Ahead of next month’s general election and issuing their manifesto earlier today, the Green Party have proposed equalisation of Capital Gains Tax (CGT) and dividend tax. In it, they said they’d also increase National Insurance to 8% for those earning £50,270 or more, a move that would cost someone earning £55,000 an extra £284 a year while someone earning £100,000 would pay almost £3,000 extra.
The Greens also say they would introduce a flat rate of pension tax relief and ‘reform inheritance tax’. With the Labour party due to release their manifesto tomorrow, speculation around their tax plans continues.
Laura Suter, director of personal finance at AJ Bell, has been crunching the numbers and shares her comments on the personal finance announcements in the Green Party manifesto as follows:
“The Green Party clearly have their eyes on wealth taxes as a way to raise revenue to support the rest of their manifesto pledges. Put together their plans to equalise certain taxes and levy a new wealth tax would hit both investors and business owners. It’s now over to Labour, who release their manifesto tomorrow, to outline any tax rises they believe are needed to fund their plans for the country ahead of the election.”
Capital Gains Tax
“Similar to the Liberal Democrats, the party have said they will increase CGT rates, to equalise them with income tax rates. While they claim it would only affect 2% of taxpayers, it’s likely that many investors and business owners would be hit by the move. However, the government’s own estimates show that if the highest CGT rate rose by 10 percentage points it would actually cost the government £2 billion by 2026-27*. That’s because big increases in tax tend to impact investor behaviour. For example, investors may hold onto assets for longer rather than realising gains, find different ways to shelter their gains from the taxman, or own second homes through companies to avoid the tax altogether.”
National Insurance changes
“The Greens are headed in the opposite direction to the Conservatives, as they have plans to increase National Insurance costs for anyone earning more than £50,270. Currently people pay a lower rate of National Insurance once they reach this threshold, with employed people seeing the rate drop from 8% down to 2%. The Greens want to abolish this higher band, presumably meaning people would be charged 8% on their entire salary over the Personal Allowance. This represents a significant tax increase for middle and higher earners. For example, someone earning £55,000 a year would pay an extra £284 a year, while someone on £100,000 a year would pay almost £3,000 a year more in taxes.”
Taxing investment income
“The party also has its eyes on dividend tax, saying it will equalise the rates with income tax rates. There is a big gap between the two taxes, with dividend tax having the lowest tax rate of 8.75% verses 20% for income tax. Equally the top rate for dividends is 39.35% compared to 45% for income tax. While these moves would no doubt hit some wealthy investors, they could also have a huge impact on self-employed people who pay themselves through dividends and also pensioners who take an income from investments.”
Tom Selby, director of public policy at AJ Bell, comments on the Greens’ proposals on pensions:
Pension tax relief
“The Greens dedicate just one sentence to a proposal for a colossal pension tax raid that would fundamentally upend the UK retirement system. Under the plans, everyone would be entitled to pension tax relief at a flat rate of 20%, whereas currently tax relief is granted at whatever rate of income tax the person is paying.
“The proposal appears to have been put forward with little thought to the challenges it would create. Billions of pounds of higher and additional rate tax relief is paid to members of defined benefit schemes, with most of these workers now employed in the public sector. If a flat rate of pension tax relief at 20% was introduced, these employees – including doctors in the NHS – would presumably need to be clobbered with a tax charge of thousands of pounds in order to shift them to the proposed flat rate. This would inevitably lead to huge unrest, the potential for key staff exiting public sector roles and new waves of strike action.
“The idea also raises questions of fairness between generations. The Baby Boomers have, on average, enjoyed more generous pension provision than younger people through the wider availability of defined benefit pensions, alongside the incentive of pension tax relief at their marginal rate of income tax.
“If the Greens’ idea was implemented, younger workers, who are less likely to be higher rate taxpayers today, would not have the opportunity to benefit from higher rate relief it in the future. This proposal would therefore effectively be a twin attack on the public sector and younger pension savers.”
*HMRC, Direct effects of illustrative tax changes, January 2024. Assumes behavioral changes in response to a rise in CGT rate (Source: HMRC).
