The General Election Result – what it means for you

The Labour Party has won a landslide victory in the General Election, unseating the Conservatives after 14 years with polls suggesting the swing will be close to the all-time record of 12.1% at the first post-war General Election in 1945.

Here we look at the tax implications, both for individuals and businesses, that we can expect to see under a Labour government:

Income Tax and National Insurance

Labour has said that it “will not raise taxes on working people”, meaning it will not increase Income Tax or National Insurance. This goes against The Party’s proposals of earlier years to increase taxes for higher earners by reducing the threshold above which an individual starts to lose their personal allowance from £100,000 to £80,000. Many would argue that by not increasing Income Tax thresholds, which have been frozen by the current Government until 2028, individuals are being taxed more through fiscal drag as their incomes increase in line with inflation.

As a reminder the current thresholds for Income Tax and National Insurance are as follows:

Income Tax

National Insurance

In contrast, The Conservative Party had pledged to cut National Insurance for employees by a further 2%, and to scrap the main rate of National Insurance for the self-employed (currently 6%) by the end of Parliament.

VAT

Much like Income Tax and National Insurance, VAT is due to remain unchanged with the main rate and taxable turnover threshold above which businesses are required to register remaining at 20% and £90,000, respectively.

Probably one of the most talked about proposals made by The Labour Party is to scrap the exemption that currently applies to providers of education, meaning private schools will need to start charging VAT on their fees. This could see the average annual fees payable by parents with children in private school from £15,000 per child per year to £18,000 per child per year. Labour have said they will use the extra funding generated to recruit extra teachers for state schools and fund more childcare.

Corporation Tax

The main rate of Corporation Tax will remain unchanged at 25% until 2029. Companies with taxable profits below £50,000 will pay the small profit rate of 19%, while those with taxable profits between £50,000 and £250,000 will be able to claim Marginal Relief.

Capital Gains Tax

Whilst Labour have not committed to increasing Capital Taxes, there is widespread speculation they will do so to raise much-needed funds. Wealthy individuals have already started to sell off their UK assets in response to an expected Labour victory.

One of the ways Labour could increase revenue from Capital Taxes is by aligning the rates at which Capital Gains Tax is levied with Income Tax. This would mean increasing the basic rate of Capital Gains Tax from 10% (18% for residential property and carried interest) to 20%, and the higher rate from 20% (24% for residential property and 28% for carried interest) to 40%.

One area that has been singled out in Labour’s Manifesto is the “loophole” in the carried interest rules. Under the current rules, managers in private equity firms receive a large proportion of their remuneration through carried interest, which is subject to Capital Gains Tax rather than Income Tax. Labour’s argument for singling this out is that carried interest for private equity managers constitutes “performance related pay” and so should be taxed accordingly.

Inheritance Tax

Inheritance Tax rates and thresholds are expected to remain unchanged with the nil rate band and residential nil rate band remaining at £325,000 and £175,000, respectively. The standard Inheritance Tax Rate is expected to remain at 40%, and chargeable lifetime transfers are expected to remain subject to a 20% tax charge.

One firm commitment that has been made in the Labour Manifesto is to bring offshore trusts within the scope of UK Inheritance Tax, which has already caused many of the country’s wealthiest non-domiciled individuals to begin seriously considering their departure from the UK.

There is also the possibility of changes to lifetime gifts, which are currently exempt if an individual lives for more than seven years after making the gift.

Taxation of UK resident non-domiciled individuals

The current Government had already proposed a radical reform of the UK’s non-domiciled rules which would see UK resident non-domiciled individuals (non-doms) being taxed on their worldwide income. This would be achieved by abolishing the remittance basis, which currently allows non-doms to elect to be taxed only on foreign income and gains which they bring into the UK.

Labour has previously supported many aspects of the original proposals, however, they have indicated their intent to make the transitional reliefs less generous by eliminating the proposal to only tax existing non-doms on 50% of their foreign income received in the first year of the new regime.

Windfall Tax

The Labour Party have pledged to extend the duration of the current Energy Profits Levy and Electricity Generators Levy, which are due to expire on 31 March 2029. They have also pledged to increase the rate by 3% and remove reinvestment reliefs.

Conclusion

Whilst Labour have proposed not to raise taxes on working people, it will need to raise taxes somewhere to deliver its spending plans without adding to public borrowing. Probably the most significant proposals The Party has made to increase taxes is the introduction of VAT to private school fees and bringing offshore trusts within the scope of UK Inheritance Tax. These proposals alone are unlikely to generate enough revenue to deliver Labour’s spending plans, so it will be interesting to see what is announced in The Labour Party’s first budget which the incoming Chancellor has pledged will be in the Autumn.

At Westcotts, we have specialists in all areas of personal and business taxation. We will be constantly monitoring any changes proposed by the incoming government and are here to answer any questions you may have. Please reach out to your local team here.

By Jack Whiting, Accounts Manager