With the recent General Election bringing the Labour party to power, there's a lot to unpack regarding their tax policies.
Campaigns were filled with promises and speculations, making it challenging to keep track. We've summarised below the new Government’s key tax pledges and policies, so you can stay informed about what's likely to be in store for personal tax and business taxes..
What did Labour say about tax before the election?
Personal Tax Pledges
Labour promises no increases to income tax rates but plans to keep tax bands frozen until 2028, resulting in an increased ‘fiscal drag’ as rising wages push more people into higher tax brackets.
As noted above, there are no planned increases to NIC rates for individuals.
Capital Gains Tax
The taxation of carried interest is likely to be significantly changed, and in future may be taxable at income tax rates, rather than the current 28%.
Other potential CGT changes might be on the horizon, though it is expected that the disposals of an individual's primary residence will remain exempt.
Taxation of non-UK domiciled individuals
Changes to the taxation of non-UK domiciled individuals were announced in the Budget in March 2024. These changes were widely supported by the new Chancellor, Rachel Reeves.
However it is likely that there will be some tweaks to the proposals announced by Jeremy Hunt, mainly around the transitional provisions, and discounts to remittances in the first two years of the new rules.
The Labour manifesto simply stated that they would ‘abolish the 'non-dom loophole'.
Inheritance Tax
There are likely to be significant changes to Inheritance Tax, as were trailed in the March 2024 Budget, although it is unclear as to whether the consultation announced by Jeremy Hunt in March 2024 will proceed.
Reports suggest that legislation around Agricultural Relief and Business Relief (the two main IHT reliefs) will be changed, therefore reducing the availability of relief from IHT.
As noted above, it is also likely that there will be changes to the taxation of offshore trusts, with the excluded property regime removed.
Pensions
The lifetime allowance charge will likely not be re-introduced.
Reliefs on contributions to private pensions may be considered, with a flat rate of relief of 33% being suggested (which would benefit Basic Rate and Higher Rate Taxpayers, but Additional Rate Taxpayers would see a reduction in relief).
Stamp Duty Land Tax
The surcharge for non-UK residents purchasing residential property in England and Northern Ireland is likely to be increased from 2% to 3%.
Please note that Scotland and Wales have devolved tax powers, and have similar land transaction taxes, however set their own rates for these.
Business Taxes
Corporation tax and capital allowances
Prior to the election, the new Government repeatedly stated that they will not seek to increase the main rate of corporation tax, to provide stability for businesses in planning investments. Additionally, it is not expected for changes to be made to the full expensing for capital allowances, or the £1m Annual Investment Allowance.
A business tax “road map” is promised within six months to provide more investment decision certainty.
Expect proposals on tax policies and business investment strategies to feature in this roadmap.
Business Investment
There are no planned changes to current R&D reliefs for corporate investment.
Other pledges include creating a state-owned Energy company (GB Energy), a UK wealth fund with £1.5bn annual government funding, and strategies for industrial and infrastructure growth.
Indirect Tax
Pledges were made not to increase the main rate of VAT.
However VAT will be imposed on private school fees and the business rate relief from which private schools currently benefit will be eliminated.
It is likely that the legislation will also include certain anti-forestalling provisions, which will aim to counter proposals made by schools, which involve the pre-payment of fees.
Enforcement
Labour has promised to bolster HMRC with 5,000 additional staff to reduce the UK’s “tax gap” (estimated at £39.8bn for 2022/23).
This could result in increased compliance enforcement, particularly targeting small businesses, which account for a significant portion of the “tax gap”.
Stability
A key pledge from Chancellor Rachel Reeves is to hold only "one major fiscal event a year," providing businesses with due warning of tax and spending policies, which is likely to be a popular move among businesses (and advisors!) seeking stability.
Employment Tax Pledges
It has been proposed that there will be no changes to employers' or employees’ National Insurance Contributions (“NIC”) or pensions auto-enrolment obligations.
Significant reforms are promised under the "New Deal for Working People," including banning zero-hours contracts and enhancing employee rights from day one.
The next few months
- State Opening of Parliament on 17 July - which will reveal more about the Government’s legislative agenda. There is not likely to be significant tax content.
- A Budget / fiscal event - likely to be in Autumn 2024, once the Office of Budget Responsibility has completed their report and delivered this to the Chancellor.
