Burnham’s ‘little more’ could soon cost taxpayers a great deal

It’s fair to say that we don’t have a huge amount of detail on what his plans are and what he will want to do differently from Sir Keir Starmer. Many investors are starting to ask what will change and what they should do.

The first thing to say is that, like every other recent PM, he hasn’t received a Goldilocks inheritance. The economy grew by a slightly underwhelming 0.1% in May, with oil prices starting to tick higher as conflict between the US and Iran reignites.

Burnham therefore doesn’t have a great deal of room for manoeuvre, especially as he said that he will follow the Labour manifesto commitments on Income Tax, National Insurance and VAT. The big three taxes bring in nearly two-thirds of the Government’s revenue, leaving fewer avenues open if he wishes to increase spending.

That said, the indications are that Burnham will look to increase tax in one way or another.

He recently told seasoned political interviewer Gary Lineker that his government might need to “ask for a little more.  But, you know, those decisions are not for now. They're for another day."

Is that other day going to be the next Budget, in the Autumn? Quite possibly.

Burnham has previously suggested Capital Gains Tax rates should be aligned with those for income, potentially increasing to 22% (basic), 42% (higher) and 47% (additional), if aligned with the rates on savings income that will apply for 2027-28 onwards. A significant increase from the current maximum of 24%.

Our Analysis shows this would be a significant increase, and we are already seeing investors looking to bring forward gains by realising profits today, before a potential tax rise.

There have also been suggestions that the Inheritance Tax regime could be changed, potentially by abolishing what is known as ‘Capital Gains uplift on death’. 

This may sound like a minor technical change, but if it meant Capital Gains Tax would be applied to assets held at the point of death, it could be very expensive. Rachel Reeves introduced significant changes to IHT at her first Budget so it may be that the new Chancellor decides to leave this alone for the time being.

We also hear rumours that the 7-year rule could be extended to 10 years or even replaced with a tax on all lifetime gifts above a set threshold. Again, we are seeing some investors look to accelerate gifts and ensure these are made before the next Budget.

What is perhaps most interesting (well, if you like that kind of thing) is speculation on a Land Value Tax. This would be a tax on the value of land on which property stands, and if brought in, could theoretically replace Council Tax, Stamp Duty Land Tax and Business Rates.

Many economists are in favour of such an approach, but it would be complicated and, as is so often the case, there would be winners and losers. In other words, it would cost a lot of political capital and Burnham may decide to hold fire on such a significant change, at least for another 12 months.

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Ed Wood is Financial Planning Director at Rathbones.

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