 cap on social care costs.

There will be worse to come in her autumn Budget on October 30, when she's said to be lining up at least £10billion worth of tax hikes in a Halloween fiscal horror show.

Joe Neal, manager at accountancy firm Blick Rothenberg, said many taxpayers already feel they pay enough tax and won’t hang around for October. “This could be the tipping point that drives wealthy individuals and large companies to leave the UK.”

Not everyone can leave and most won’t want to. There are other ways of protecting your wealth but the Budget is less than 10 weeks away so don't waste time.

Three tax hikes look almost certain. First, Reeves looks set to increase capital gains tax (CGT) thresholds, to bring them in line with income tax.

This will hit taxpayers with gains on assets such as a second home or rental property, shares held outside of a tax-free Isa, art or antiques, or business disposals.

While shares can be sold quickly, it's a different story with properties and businesses, where sales may take months. This makes taking evasive action tricky.

Currently, property gains attract CGT at 18% for landlords or second homeowners paying basic rate tax, rising to 24% for higher earners. If aligned with income tax bands, a basic rate taxpayer would pay slightly more CGT at 20%, but the better off would pay at either 40% or 45%.

Shaun Moore, tax and financial planning expert at Quilter, warned. “This will cost the average landlord or second homeowner £11,000, so they have good reason to act.”

The big question is whether Reeves hikes CGT with immediate effect, or waits until the start of the tax year in April 2025.

If she delays, it could trigger a rush to sell second properties, whipping the housing market into a frenzy, and possibly driving down prices.

Selling today is a difficult call, Moore warned. “As a rule, making decisions based on potential future legislation is not advisable. Only sell if that’s already part of your plan.”

CGT isn’t the only threat. Far from it.

HMRC generated a record £7.5billion from inheritance tax (IHT) last year and that's on course to rise another 9% to almost £8.2billion this tax year.

Families could pay even more if Reeves tightens the IHT net as anticipated.

A likely move is to axe the rule that exempts pension from IHT on death. Instead, unused pension funds would fall back into people’s estates and be taxed at 40%.

Tom Walker, partner at accountancy firm Wellers, said Reeves could go further by cutting IHT gifting allowances or lowering the £325,000 IHT nil-rate band.

She could even scrap the £175,000 main residence allowance when passing family homes to children or grandchildren.

Another risk is that she doubles down by charging both CGT and IHT on death, Walker said.

It makes sense to max out today's IHT gifting allowances today, in case they're cut in October.

As I recently reported, putting life insurance policies into trust is a simple process that everybody should do. Otherwise the tax-free payout will fall back into your estate for IHT purposes. A good financial adviser may suggest more complex trust planning options.

Reeves also looks set to target savers by slashing higher rates of tax relief on pension contributions to a flat rate of 30%. She might also cut the £60,000 annual allowance, the maximum people can pay into a pension each year.

Andrew Tully, senior technical director at Nucleus Financial, said 40% and 45% taxpayers who are in a position to top up their pension should consider maxing out their contributions today if they can. “It's also possible to carry forward any unused annual allowance from the previous three years.”

Just remember that pension can't be touched before age 55, rising to 57 from age 2028, Tully added.

Those who have already accessed their pension should check if they have triggered the money purchase annual allowance (MPAA). This cuts the annual allowance to just £10,000.

This Halloween could haunt taxpayers for years. It's worth researching every legal method of protecting your wealth, while avoiding doing anything dishonest or signing up to dodgy offshore schemes.