Tax Policy in the General Election

The general election is just around the corner on the 4th July which could lead to some potential tax changes depending on who is to form the next government.

The uncertainty around taxation created by a general election creates challenges for businesses and individuals.  In the current climate, a clear and stable tax system is important for all.

We thought it would be worthwhile summarising some of the key tax policies from each of the main parties’ manifestos, shown in the table below:

PartyLabourConservativeLiberal DemocratsSNPGreen
Income TaxNo changeNo change to headline rates. Increase to Personal Allowance for pensionersNo change to headline rates. Commitment to increase Personal Allowance in future.Maintain Higher Level of income tax vs rest of UKNo change
Capital Gains TaxNo mentionNo changeIncrease to CGT bands with a top rate of 45% over £100KNot devolvedIncrease to align with Income Tax Rates
National InsuranceNo change2% reduction for employees and abolishment of the tax for the self-employedNo changeNot devolvedIncrease on lower NI rate to 8%
Corporation TaxNo changeNo changeIncrease to 21% minimum taxNot devolvedNo change
VATRemain at 20% but increase on Independent School FeesNo changeNo changeNot devolvedNo change
OtherAbolishment of non-dom rulesIntroduction of further Investment Zones and free portsProposed windfall taxes on Banks and Energy companiesIncrease Minimum Wage to Living Wage1% wealth tax on individuals worth over £10 million

As shown above all the parties have proposed tax changes in differing areas. Should there be a coalition government, compromises over tax changes will be at the forefront of discussions.

However, where the smaller parties have been much bolder in the tax changes proposed, there are a lot of areas of tax on which the larger parties have yet to comment or where they have suggested there will be no changes.

In our experience, once there is an election result, the majority party (or parties if there is a coalition) which soon provide more detail on their tax policy. While we would often expect an emergency budget shortly after an election result, with the summer recess, it may be towards the autumn before an official budget.  This does not mean we will not get further details and we will be hoping for this clarity on the tax position from the new government as early as possible. 

Should you wish for a more detailed look at the policies, please read on below:

As the current government, the Conservatives have outlined the broadest commitments by detailing several specific focus points which include:

  • National Insurance for employees to be reduced by 2% to 6% from the current 8% rate.
  • For those self-employed, the abolition of Class 4 National Insurance completely by the end of the next parliament.
  • A commitment to not raise Income Tax, Capital Gains Tax (CGT) or VAT rates.
  • To introduce a tax-free allowance for pensioners that will rise by the highest of inflation, earnings or 2.5% per year.
  • Maintaining the 25% tax-free lump sum on pensions and continued tax relief on contributions at an individual’s marginal tax rate.
  • Child benefits are to be gradually withdrawn once household income exceeds £120,000 and fully withdrawn after £160,000 rather than being based on the highest earner income.
  • Maintain Business Asset Disposal relief (BADR) for CGT and Business Property Relief (BPR) and Agricultural Property Relief (APR) for IHT.
  • Corporation tax will be maintained at its current level of 25%.
  • Investment zones are to be expanded with freeports in certain areas to increase offering time-limited tax incentives, this will increase development and business investment.

With aspirations to form the next government, Labour have not really commented too much on their tax plans going forward outside a few key policies:

Their main policy is to include VAT at 20% on to independent school fees which has seen lots of commentary on both pros and cons of this.

Other policies mentioned in their manifest include:

  • No increases to National Insurance or the Basic, Higher and Additional rates of income tax, though note these do not apply to Scotland.
  • No increase to the VAT rate, currently 20%.
  • There is nothing mentioned about CGT rates.
  • Aim to close the private equity performance-related pay CGT rules based around carried interest.
  • Abolish non-domiciled status.
  • End the use of offshore trusts but no details of how these would be taxed.
  • Corporation tax at 25% will be maintained for the duration of Labour’s lifetime in the next parliament. However, beyond this an increase is not off the cards should international tax changes occur.
  • R&D tax reliefs and the patent box regime are expected to be preserved.
  • A business tax roadmap published within six months of taking office, it will be interesting to see what these plans unfold.

The Liberal Democrats have a few hard commitments to tax within their manifesto, and there is limited information about their wider tax strategy. Key points include:

  • A commitment to not changes to rates of income tax but when finances allow to increase the personal allowance. No amounts have been specified or how this would affect higher earners.
  • For those self-employed, they propose reviewing the IR35 rules to ensure “fair and comparable treatment” but without an indication of what this would involve
  • Potential to give local authorities the ability to increase council tax by up to 500% on those who purchase property as a second home.
  • For those working within the “gig” economy, a new “dependant contractor” class which sits between employment and self-employment.
  • Windfall taxes are proposed with the tax burden set to increase on banks, energy companies and tech giants. This intends to raise £27 billion of corporation tax by 2029.
  • A tax of 4% is also proposed to be levied on company share buybacks.
  • Unlike the Conservatives and Labour parties who intend to stick with the current global minimum corporation tax at 15%, the Lib Dems propose to make a case for this to increase to 21%

The biggest area the Lib Dems have targeted is within CGT specifically:

  • The introduction of new CGT tax bands taxed at income tax rates (Rest of the UK):
    • Gains up to £50,000 will be taxed at 20%
    • Between £50,000 and £100,000 to be taxed at 40%
    • Gains over £100,000 to be taxed at 45%
  • An increase in the annual exemption to £5,000 (currently £3,000) and the introduction of an inflation allowance, which is to be applied for gains which only increase in value due to inflations. Commentators have described this as being similar to indexation.

The Scottish National Party (SNP) has not outlined too many commitments in their manifesto, possibly due to being the governing power in the Scottish parliament rather than the UK but notably, they want to have full devolution of tax powers to Scotland including National Insurance and VAT, that the state would “ensure rates and thresholds fit our progressive income tax rates”

Further to this, they propose to raise taxes for the rest of the UK for higher income levels to match Scotland’s system of which an element of this would flow back to Scotland.

Other notable points include:

  • Have committed to maintaining the triple lock pension.
  • To increase the national minimum wage to at least national living wage which would be increased by inflation and remove the age discrimination of pay levels which mainly affects those under 21 and apprentices.
  • For the UK to rejoin the EU.

The Green Party have been the most vocal and clear that they would wish to raise taxes. Their main tax policy would be to apply a 1% wealth tax on those individuals who are worth £10 million or more with the levy increasing to 2% if their worth is greater than £1 billion.

They would increase the rate of National Insurance above the Upper Earnings Limit of £50,270 from the current level of 2% to match the main rate of 8%.

For investment income, the tax rates would be reformed to align them with the employment income and National Insurance rates.

The Greens would also propose to align the CGT rates on any gains to the income tax rates.

Other policies include:

  • For the Minimum wage to be £15 per hour.
  • To ensure pensions are kept in line with the rate of inflation.
  • A proposal to have a flat rate of pension tax relief set at the basic rate of 20% with no benefit for those that currently receive higher or additional rates of tax relief.
  • A reform of the Inheritance tax rules but without giving any further details of what this may be.
  • An increase of windfall tax on oil and gas production companies.
  • Introduction of windfall tax on banks when excessive profits are being made.

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