State pensioners losing £37,800 each if hit by three tax changes in Budget

State pensioners could be hit three key changes in the wake of the new Labour Party government's Budget. Capital gains tax and inheritance tax are among the taxes being changed by Chancellor Rachel Reeves, she has confirmed.

Theoretically, if hit by those two - and stamp duty - pensioners could lose THOUSANDS. Ms Reeves stressed that the increase in stamp duty rates will only affect second home buyers, landlords buying-to-let properties, and commercial business properties.

If the property is valued at £125,000 to £925,000, the buyer will pay no tax on the first £125,000, and now, five per cent tax on any remaining value. This means someone buying a house worth £700,000 would pay a £28,750 tax bill - 5% of £575,000.

READ MORE Inheritance tax change causes 'urgent crisis' with people raiding pensions early

Peter Stimson, head of product at MPowered Mortgages, said: “Buy-to-let landlords and second homeowners were expecting another tax squeeze from the Chancellor. But what they got was a whack with a hammer.

“Not an increase in general taxation or the capital gains tax they pay when selling a rental property, but a whopping 2% uplift in the stamp duty payable when buying a home to rent out.”

Stamp duty

Stamp duty is increasing from 3% to 5% on second homes from today, costing landlords an extra £7,000 on an averagely priced property. The extra £7,000 in tax is based on Rightmove’s data, which shows that the average asking price on a property for sale in Britain is £371,958.

Property experts insisted that the move wouldn’t just hurt second homeowners and landlords.

Inheritance tax

Inheritance tax is a levy applied to the estate of someone who has died, but only around 4 per cent of families end up paying it, as most estates fall below the tax threshold.

Key to this exemption is that anything left to a spouse or civil partner is not subject to inheritance tax, regardless of the estate’s value. So if a deceased individual leaves their entire estate to their partner, even if valued at £10m, no inheritance tax will be charged.

However, this exemption does not extend to partners who live together but are not married or in a civil partnership.

Each individual has a £325,000 inheritance tax-free allowance. Estates valued below this threshold incur no tax, while those above it are taxed at 40 per cent on the excess. If you left £300,000 but then added another £100,000 pension, £75k would be taxed at 40 per cent.

It would mean a £30,000 tax bill for the estate.

Capital Gains Tax

Under the new rates, individuals will face an 18% charge on assets that yield a profit, up from 10%, while higher-rate taxpayers will see CGT climb from 20% to 24%. The tax is payable on gains above £3,000 for most assets, though certain items such as UK government bonds, ISAs and Premium Bonds are exempt.

It means a £800 increase in tax on £10,000 profits on shares. Laith Khalaf, head of investment analysis at AJ Bell, is more critical of the government’s mixed messaging about investing in Britain while putting up taxes: “Higher rates of capital gains tax deter consumers from investing in growth assets, potentially depriving them of higher long-term returns, while at the same time undermining demand for the UK stock market.”

Once a full new state pension is combined with payments from a private one, a pensioner may have a gross income of £19,000. From this the pensioner will pay £1,286 in income tax and if no longer qualifying for the winter fuel payment, it could cost them £300 each.

Helpfully, pensioners will benefit from the “triple lock” so the full state pension will rise by 4.1% or £9.05 to £230.25 a week, from April 2025, adding £470.60 to an annual income before tax. The tax bill on that is £94.12 leaving pensioners an extra £376.48 in the 2025-26 tax year.

But some couples receive the basic state pension. Their combined income could be less than the £332.95 (£218.15 for a single person) a week, or £17,313 a year, standard minimum guarantee so they can receive a pension credit top-up and qualify for the £300 winter fuel payment.

Next year the “triple lock” sees the minimum guarantee increase by 4.1% or £13.65 to £346.60 (£227.10 for a single person). This works out as an extra £709.80 a year for couples and £465.40 for singles.