All the taxes in line to be hiked in the Budget as PM warns of “challenging” times – and how to protect your cash

CHANCELLOR John Healey is set to unveil his Budget on October 28, with Britain braced for fresh tax hikes as the Government battles rising inflation and soaring global energy prices. Trade union bosses will sit down with the Chancellor today to press their demands ahead of the big day. Unite is calling on ministers to scrap the freeze on tax thresholds, which has dragged millions of workers into higher tax brackets. It comes after Andy Burnham warned the Budget would be “challenging” because of the ongoing war in the Middle East. Sign up for the Money newsletter Thank you! However, he insisted he was ready to take “difficult decisions” on the economy. Pressure is also mounting on Mr Healey as borrowing costs continue to rise, hitting a 19-year high this week. However, he has refused to reveal what measures could be announced. He said he did not want to “speculate” ahead of the Budget because it would “only fuel more speculation”. The warning comes as economists reveal that more than half of the Government’s £23.6billion Budget headroom has already been wiped out by soaring borrowing costs. Experts now believe Mr Healey could be forced to raise between £9billion and £14billion at the Budget to plug the growing black hole. Most read in Money Labour has repeatedly promised not to raise income tax, National Insurance or VAT. But ministers still have a string of other levers they could pull to bring in more cash. Here are the taxes at risk – and the steps you can take now to protect your money. Capital Gains Tax You could be hit with extra tax on your investment returns if CGT is raised Credit: Getty Capital Gains Tax (CGT) is a tax on the profit you make when you sell or give away an asset that’s increased in value. For example, you might pay it when you sell an investment or a buy-to-let property. The first £3,000 of gains each year is tax-free, but after that you pay 18% if you’re a basic-rate taxpayer or 24% if you’re in a higher tax band. Mr Healey has previously floated the idea of bringing CGT rates closer to income tax rates. This could mean paying as much as 40% or 45% on your investment profits instead. Shaun Moore, tax and financial planning expert at Quilter, said a significant change like this would be “controversial”. “Any move to further increase CGT rates, reduce reliefs or restrict allowances would have implications for investors, business owners and those planning major asset disposals, and would risk deterring the very people the Government is trying to encourage to invest,” he said. You could reduce your tax bill by keeping your investments in a Stocks and Shares ISA. An ISA acts as a tax-free shield around your savings and investments, protecting any interest, dividends or growth from being taxed. You can put up to £20,000 a year into your Stocks and Shares ISA and it means you’ll be protected from CGT. Property tax overhaul A huge overhaul to the property tax system could either save you money or cost you more Credit: SWNS A major property tax shake-up is expected to be announced in the Budget in October. Andy Burnham has previously supported scrapping council tax and stamp duty in favour of a new system, and it’s thought the Chancellor will fall in line with this. They could introduce either a proportional property tax or a land value tax instead. A proportional property tax would see homeowners pay a flat 0.48% charge on their property’s value. Campaign group Fairer Share, which is proposing the shake-up, claims 77% of households would benefit and save an average of £556. But critics warn it could hit older homeowners and those in London and the South East hardest. Meanwhile a land value tax would be an annual tax on the market value of land, tax on the market value of land. Again, analysts have warned this would hit London and the Home Counties the hardest – potentially raising bills by thousands of pounds a year. It’s also expected Mr Burnham and Mr Healey will push ahead with the ‘mansion tax’ announced in last year’s Budget by previous chancellor Rachel Reeves. The tax surcharge means properties valued above £2million could be charged up to an extra £7,500 per year. This all means that if you have a higher value home, your costs might increase. Experts have said it will be difficult to introduce these reforms and it’s unlikely they will happen overnight. It’s not worth making any drastic moves now, but you might want to keep your eye on this if you’re planning to buy or sell. For example, you might want to consider whether you could afford to pay extra if you’re considering buying a high-value home. Pensions Your loved ones could be facing a bigger inheritance tax bill when you die Credit: Alamy It’s broadly expected the Government will stick to previous plans to stop exempting pensions from inheritance tax. Inheritance tax is a tax paid out on your property, money and possessions when you die, if it’s worth more than £325,000. Under the plans, announced in last year’s Budget, unused pension funds and death benefits will be included in the value of a person’s estate for the first time. It’s estimated this will drag another 10,500 estates into paying inheritance tax and increase the amount of tax paid by 38,500 estates by an average of £34,000. You should start planning early to cut down on your inheritance tax bill, as you can cut down the size of your estate while you’re still alive. For example, you could gradually gift money to your loved ones now rather than waiting to leave it in your will. It’s also worth knowing that the tax-free threshold rises to £500,000 if you’re leaving your main home to children or grandchildren. Mr Rickman said he hopes pensions are mostly left alone in this Budget as “constantly meddling with the rules and eroding the tax advantages runs a very real risk of disincentivising savers”. Income tax Income tax thresholds have been frozen since 2021 – could they finally change? Credit: Alamy Stock Photo Income tax is a tax on the money you earn from your wages or self-employment, as well as any rental income, savings interest or pensions you have. It’s paid out on income above the personal allowance, which is £12,570 per year. You pay the basic rate of 20% on up to £50,270 of earnings, and then the higher rate of 40% on anything between that and £125,140. The additional rate of 45% is charged on earnings over £125,140. Income tax bands have been frozen since 2021. Sarah Coles, head of personal finance at AJ Bell, said: “It means that if Healey says nothing about the thresholds, pay rises will drag more people into paying income tax and more into paying bigger bills.” She said crossing an income tax threshold could also cause you to pay more in CGT. Plus, when you cross into a new tax band your personal savings allowance protecting you from paying tax on your savings interest drops. At the higher rate, your tax-free threshold drops from £1,000 to £500, and at the additional rate you lose it altogether. In what would be a huge boost for households, there are signs the Government could unfreeze the UK’s tax thresholds. Mr Burnham previously hinted at this, saying it was “the thing I heard most on the doorsteps” during the Makerfield by-election. However, some experts believe Mr Burnham’s Government could introduce a 50% income tax rate. This could replace the current 45% higher rate of income tax and would see someone earning £150,000 pay around £1,250 more in income tax per year. Get FREE tax guidance about inheritance, property and capital gains worth £250 * If you click on this link we will earn affiliate revenue Are you sick of handing over your hard-earned cash to the taxman? You could slash your tax bill legitimately with the right planning, from inheritance tax on your home to savings and pensions. Award-winning financial advice firm Kellands Chartered Financial Planners are offering Sun Money readers a free one-hour consultation with their experts worth £250. Claim your free session today Kellands (Hale) Limited is authorised and regulated by the Financial Conduct Authority. FCA Firm Reference No: 193498 Comment now