Following the recent general election and a change of government to the Labour party, we look at some of the tax policies pledged in their manifesto and the possible actions to consider as a result.
Income and corporation taxes
Labour have said that they do not have any plans to raise income taxes and, in fact, would like to lower them, if possible, as it would benefit the ‘working people’. In the run up to the previous election, however, the party did pledge to align dividend and income tax rates which could prove a concern for owner managed businesses.
They have also pledged that they will not look to increase national insurance contributions nor corporation tax rates as part of their manifesto.
Capital gains
Whenever there is a chance in government or an upcoming Budget, any significant transactions or disposals are often accelerated, in an attempt to circumvent any announcements of immediate changes to the capital gains tax (CGT) regime.
In their manifesto Labour remained silent on CGT with no commitment to maintain current reliefs or rates. In their 2019 manifesto, Labour proposed to align CGT rates with income tax rates, whilst reintroducing on indexation allowance to allow for inflation. They also said that they would abolish entrepreneurs’ relief (now known as business asset disposal relief) and would consult on a better alternative. If this comes back on the agenda, there could be another push for people looking to complete affected transactions sooner rather than later.
VAT on school fees
Labour have, for some time, pledged that they would introduce VAT at the standard rate of 20% on private school fees as well as ending their exemption from business rates. The party has estimated that this move would generate an additional £1.5 billion of revenue for the government. Labour have also confirmed that they will bring in some anti-forestalling legislation to prevent a surge of advance in payments for school fees in an attempt to avoid paying VAT. Any such plans to pre-pay fees are therefore likely to be ineffective.
As a result of the school becoming VATable, however, it will also be able to offset VAT which it has incurred on goods and services for the business. Therefore, schools may not need to pass on a full 20% increase in fees to parents.
Further, VAT charged on capital expenditure such as new school buildings or other significant renovation projects would also be recoverable, presenting an opportunity for private schools to potentially look back to expenditure incurred up to four years prior to the introduction of a VAT charge. This could result in some schools that have incurred significant capital expenditure in recent years being in a VAT refund position initially, which leaves the question of whether the estimated revenue figures cited by Labour are accurate.
Pensions’ lifetime allowance
Whilst Chancellor of the Exchequer, Jeremy Hunt announced the abolition of the lifetime allowance for pensions in his Spring 2023 speech. Previously set at £1,073,100 in 2022/23, the lifetime allowance was abolished with effect from April 2023, such that there is now no limit on the maximum value of a pension pot.
Labour had confirmed that, if elected, they would reverse this policy and reintroduce the lifetime allowance but this was not mentioned in their manifesto, so we may have to wait for their first Budget to see if they proceed with this. We would advise caution to anyone looking to put significant amounts into their pension pot above the 2022/23 limit in the meantime, as this could be short lived and lead to tax charges in the near future.
Non-doms
It had been widely reported that Labour would look to end the current exceptions for certain individuals who are resident but not domiciled in the UK, which allows them to only be taxed on overseas income and gains when remitted to the UK.
This was somewhat trumped by the 2024 Budget, when Jeremy Hunt announced a reform of the regime such that non-doms will be taxed in line with other UK resident individuals after they have been in the UK for four years.
Labour have, unsurprisingly, confirmed that they support the proposals in principle, including the timescales, but commented that they found the transitional measures overly generous and would look to scrap most of these.
Stamp duty land tax
The manifesto also confirmed a previous announcement by Rachel Reeves (now Chancellor), that Labour would look to raise the stamp duty land tax surcharge on overseas buyers. Currently, non-residents have to pay a 2% surcharge on the purchase of residential property in England and Northern Ireland but this will likely increase to 3% under the Labour government. This change will only apply in England and Northern Ireland, as Wales and Scotland have developed powers for land transaction taxes with no non-residence surcharge currently in place.
 Summary
 Whilst Labour have been quick to highlight which taxes they will not look to increase, they have remained silent on others such as inheritance tax and CGT. The  coming months will give us a bit more of an indication of what their plans could include but we will almost certainly need to wait until Rachel Reeves’ first  Budget, anticipated for later in the year, for real clarity of the tax changes ahead.
This landscape can be complex to navigate so seeking expert advice is always best. Click the button below to access the Summer edition of our Talking Tax publication and read more about the topics discussed in this article.
