Tax Planning and The General Election
With the General Election taking place on Thursday 4 July 2024, the current Government and leading opposition have now published their election manifestos, detailing their pledges on the economy, tax and spending. With a potential change in government quickly approaching, what are the key tax considerations we should plan for?
INCOME TAX
Both Labour and the Conservatives have said they won’t increase taxes, although there’s been no confirmation on tax bands potentially shifting.
In recent years the tax bands haven’t changed, which is often referred to as a stealth tax as more people enter the high tax bracket as income increases, whilst the tax band remains unchanged.
It’s anticipated that both the major parties will continue to freeze the Personal Allowance, although the Conservatives and Labour have both committed to protect the “triple lock” on pensions and increase state pension in line with inflation, earnings or 2.5%, whichever is higher.
DIVIDEND TAXES
Although you may think of dividend tax as a tax on income, this could stand outside of the Labour party’s pledge not to increase tax on working people.
As a majority of people don’t get paid via dividends, this is an area where they could look to increase tax rates to align with employment taxes. You may therefore want to consider paying dividends before the election, subject to the availability of reserves in the company.
CAPITAL GAINS TAX
Little has been formally announced regarding Capital Gains Tax rates, but the difference in the way income and capital taxes are treated has been discussed for many years. 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
When a personal pension contribution is made, the payment attracts further relief at the individuals marginal rate of tax.
Higher rate taxpayers paying £80 into a personal pension get an extra £20 as basic rate tax relief, and can then claim further relief of £20 by completing a tax return.
For many years the removal of a higher rate relief has been discussed, as it’s a change which is seen to not impact many working people.
The two major parties have committed to protect the “triple lock” on pensions and increase state pension in line with inflation, earnings or 2.5%, whichever is higher.
HIGH INCOME CHILD BENEFIT CHARGE
If the Conservatives win the election, they’ve said they will replace the current system with a regime based on collective household income. This will mean families with a combined income of below £120,000 will receive child benefit.
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 that if Labour win the election, 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)
The two major parties 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.
LOOKING FORWARD
Although tax is always front and centre of the two major party campaigns, there are clear area’s of tax and policy strategically left out of the Conservatives and Labour’s manifestos.
It remains to be seen after the votes are cast, where the tax landscape will sit.
To speak to us about your tax obligations and efficiencies, contact us today for a free consultation with your local TC Group tax team.