Tax and the General Election – Reviewing the Labour Party Manifesto

Nowadays the build up to a Budget always seems to be a frantic time for tax advisers. Rumours will always abound about tax changes, especially Capital Gains Tax, and we often see a flurry of transactions happening in the build-up. But a General Election brings greater uncertainty, as we scrutinise party manifestos to get a clue about what could be in store for us.

This year’s election is very different to the last four, where it wasn’t clear who the winner would be. Now, with even Conservative ministers starting to beg the public simply not to let Labour get a “super-majority,” a change of Government seems more certain even than it was when Tony Blair swept into No 10 in 1997.

As a tax adviser, it’s therefore the Labour party manifesto, and the noises being made by the Labour front bench, that interest me.

So, how soon after 4 July could we see the first Labour Budget? Well, the last two proper changes of Government in 1997 and 2010 saw a Budget within six or seven weeks of the election. No doubt Labour will be in a hurry to implement some of their policies, but will they hold a Budget as quickly as this? It seems unlikely this time around; Shadow Chancellor Rachel Reeves has made clear that any major fiscal event that makes significant changes to tax or spend must be examined by the Office for Budget Responsibility; the step famously missed by Liz Truss. This is understood to take around 10 weeks, so is that an indication of timing? Possibly, although Labour have also said they will move back to a single major fiscal event per year, so could it be delayed further? Either way, I wouldn’t delay transactions too long if you think tax changes could affect them.

The manifesto sets out Labour’s financial rules; to balance the current budget so that day to day costs are met by revenues, and to have debt falling as a percentage of GDP by the fifth year of the forecast. These remain a challenge.

So what do we know about tax from the manifesto?

First up is the promise not to raise National Insurance Contributions (NIC), the basic, higher or additional rates of income tax, or VAT. Notable by their absence are Capital Gains Tax and Inheritance Tax.

The revenue raisers we know about are:-

• The full abolition of non-dom status, getting rid of the soft landing given by the Conservative policy, and instead introducing a new system for short term visitors.
• Anti-avoidance to end the use of offshore trusts to avoid Inheritance Tax.
• The much-publicised VAT on private school fees.
• Moving “carried interest” in Private Equity transactions to full income tax rates.
• Additional 1% SDLT on non-residents purchasing UK residential property.

Interestingly, this is more than the extra spending pledges, although we have to wait and see whether these will really raise the sums promised.

Further funds are expected to be raised from modernising HMRC and closing the “tax gap” by:-

• Tackling tax avoidance with additional legislation.
• Increasing registration and reporting requirements.
• Strengthening HMRC powers.
• Investing in new technology.
• Building capacity in HMRC.
• A renewed focus on tax avoidance by large business and the wealthy.

The devil will be in the detail of course, but it sounds like there will be an additional compliance burden.

Labour will launch a road map for business taxation. Policies will include:-

• Capping corporation tax at the current 25% rate, but acting if changes in other countries threaten the UK’s tax competitiveness.
• Permanent full expensing, with the retention of the Annual Investment Allowance for smaller businesses.
• Greater clarity on what qualifies for Capital Allowances.
• Replacing Business Rates with a new system to level the playing field between the high street and online retailers, whilst raising the same revenue.

But there is much that wasn’t mentioned…

Will Capital Gains Tax rise? Always one of the big debates, the document is silent. If Labour were going to raise money this way, I have a feeling they would have wanted to reflect it, but, perversely, raising CGT usually leads to a drop in revenues. So perhaps they will leave it alone? Or will ideology come more into play post-election?

Will there be Inheritance Tax changes? Almost certainly over the course of the parliament, but surely this will take more time?

Will there be new Wealth Taxes? There are always rumours.

And finally of course there’s pension contributions. When Jeremy Hunt removed the lifetime allowance and increased the thresholds on the tapered annual allowance, Labour immediately pledged to reverse it. Just because it’s not in the manifesto doesn’t mean it’s been forgotten.

What we know for certain is that it will again be a busy time for taxpayers and their advisers, staying abreast of the changes.