Posted: 20 / 06 / 2024
Given the general election on 4th July, understandably clients are nervous that a new government will lead to changes in pension and wider taxation legislation, making it difficult for high earners to plan their tax mitigation strategies.
The following table summarises the key tax policies included in the two main party manifestos…
Conservative – Key manifesto tax policies
- Raise tax-free allowance for pensioners every year
- 2p Employees National Insurance cut by April 2027
- Abolish main rate of National Insurance for the self-employed
- No raises in income tax, national insurance, VAT or corporation tax
- Retain business asset disposal relief (formerly known as entrepreneurs’ relief)
- Retain business relief and agricultural relief for inheritance tax
- Temporary 2-year capital gains tax exemption for landlords selling to their existing tenants
- Help to Buy scheme reintroduced
Labour – Key manifesto tax policies
- Cap corporation tax at 25%
- No increases to rates of income tax, national insurance or VAT
- Removal of VAT exemption for private school fees
- Make full expensing permanent for businesses
- Retain annual investment allowance for businesses
- Only one major fiscal event per year (i.e. Budget)
- Windfall tax on oil and gas giants
- Replace the current business rates system
- Abolish non-Dom status
- Focus on “tax avoidance by large businesses and the wealthy”
The Conservative Party’s pledge to abolish the main rate of self-employed NICs would increase the extent to which the tax system favours self-employment over employment. Under the proposed changes, a basic-rate taxpayer would face a marginal tax rate of 20% if they are self-employed vs 35% if they are an employee.
The wording of the Labour Party’s pledge to not increase the basic, high or additional rate of income tax leaves scope for them to change the thresholds at which each rate applies and even introduce a new rate. Some critics are also commenting that it allows changes to the rates applying to dividends to be altered.
The Labour Party’s manifesto is also silent on the subject of capital gains tax and inheritance tax. We could, therefore, see an end to Business Asset Disposal Relief, or more controversially, bringing the capital gains tax rates closer to income tax rates.
Following the announcement of the abolition of the Lifetime Allowance (LTA) in last year’s Spring Budget, the Labour Party immediately said they opposed the removal of the LTA and would reintroduce it should they form a government following a general election.
This uncertainty has been extremely unhelpful for individuals making decisions regarding their pensions, such as whether to crystallise their pensions rather than risking uncertainty about future developments.
In addition, despite the removal of the LTA, the introduction on 6th April 2024 of the Lump Sum Allowance (LSA) and the Lump Sum Death Benefit allowance (LSDBA) has created new confusion and a much greater need for effective tax planning advice.
Whilst the Labour Party have recently suggested that they would not now re-introduce the LTA, based on their manifesto, which was very light on detail, a Labour government could still amend tax legislation leading to other potential income, capital gains and/or inheritance tax liabilities.
For anyone looking for more analysis on the manifesto pledges, the Institute of Fiscal Studies has great assessments on both parties which can be accessed here:
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