HMRC changes to two taxes under Labour will lead to 'horror' bills

Chancellor Rachel Reeves, from the Labour Party government, could target CGT and IHT in the Autumn Budget.

UK households have been warned over changes to capital gains tax and inheritance tax which are set to lead to “horror tax bills”. Chancellor Rachel Reeves, from the Labour Party government, could target CGT and IHT in the Autumn Budget.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The giant HMRC tax machine is churning out billions of pounds for the government, and there’s every chance it’s going to move up a gear after the Budget changes are introduced.

“Some people might look at rising tax receipts and think of the squeeze on taxpayers, but that doesn’t tend to be how the government works. It’s more likely to think that if they squeeze a bit harder, they might be able to extract even more of our money.”

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She added: “Capital gains tax may well be in the frame, with rumours that the government could effectively double the rate or change the rule that means gains are set to zero on death. Both would officially qualify as wealth taxes, which people associate with the very well off, but both could mean a horror tax bill for anyone who has invested carefully throughout their lives outside an ISA or pension.

“They need to consider the consequences of any change, especially if it encourages people to sell up early to escape the tax trap, hang onto the wrong investments for tax reasons, or just avoid investing altogether. Investors should also consider how it could affect them, and if they haven’t used their ISA allowance for this year, whether they can use the share exchange (Bed and ISA) process to move some of their investments into a more tax efficient home."

Ms Coles warned: “There’s also the chance inheritance tax could face changes. There’s an awful lot on the table here. It includes changes that risk a major backlash - like shrinking nil rate bands, changing rules about leaving assets tax-free to spouses or reconsidering larger gifts and when they leave your estate for tax purposes. It also includes smaller tweaks to some of the rules like business property relief which might affect fewer people and create less of a furore but are still worth getting to grips with.

“If you’re worried about inheritance tax, and you were planning to give your family gifts soon anyway, it may make sense to do so before the Budget, while you know where you stand. However, there’s a vital balance to strike here, so you’re not forced into taking steps that don’t suit you, purely because you’re worried about tax.”