Andy Burnham’s Tax Agenda: People, Property and Estates to Pay More?

Andy Burnham has already said there is some movement available for taxes! Although the final details of his policies remain unclear, the direction of travel points towards potentially higher taxes on investments, property, landlords, higher earners and estates.

Unfortunately, all this speculation and concern will sit over the country until the return of parliament in September at the earliest as the commons had already shut down for summer recess!

The Budget before Christmas!

Capital Gains Tax: Increases of up to 21%

One of the most significant possibilities is aligning Capital Gains Tax rates with Income Tax rates.

CGT is currently charged at 18% for gains falling within the basic-rate band and 24% for higher- and additional-rate taxpayers. Under full alignment, rates could rise to:

• 20% for basic-rate taxpayers

• 40% for higher-rate taxpayers

• 45% for additional-rate taxpayers

For a higher-rate taxpayer, this would be an increase from 24% to 40%—an additional 16 percentage points, or a 67% increase in the tax rate.

For an additional-rate taxpayer, CGT could rise from 24% to 45%—an additional 21 percentage points, equivalent to an 87.5% increase.

For example, tax on a £100,000 taxable gain could rise from £24,000 to as much as £45,000.

This could have serious implications for investors, business owners, landlords selling property and people disposing of valuable assets such as second/holiday homes.

The return of the 50% Income Tax rate

The 50% additional Income Tax rate originally took effect in April 2010 and applied to taxable income above £150,000. It remained in place for three tax years before being reduced to 45% from April 2013.

If the 50% rate returned, one of the biggest questions would be where the threshold would start.

If the original £150,000 threshold were adjusted for inflation, it could be set at approximately £217,000 or more. Alternatively, the government might restore it at £150,000, arguing that other Income Tax thresholds have also been frozen.

Reintroducing it at £150,000 would represent a substantial real-terms reduction in the original threshold and bring many more professionals, business owners and senior employees into the 50% band.

The effective tax burden could be higher still once National Insurance, pension restrictions and the withdrawal of the Personal Allowance are considered. Currently, the additional 45% rate begins at £125,140 in England, Wales and Northern Ireland.

A new 10% levy on estates

Burnham has previously proposed replacing the present Inheritance Tax system with a National Care Levy to fund universal social care.

An earlier version of this proposal involved a flat charge of up to 10% on estates after death. Burnham has described the concept as a replacement for Inheritance Tax in its current form, not necessarily a second tax charged on top of it.

However, several crucial questions remain unanswered:

• Would every estate pay the levy, or would there be a tax-free threshold?

• Would spouses and civil partners remain exempt?

• Would the residence nil-rate band disappear?

• Would business and agricultural assets receive relief?

• Would lifetime gifts remain outside the estate after seven years?

• Could the levy eventually operate alongside some form of IHT?

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A 10% charge affecting most estates could considerably widen the number of families paying tax after a death. Many estates that currently fall below the IHT thresholds could become taxable.

Although wealthy estates might pay a lower headline rate than the existing 40% IHT rate, ordinary homeowners could face a new liability—particularly in areas where property values have risen substantially.

National Insurance on landlords’ income

Rental profits are generally subject to Income Tax but not employee or employer National Insurance in the same way as earnings.

Applying National Insurance—or an equivalent additional levy—to rental income would increase the burden on individual landlords. Depending on the rate and allowances introduced, this could:

• Reduce landlords’ net rental returns

• Encourage further property sales

• Place upward pressure on rents

• Make personally owned property less attractive

• Increase interest in company ownership structures

The central unanswered question is whether the charge would apply only to professional landlords or to anyone receiving property income, including people renting out a single inherited property.

An Annual Mansion Tax

Another possibility is an annual charge on higher-value homes, potentially beginning at £1.5 million.

Unlike Stamp Duty, which is generally paid when a property is purchased, a mansion tax would be an ongoing annual cost. Homeowners could therefore face a tax bill every year simply because their property exceeds the valuation threshold.

This could particularly affect people who are “asset rich but cash poor”—such as pensioners who bought their homes decades ago and have modest incomes despite substantial property values.

Important unanswered questions include:

• What would the annual rate be?

• How frequently would homes be revalued?

• Would the threshold rise with property inflation?

• Could payment be deferred until the property is sold or the owner dies?

• Would there be relief for people with low incomes?

• Would the charge apply in addition to Council Tax?

Recent analysis estimates that reducing a high-value property-tax threshold from £2 million to £1.5 million could bring approximately 150,000 additional homes into scope. However, the £1.5 million proposal remains speculative rather than confirmed policy.

An Exit Tax

Although not spoken about by our new PM it is a policy that is widely being spoken about by think tanks and other countries.

Under such a system, somebody becoming non-UK resident could be treated as though they had sold certain assets at their market value immediately before leaving. Capital Gains Tax could then become payable on the increase in value arising while they lived in the UK, even though the assets had not actually been sold.

The overall direction

Taken together, these ideas could tax accumulated wealth repeatedly:

• Higher Income Tax while money is earned

• Higher CGT when investments, businesses or properties are sold

• Additional taxation on rental income

• Annual charges while a valuable home is owned

• A care levy or death tax when wealth passes to the next generation

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Not all these measures are confirmed policies, and some may be alternatives rather than cumulative taxes, but if some of these are alternative taxes how will they change anything!

So, will Andy Burnhams Tax Agenda come true.

Nevertheless, you should pay close attention to the details as they emerge.