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How the upcoming UK general election could impact tax measures and an overview of the manifestos

24th June 2024

As the UK approaches the general election on 4th July, the potential changes to tax measures have become a hot topic. Both major political parties are keenly aware of the implications their tax policies will have on voters. Here, the Rowleys tax team share their predictions on how the general election might influence future tax legislation along with the key points from each of the major party’s manifestos and their overall view.

Inheritance Tax (IHT)

The budget in March did not address inheritance tax (IHT), leaving room for it to become a significant election issue. It’s anticipated that political parties may propose changes to entice voters:

• Increase in nil rate bands or reduction in IHT percentage: To attract voters, there might be proposals to increase the nil rate bands or reduce the IHT percentage.
• Inclusion of pension funds in IHT: Pension funds could be included as part of one’s estate for IHT purposes, fundamentally changing estate planning strategies.

Further potential changes to IHT could also include:

• Removal of relief on AIM shareholdings: AIM shares could become subject to IHT.
• Capping Business Property Relief (BPR) and Agricultural Property Relief (APR): These reliefs might be capped at a monetary value, such as £500,000.

Capital Gains Tax (CGT)

CGT  is another area where significant changes are expected:

1. Alignment with income tax rates: There is a likelihood that CGT rates will be aligned with income tax rates. This would mean higher CGT rates, particularly for higher earners.
2. Removal of CGT uplift on inherited assets: The next government might remove the CGT uplift on the value of assets inherited, which currently allows for a reset of the asset’s value at death.

Making Tax Digital (MTD) for income tax

The investment in Making Tax Digital (MTD) for income tax has been substantial, making it unlikely that this initiative will be rolled back. Businesses and individuals should prepare for its continuation and possibly further developments.

R&D tax credits

R&D tax credits, which cost the UK government £6.6 billion in 2020/21, are expected to remain at their new rates. This includes the lower enhanced deduction for SMEs at 86%.

Income tax and personal allowance

Both main parties have pledged not to increase the rates of income tax, national insurance, corporation tax, or VAT. However, other measures could lead to higher tax payments include:

1. Freezing of personal allowance and tax bands: The freezing of personal allowance and tax bands means that more individuals will fall into higher tax brackets as incomes rise.
2. Potential reduction of additional rate tax threshold: The additional rate of tax (45%) could be applied to income over £100,000, as is currently the case in Scotland.
3. Abolition of higher rate tax relief on pension contributions: The government may abolish higher rate tax relief on pension contributions.

Changes to non-domicile (non-dom) taxation

The Labour Party has indicated that the recent changes to the taxation of non-dom individuals do not go far enough. They propose taxing non-noms on worldwide income to fund NHS commitments.

National Insurance adjustments

While there is a pledge not to increase national insurance rates, the next government could consider charging national insurance on dividends paid by private companies, especially when paid alongside minimal salaries.

VAT changes

VAT could also see significant changes:

1. VAT on private school fees: The Labour Party has proposed removing the VAT-exempt status of private schools, imposing a 20% VAT on their fees.
2. Lower VAT registration threshold: The threshold for VAT registration could be lowered to £50,000, bringing more small businesses into the VAT system.

Key points from the party manifestos

Conservative manifesto

• No increase in rate of NI or income tax for the duration of the next parliament.
• Income tax thresholds will remain frozen until 2028, with a new increase for pensioners to ensure those claiming state pension will not be required to pay income tax.
• No increase in the main rate of VAT.
• Pledged not to increase Capital Gains Tax with a 2-year CGT relief for landlords who sell to their existing tenants.
• Cut employee NI to 6% by April 2027.
• Increase Child Benefit threshold to £120,000, from £60,000.

https://public.conservatives.com/static/documents/GE2024/Conservative-Manifesto-GE2024.pdf

 

Labour manifesto

• No increase in rate of NI or income tax for the duration of the next parliament.
• Income tax thresholds will remain frozen until 2028.
• Would not raise VAT but will remove the VAT and business rate exemption for private schools.
• Corporation tax maintained at 25%, as well as keeping reliefs such as full expensing, the annual investment allowance and R&D tax credits.
• Will publish a roadmap for business taxation to cover the duration of the next parliament.
• A mid-September Budget would be the earliest under a Labour government as they wish to wait of the review of the Office of Budget Responsibility’s review, unlike the Conservatives.
• Introduce a new taxation system for Non-Doms.
• Close the loopholes on the taxation of carried interest
• Increase SDLT by 1% on the purchase of residential property by non-resident individuals.

https://labour.org.uk/change/

 

Liberal Democrat manifesto

• No increase in rate of NI or income tax for the duration of the next parliament.
• Triple the amount that in-scope companies pay under the Digital Services Tax from 2% to 6%.
• A 4% tax on share buybacks of FTSE 100 listed companies.
• Reversing the Bank Surcharge cut done by the Conservatives of 8% to 3%, restoring Bank Levy.
• Fairly reform Capital Gains Tax (CGT) by closing loopholes exploited by the wealthy while increasing the tax-free allowance from £3,000 to £5,000, plus a new tax-free allowance for inflation and a relief for small businesses.
• Introduce a new super tax on private jet flights, as well as reforming the taxation of international flights for frequent flyers.
• End retrospective tax changes such as the loan charge and review the off-payroll working IR35 reforms.

https://www.libdems.org.uk/manifesto

 

Green’s manifesto

• Wealth tax will be levied on individual taxpayers with assets above £10 million at 1% and assets above £1bn at 2% annually. Estimated less than 1% of households will pay this tax.
• Aligning capital gains tax with income tax and the tax rate on investment income with income tax and NI.
• NI rate for income above the Upper Earnings Limit to increase to 8%.
• Inheritance tax reform.
• Corporation tax to remain unchanged.
• Move to a four day working week.
• Also pushing for a frequent-flyer levy and a ban on domestic flights for journey that would take less than 3 hours by train.

Our 2024 General Election Manifesto

 

Reform Manifesto

• Raise the rate of Employers National Insurance to 20% for foreign workers. This will incentivise employers to employ British Citizens,
• Increase the personal allowance for Income tax to £20,000. This could take up to 7 Million people out of paying income tax.
• Scrap VAT on energy bills
• Reduce Stamp duty to 0% on house purchases under £750,000
• Abolish VAT tourist Tax
• Increase the Inheritance Nil Rate Band to £2,000,000.
• Reduce the rate of Inheritance tax on estates above £2,000,000 to 20%, with the option to donate to charity instead.
• Lift the minimum profit threshold for corporation tax to £100,000.
• Reduce the main Corporation Tax Rate from 25% to 20% then to 15% from Year 3
• Abolish IR35 rules
• Lift the VAT threshold to £150,000
• Introduce tax relief of 20% on all Private Healthcare insurance.

https://www.reformparty.uk/

Our thoughts on the manifestos

Both the Conservative and Labour Parties have continued with the current policy of not raising the main rates of income tax, NI, Corporation Tax or VAT. Instead they are basing their policies on the economy growing over the lifetime of the next Government. However, if the growth targets are not met, and some independent commentators have expressed their doubts, the Government will have to consider either cutting public spending or increasing borrowing to maintain their pledges on not putting up tax rates.

An area of concern must be capital taxes and there could be significant changes to CGT and IHT following the general election. In addition the Labour Party will change the VAT status of private schools and charge VAT at 20%.

Whoever forms the Government on 5^th July will have some tough decisions to make and it is likely that we will see a Budget Statement in mid-September once the Office of Budget Responsibility have commented on the new Chancellor’s proposals.

Conclusion

The upcoming UK general election is set to influence a range of tax measures. While headline rates of major taxes may remain unchanged, various other adjustments could significantly impact taxpayers. It is crucial for individuals and businesses to stay informed and prepared for these potential changes. Our tax team will share more insights as they become available.

At Rowleys, we remain committed to providing expert guidance and support to help you navigate any forthcoming  changes effectively. If you have any questions or need advice, please don’t hesitate to contact our friendly team.