Andy Burnham could be finally about to raise the allowance – and another tax to pay for it (Image: Getty)
The much hated tax-free Personal Allowance freeze could finally be coming to an end under Andy Burnham’s watch, according to the latest Budget speculation gathering momentum.
The tax-free Personal Allowance has been stuck at £12,570 since 2021, and hasn’t had a significant increase since 2019. Indeed, now-ex Chancellor Rachel Reeves extended the freeze all the way until 2031, which would mean it being stuck at the same level for 10 long years.
The allowance governs how much a person can earn before they begin to lose some of their income to Income Tax, which kicks in at 20% of every £1 earned above the current £12,570 threshold. But as wages increase annually to counter inflation, more and more people begin to be dragged into paying more and more tax in what is known as ‘fiscal drag’ because the threshold stays the same.
The latest rumour, reported by The Telegraph and Sky News, is that Mr Burnham and his new Chancellor John Healey are considering kicking the threshold all the way up to £15,570, but in turn increasing Capital Gains Tax to pay for it.
That would make the threshold just below the level it would have been had it not been frozen in 2021 and go some way towards the meeting the demands of a petition first reported by the Express which has now attracted more than 40,000 signatures.
Capital Gains Tax is the tax on gains on assets, such as on the increased value of second property when sold, or profits on stocks and shares gains.
This plan was reportedly put forwards by Labour donor and Ecotricity owner Dale Vince.
Susannah Streeter, chief investment strategist at Wealth Club, suggested that the tax changes represent a ‘tricky tightrope’, and that it could have a knock-on effect on investing. This could be especially interesting timing given that the cuts to Cash ISA limits, put in place by ex-Chancellor Reeves, were supposed to encourage more investing.
Ms Streeter said: “Tax speculation is ramping up ahead of the Budget, especially given the latest snapshot of the government coffers shows Prime Minister Andy Burnham and Chancellor John Healey are walking an increasingly tricky tightrope when it comes to the public finances.
“That is prompting fresh speculation about a potential increase in Capital Gains Tax, particularly if reported plans to raise the personal income-tax allowance from £12,570 become a reality.
“If the government is looking to put more money into people’s pockets by reducing their income-tax bill, it would need to find the money elsewhere, and CGT is increasingly being talked up as a potential source.
“For investors, the prospect of a higher CGT bill could mean some simply decide not to sell assets and hang onto them instead.”
But she cautioned against panic among investors, adding: ““The old adage – don’t let the tax tail wag the investment dog – should still be adhered to when it comes to a broad investment strategy.
“After all, too much switching and ditching stocks on rumour and speculation can prove highly detrimental over the longer term.
“However, it’s always worth having a portfolio review, especially if you are an experienced investor, to assess whether you are not making the most of tax shelters designed to boost growth and reward you for taking a risk on nascent British companies.”
