Rachel Reeves is preparing to introduce a £2 billion tax measure targeting some of the country’s wealthiest individuals to generate additional revenue for government spending. The upcoming Budget is expected to include a new levy on those utilizing limited liability partnerships in an effort to address a significant financial shortfall left by the previous government.
Limited liability partnerships, commonly utilized by professionals such as lawyers, doctors, and accountants, offer tax advantages to over 190,000 individuals. These partnerships currently avoid employers’ national insurance contributions as partners are considered self-employed. Rachel Reeves intends to challenge this arrangement, citing it as unjust, with the proposed change set to be unveiled in the Budget.
A study by the Centre for the Analysis of Taxation (CenTax) revealed that solicitors, on average, receive £316,000 in annual company profits from partnerships, while GPs and accountants earn £118,000 and £246,000 respectively. This tax adjustment is part of a broader strategy in the Budget to target affluent individuals, aligning with the Chancellor’s stance that those with greater financial capacity should contribute their fair share of taxes.
In addition to the partnership tax reform, Reeves is anticipated to introduce a “mansion tax” imposing capital gains tax on sales of high-value properties. She emphasized the impact of Brexit and austerity on public finances, stating that these factors have had a more significant effect than anticipated.
The Office for Budget Responsibility (OBR) is projected to revise down Britain’s growth forecasts, raising concerns that the Chancellor may need to reconsider her pledge not to raise income tax, VAT, or national insurance to balance the budget. Stuart Adam from the Institute for Fiscal Studies expressed uncertainties about the preferential treatment of partnership tax and highlighted potential consequences, including discouraging work and possible relocations or avoidance strategies.
Rachel Reeves emphasized the need to rebuild relations with the EU to alleviate economic burdens caused by Brexit and post-2016 policies. The ongoing adjustments in taxation policies reflect efforts to address economic challenges and ensure a fair distribution of financial responsibilities.