The results are in and we now have a Labour government! What does this mean for UK taxes?

Posted: 05 / 07 / 2024

Image: Rory Arnold/ No 10 Downing, OGL 3, via Wikimedia Commons

Following Labour’s unsurprising landslide victory in the 2024 General Election yesterday, many owner-managed businesses will be considering how potential tax changes may impact them and when.

Whilst we eagerly await the Budget (expected in the Autumn), our summary below sets out what Labour’s tax changes could mean for you…

The breakdown What have they said so far?

Corporation tax

The Labour manifesto did not include an increase to corporation tax rates and did not suggest changes to the capital allowances full expensing rules (although it did pledge to maintain the £1m Annual Investment Allowance).

Within six months we expect the Government to publish a business tax “road map” for Parliament to give businesses more certainty about investment decisions.

Income Tax

Labour pledged not to increase income tax rates however they made no proposals to increase tax thresholds either. Should the Government keep tax bands frozen this may result in more people will move into a higher tax bracket simply due to rising salaries.

Labour also proposed to “close the loophole” on carried interest of private equity fund managers, which is currently charged to capital gains tax (CGT) and may instead be charged to income tax. Note; there may be exceptions to this where private equity managers are “putting their own capital at risk”, according to Rachel Reeves.

NIC

The Labour manifesto did not propose any changes to employers’ NIC or the pensions auto-enrolment obligations of employers.

CGT

The Labour manifesto made no mention of CGT measures other than ruling out the introduction of CGT on the disposal of a primary residence. This has led to speculation that CGT could be increased and/or reliefs such as Business Asset Disposal Relief (BADR) could be reduced.

Non-doms

The 2024 Spring Budget included significant reforms to the non-dom tax regime under the Conservative Government from April 2025, although they hadn’t yet been legislated. It is expected that any draft legislation will be rewritten to incorporate Labour’s plans to abolish the ‘non-dom’ loophole.

Inheritance Tax

Other than the mention of an end to “the use of offshore trusts to avoid inheritance tax”, Labour’s manifesto did not include any other references to IHT. This again has led to speculation that there could be significant reform, including scrapping or changing the rules for Business Relief and Agricultural Relief to raise tax revenue without changing the headline rates of IHT, or considering changes to lifetime gifts, where currently no IHT is due where a person lives for more than seven years after making a gift. 

VAT

Labour has pledged not to increase the main VAT rate but has stated they would end the VAT exemption for private school fees and remove business rate relief or its future equivalent. There were rumours that anti-forestalling legislation on pre-payment of private school fees may be introduced so that the change would be implemented straight away. However, Reeves has said that the change would be made in Labour’s first Budget and wouldn’t be retrospectively applied.

Stamp Duty Land Tax

Labour intend to increase the SDLT surcharge applied when non-UK resident individuals acquire UK residential property in England or Northern Ireland by 1% (taking this surcharge to 3%).

Levies and windfall taxes

The current Energy Profits Levy (Oil and Gas) and Electricity Generators Levy, are windfall taxes that are due to expire on 31 March 2029. The Labour party has pledged to extend the duration of these levies until “the end of the next Parliament”, increase the rate by 3% and remove oil and gas company investment allowances.

Tax avoidance

Under Labour’s plan to “close the tax gap”, there were proposals to increase HMRC compliance activities, invest in technology transformation in the tax system and make legal changes to ensure there’s a genuine deterrent to tax evasion.

Labour also says it’ll consider widening the scope of schemes that are reportable under the disclosure of tax avoidance schemes (DOTAS) rules and strengthening HMRC’s ability to make taxpayers under investigation pay the tax HMRC consider to be owed.

Business investment

There were no proposals to change the current R&D reliefs for corporate investment – good news given all the recent changes in the UK R&D regime.

Britain is a place to do business

Kickstarting economic growth was the first of Labour’s five key manifesto missions and a central tenet of the Chancellor’s speech.

A new National Wealth Fund will be launched to invest (and attract) private sector investment in new and growing industries. The Chancellor stated that the next steps to establish the National Wealth Fund would be announced in short order. An Industrial Strategy Council will also be established to provide expert advice with a view to end short-term economic policy-making.

The manifesto states that, for investors, ‘it is not just the rates of tax that matter, but also certainty’. Labour aims to provide this certainty in a number of ways. As well as committing to only one major fiscal event per year, the manifesto pledges to introduce a roadmap for business taxation for the next parliament. Labour have also pledged that the main rate of corporation tax will be capped at 25% for the next parliament. This is expected to keep the UK main rate the lowest in the G7 countries and Labour commits to ‘act if tax changes in other countries pose a risk to UK competitiveness’.

Labour have committed in their manifesto to retain the full expensing regime for companies and annual investment allowance, which also applies to self-employed individuals. Both full expensing and the annual investment allowance give an accelerated rate of deduction for capital investment. Firms will also be given greater clarity on what qualifies to aid investment decisions.

The current business rates system will be replaced in England in order to ‘level the playing field between the high street and online giants, better incentivise investment, tackle empty properties and support entrepreneurship’, though we will have to wait for further details as to how this will be achieved.

Small businesses will also be supported by Labour taking action on late payments and a reform of the British Business Bank to make it easier for small and medium enterprises to access capital.

Fiscal events

Perhaps the most popular pledge for businesses in the Labour manifesto will prove to be their promise to hold only “one major fiscal event a year, giving…due warning of tax and spending policies”.

Likely timetable

Rachel Reeves appointed Chancellor of the Exchequer

It is astonishing to note that while Rachel Reeves is now the 109th Chancellor in history, she is the first female Chancellor since the role was first instated in the 16th century; 45 years after the first female prime minister was elected!

To quote Ms Reeves, “to every young girl and woman reading this, let today show that there should be no limits to your ambitions.”

Conclusion

While immediate tax changes may be unlikely, there is little doubt that there will be significant tax changes under the new government. If you want to know more about how any of these prospective changes will affect you or your business please speak to your usual Sedulo contact.