Rachel Reeves is set to unveil a raft of tax hikes in the Budget many of which will hit London and Londoners.
The Chancellor is seeking to find a reported £40 billion from taxes rises and Whitehall savings in her Budget on Wednesday, October 30, with the bulk coming from the former.
Some tax increases seem more likely than others and many of them will impact on the capital most heavily given its wealth and that it is Britain’s economic powerhouse.
National Insurance for employers
Ms Reeves could be aiming to rake in multiple billions from a rise in National Insurance on employers, possibly as much as £20 billion.
Around 530,000 of 2.7 million VAT and PAYE firms in the UK are in London, or one in five, so any increase in NI for employers will hit the capital hard.
Tax hit on London: 4 out of 5
Freeze on income tax thresholds
Labour has pledged not to raise the rate of income tax, VAT or National Insurance, caveating this by saying that this manifesto promise only applies to “working people”.
But the Chancellor is reported to be considering freezing the thresholds for paying the different rates of income tax for another two years beyond 2027/28.
The average median annual pay for full-time employees in London was £44,370 in 2023, according to the Office for National Statistics, compared to a UK average of £34,963.
So, significantly more Londoners will be dragged into paying the higher rate of income tax, than other regions, by freezing the threshold for this 40p rate at £50,270.
Tax hit on London: 5 out of 5
Capital gains tax
Capital gains tax is expected to rise possibly to 24 per cent, though some reports suggested to 33 per cent or more but not as high as 39 per cent.
The Institute for Fiscal Studies has stressed that CGT, which raises about £15 billion a year, was paid by less than one per cent of the population, and two thirds of it came from some 12,000 people.
So, any change here will almost certainly hit the wealthiest in society most, many of who live in London.
Tax hit on London: 5 out of 5
Stamp duty
The Government has not committed to extending the higher thresholds at which people start paying stamp duty beyond the end of March next year.
The Tories raised the “nil rate” threshold from £125,000 to £250,000, and for first-time buyers, it rose from £300,000 to £425,000.
Given that house and flat prices are so high in London, it is extremely hard to find a property for less than £250,000.
But the higher threshold of £425,000 for first time buyers will have helped many Londoners get on the property ladder, and going back to the previous system will make it harder in future for those seeking their first home in the capital.
Tax hit on London: 3 out of 5
Inheritance tax
Major reforms to inheritance tax are also reported to be being planned by the Chancellor.
Inheritance tax is charged at 40 per cent on the property, possessions and money of somebody who has died above a £325,000 threshold.
If passing on a main home to children or grandchildren it can rise by a further £175,000, taking the total to £500,000.
So for a couple, they can currently leave up to £1 million tax-free.
More than half of inheritance tax paid in England comes from estates in London and the South East, where there are far more properties worth more than £1 million.
People can gift money which is tax free provided they live for another seven years, and Ms Reeves may extend this to ten years.
Loophole may also be closed which are allowing some of Britain’s biggest landowners to pay a far reduced rate of IHT.
Tax hit on London: 4 out of 5
Council tax
Ms Reeves may keep the status quo of town halls being able to raise council tax by five per cent a year, which would now be around double, or even more, the rate of inflation.
The impact on London depends very much where you live.
Some boroughs such as Kingston charge among the highest council tax in the country, so a five-per cent rise will be larger in cash terms than for councils with very low bills, such as Westminster and Wandsworth.
For many Londoners, council bills are now over £2,000 a year.
Tax hit on London: 3 out of 5
Fuel duty
The Chancellor may increase fuel duty for the first time in 14 years, by not renewing the so-called “temporary” 5p cut in it.
She could justify the move as part of the shift to a green economy.
Londoners tend to drive less than people in other regions, the latter who are often more dependent on their car to get to work, the shops and other trips.
Public transport is better in the capital.
Tax hit on London: 2 out of 5
VAT on private school fees
The Chancellor is pressing ahead with imposing VAT on private school fees from January.
Labour claims the reform of levies on private schools will raise £1.6 billion to fund recruiting 6,500 new teachers for state schools in “key subjects to set children up for life, work and the future”.
But the Conservatives have slammed the policy, which will hit London hard given the large number of independent schools in the capital compared to other regions, as “destructive, divisive and disruptive” and there are doubts whether it will raise enough money to pay for the extra state school teachers.
Tax hit on London: 4 out of 5
