Almost two-thirds (63%) of people are concerned that possible tax rises in the Budget could affect them personally, new research from AJ Bell has revealed.
With a matter of weeks until the next Budget, rumours have started to gather pace, including changes to capital gains tax and suggestions the threshold for the mansion tax might drop from £2 million to £1.5 million.
AJ Bell’s research showed the most feared Budget changes are an increase in fuel duty (50%), a rise in income tax (41%), keeping tax thresholds frozen (39%) and raising employee National Insurance (37%).
Two-fifths (41%) of people said they would like to see the Budget lower taxes and only 23% want to raise them, while 18% said they wanted tax rises but not for people like them.
Sarah Coles, head of personal finance at AJ Bell, said: “There are worries about potential taxes on incomes. The good news is that Andy Burnham has made it clear he will stick to Labour’s manifesto pledges of not raising income tax or National Insurance.
“Further freezes in the thresholds would be unexpected. However, the cost of ending the freeze earlier than 2031 would be so high that it would be incredibly difficult to do at this stage too.
“Tax hikes and further freezes can’t be ruled out in the years to come, and there have been rumours that the tax rate could be up for discussion in the next parliament, but politically speaking it’s not going to be the chancellor’s first choice.”
More than a third (34%) of people do not want to see inheritance tax gift allowances cut and 33% would be against cutting inheritance tax breaks.
However, AJ Bell said IHT continues to be divisive, with 32% of people in support of cutting inheritance tax breaks and 24% in favour of cutting gifting allowances.
Commenting on the findings, Coles said: “It would be a brave chancellor who changed the rules around inheritance tax again at this stage, after the backlash from previous changes. Burnham has made it clear that over the longer term he wants to see this tax replaced entirely, so he may not be tempted to tinker with it in the interim.”
Another major concern is that the government could make changes to the maximum tax-free cash someone can take from their pension, with 29% of people saying they would be against this idea.
Changes to pensions have been at the forefront of Budget fears for years and has prompted some people to rush to take tax-free cash. Analysis of FCA data suggests an extra £10 billion was withdrawn from pensions ahead of the first Labour Budget in 2024 alone.
In contrast, the Budget change that receives the most support is a rise in the personal allowance, with 61% behind this change. The personal allowance has been frozen since April 2021 and is set to remain so until 2031.
There is also widespread support for the introduction of a new wealth tax as a percentage of total assets, with 44% in favour of this, compared to 23% who said they would be against the idea.
Coles said: “In reality, this kind of tax is fraught with difficulties, including for those who may live in expensive properties but have a lower income, so would struggle to pay the bills. It would also be expensive to implement, because it would involve calculating the value of people’s total assets. Plus, it risks not raising as much as initially expected, because people can structure their finances to ensure they pay less tax.
“This is one reason why the wealth tax that tends to be floated alongside Budget speculation more often is capital gains tax. It has been the target of both rate hikes and allowance cuts in recent years, but it’s difficult to know whether more rate rises would end up raising any more cash, or whether people would just change their behaviour to get around the tax.”
AJ Bell said abolishing stamp duty on UK shares also made it to the top five most popular potential changes, favoured by 32% of people.
Coles added: “In reality, it’s likely to have to be a combination of spending cuts and rising taxes. More government borrowing is a tough ask at a time when bond yields are so high. It means Healey faces some difficult choices in the Budget and is likely to have to turn to some relatively unpopular moves.”
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