Labour tax plans rated as expert warns of EIGHT big tax hikes if Starmer wins power

There is a clear dividing line between the two main political parties as Conservative PM Rishi Sunak promises to cut taxes if he wins the general election, while the Labour Party looks set to hike them instead.

Labour leader Keir Starmer and shadow Chancellor Rachel Reeves have ruled out increasing income tax, NI and VAT, which generates some of the biggest revenues of all. The party also seems unlikely to restore the pensions lifetime allowance, as it originally threatened.

But reports suggest Starmer and Reeves could throw the kitchen sink at us by hiking between 10 and 12 taxes, hitting pension savers and property owners particularly hard.

We asked Julia Rosenbloom, tax partner at law firm Shakespeare Martineau, to examine what Labour could do. Here she gives us verdict on what lies ahead.

1. Private school tax raid. Labour has been open about one forthcoming tax hike, as it prepares to scrap the VAT exemption on private school fees.

Imposing VAT at the main rate of 20 percent would raise £1.6 billion a year, according to the Institute for Fiscal Studies, which Labour says it will reinvest in state schools. However, the savings will be offset by the cost of absorbing private school pupils into the state system, and shadow attorney general Emily Thornberry has just admitted class sizes could rise as a result.

The tax won’t just hit wealthy prestigious institutions such as Eton but many smaller schools, too.

Rosenbloom’s verdict: “With so much media attention, Labour is unlikely to change course now."

Likelihood: 9/10.

2. Hiking capital gains tax (CGT) bands. CGT is often called the "forgotten tax" but the Treasury knows exactly important it is. HMRC collected £15.4billion in the 2023/24 tax year, more than double inheritance tax revenues.

Bills may continue to climb as Jeremy Hunt has slashed the annual exempt amount from £12,300 to just £3,000 today.

Labour could intensify the attack, with deputy leader Angela Rayner hinting last year that Labour may include a commitment to hike CGT its election manifesto.

Basic rate taxpayers pay CGT at 10 percent which rises to 18 percent on second property sales. Higher rate and additional rate taxpayers pay 20 percent and 24 percent respectively.

Rosenbloom said Labour may bring CGT rates into line with income tax bands so that basic rate taxpayers pay 20 percent CGT on all disposals, rising to 40 percent and 45 percent for higher earners

Rosenbloom’s verdict: “With the Liberal Democrats already pledging this policy, raising CGT seems a likely bet.”

Likelihood: 7/10

3. Stamp duty hike on second homes. Buy-to-let landlords and second homeowners will be nervously watching Labour's manifesto launch, as it could contain bad news for them.

They already pay a three percent stamp duty surcharge on property purchases and there have been rumours that Reeves will increase this further.

This could be popular among younger voters, as the housing crisis bites. But it would be a further blow for people who dream of owning a holiday home, and could hit rental property availability by scaring off buy-to-let investors.

Rosenbloom’s verdict: “It would hit people hard and probably won't happen.”

Likelihood: 2/10

4. Charge inheritance tax (IHT) on pensions. Currently, families can pass on unused pension to loved ones free of IHT, although if they die from age 75 beneficiaries may be liable for income tax.

Many families with larger pension pots take advantage by spending retirement savings that are subject to IHT first, such as savings accounts and Isas, and leaving pensions untouched in the hope of passing them on IHT-free.

Rosenbloom said Labour could argue that this tax break favours the better off. ""Pension contributions attract income tax to encourage people to save for later life. Some might say that if the money is not going to be used for that purpose, it should not be passed on tax-free.”

Rosenbloom’s verdict: “This policy could prove popular with Labour voters.”

Likelihood: 7/10

5. Cut to the pensions annual allowance. Labour may not stop there. Last year, Jeremy Hunt increased the annual allowance – the amount you can pay into a pension each year – from £40,000 to £60,000.

Labour immediately said it would reverse the hike, but has said nothing since.

Cutting the allowance would hit people with irregular earnings, such as business owners or those who get large bonuses, as they can pump more into their pension in profitable years.

It would also make it harder for older savers to play catch-up with pension contributions as they near retirement.

Rosenbloom’s verdict: “Cutting the annual allowance seems to be in line with Labour's position. I wouldn't be at all surprised if this was in its manifesto.”

Likelihood: 9/10

6. Slash tax relief on pension contributions. HMRC offers tax relief on pension contributions to encourage people to save for retirement.

It means each £100 of pension contribution costs a basic rate taxpayer £80, while a 40 percent taxpayer pays just £60 and an additional rate 45 percent taxpayer just £55.

The annual bill tops £50billion with the bulk going to higher earners, making it a tempting target for Labour.

Rosenbloom said Reeves could synchronise tax relief at 30 percent for everyone regardless of income, giving basic rate taxpayers more support at the expense of higher earners.

Rosenbloom’s verdict: “It could be a popular policy with its target voters, who might view the move as a redistribution of wealth.”

Likelihood: 8/10

7. Cut ISA allowance to £10,000. The Conservatives increased the annual tax free Isa allowance to £20,000 from April 2017. Only the better off can afford to invest that much each year, making this a tempting target for Labour.

Rosenbloom’s verdict: “Taxing more savers would place a huge administrative burden on HMRC, which is already struggling with dwindling resources and staff shortages.”

Likelihood: 4/10

8. Council tax bands revised. With Birmingham and Nottingham City Councils recently declaring bankruptcy, and many others struggling, Labour could be tempted to hike council tax.

Today's bills are based on property valuations carried out in 1991, and these could be updated so that those with larger homes pay more.

Rosenbloom’s verdict: “With households still struggling to pay the bills, revising council tax bands could be unpopular.”

Likelihood: 5/10