Labour’s Tax Pledges

 

Following Labour’s landslide victory in the General Election on Thursday 4 July 2024, the new Government, led by Sir Keir Starmer, is set to implement its manifesto pledges on the economy, tax, and spending.

Labour’s “Change” manifesto promises economic stability, “tough spending rules”, and measures to keep taxes, inflation, and mortgage rates as low as possible.

As Labour takes office, there’s plenty of tax considerations (and speculation!) to plan for with their new policies.

INCOME TAX

In their manifesto, Labour committed to not increase taxes on “working people”, stating this included National Insurance, Income Tax, and VAT.

Although rates will remain, there’s been, however, no confirmation on tax bands shifting.

In recent years the tax bands haven’t changed, which is often referred to as a Stealth Tax as millions more people enter the high tax bracket as income increases, whilst the tax band remains unchanged. It’s projected there’s 5.6 million higher rate Income Tax payers in the tax year 2023/24 – a 40.7% increase compared to 2020/21.

It’s also projected there’ll be a 99.2% increase in additional rate Income Tax payers in the 2023/24 tax year compared to 2020/21, with 862,000 people paying the additional rate.

It’s anticipated Labour will continue to freeze the Personal Allowance of £12,570, currently set to remain frozen until 2028.

 

DIVIDEND TAXES

Although you may think of dividend tax as a tax on income, this is out of the scope of the Labour party’s pledge not to increase tax on working people.

As the majority of people don’t get paid via dividends, this is an area where Labour could look to increase tax rates to align with employment taxes.

Currently Labour haven’t proposed any changes, but it’s speculated there could be change on the horizon.

 

CAPITAL GAINS TAX

Little has been formally announced regarding Capital Gains Tax rates, and remains a key area for speculation.

There remains a risk of a future alignment of the tax rates, as such we recommend owners considering a sale transaction to plan in advance in order to crystalise value, where possible, prior to any potential adverse changes in rates.

There’s also various Capital Gains Tax reliefs which could be amended or removed (as has been the case with Business Asset Disposal Relief over recent years) to make the reliefs less generous, increasing the Capital Gains Tax payable.

 

PENSIONS

Labour committed to protect the “triple lock” on pensions and increase state pension in line with inflation, earnings or 2.5%, whichever is higher. It’s likely the policy will remain in place until 2030.

However with the Income Tax threshold freeze of £12,570 predicted to remain until 2028, as the state pension rises from £11,542, an additional 1.6m pensioners will have to pay income tax in the next four years.

 

NON DOMICILE

Labour have pledged to abolish the current non-domiciled rules, replacing them with residence-based system where a person is taxed on the time they spend in the UK.

It’s expected, they’ll adopt the changes proposed by the Conservatives in the Spring Budget, but would not proceed with the 50% relief on foreign income in 2025/26.

 

INHERITANCE TAX (IHT)

Labour haven’t shared in detail plans for IHT, so there’s speculation this may be similar to Capital Gains Tax where existing reliefs may be amended moving forward.

 

VAT ON SCHOOL FEES

Labour have said they’ll introduce VAT on private schools fees, which are currently exempt.

Private schools benefit from not charging VAT on fees – the average being £15,000 per year – because of the legal exemption for the provision of education by eligible bodies. Nearly half of England’s private schools are also charities, so receive an 80% reduction on business rates.

There’s been commentary regarding paying fees early to avoid any potential increase, but Labour have replied saying if they win, there’ll be “anti avoidance” introduced to prevent this from being effective.

 

PLANNING AHEAD

With Change the optimum word in the Labour party’s manifesto, and a first Budget not expected until September, we can support you with planning ahead.

To feel confident in your finances, understanding your obligations and maximising your tax efficiency, contact us today for a free consultation with your local TC Group tax team.

GET IN TOUCH

 

Image credit: Rory Arnold / No 10 Downing Street