With the general election just under a week away and Labour riding high in the polls, Tom Minnikin, partner at leading tax firm Forbes Dawson, has been looking at their manifesto pledges and working out where their tax priorities might lie should they be elected to office next week saying:
“Tax policies have been a major focus of the general election campaign. With expectations being that the Labour party will win an overall majority, their position on tax is likely to attract the most attention.
“We think an Emergency Budget is unlikely. Rachel Reeves stated in a speech to business leaders at Roll-Royce in May that she would not deliver a Budget without economic forecasts from the independent Office for Budget Responsibility (‘OBR’). These forecasts typically take ten weeks to prepare.
“An Autumn Budget in around November is more likely. Plus, if the economic outlook has improved in the meantime, which is possible, given the potential for interest rate cuts, Ms Reeves may find herself with more money to play with.
“We know that some measures are already baked into Labour’s plans. For example, they have said that there will be no increases to income tax, National Insurance or VAT. They have also promised to abolish the favourable tax regime for non-domiciled individuals (non-doms) and to levy VAT on private school fees.
“Therefore, we will be looking to other measures for an indication of what Labour’s tax and spend policy over the next five years is going to look like. Key areas are capital gains tax, inheritance tax and pensions.”
Capital gains tax
“It is fair to say Keir Starmer has been cagey when pressed on the subject of capital gains tax. Labour has said its manifesto commitments require no additional tax rises, but these plans could change if it decides to embark upon further public spending when in office.
“The party has pledged not to reverse the recent cut in capital gains tax on residential property, which was reduced from 28 per cent to 24 per cent from 6 April 2024, but has not made any promises about the main rate, which is currently 20 per cent.
“Business asset disposal relief (BADR) and investors relief – both of which provide entrepreneurs with an attractive 10 per cent rate of capital gains tax on the sale of qualifying business interests – are possible areas that could be subject to review.
“We think that cutting BADR, which has already been scaled back under the Conservatives, would send out the wrong message to business owners, especially when the Labour party has said it is aiming to grow the economy. However, we think investors relief could be vulnerable to change.”
Inheritance tax
“Inheritance tax is absent from the Labour manifesto. It is also a tricky area for Labour to navigate. While you might be forgiven for thinking that the tax is the preserve of rich -traditionally Conservative voters – recent opinion polls have in fact found Labour voters are the more likely to view inheritance tax as unfair.
“Speculation points towards Labour looking to tweak the system in future. This could mean removing the capital gains tax uplift that applies to assets passed on after death, or scaling back on reliefs, such as those that apply to business asset and agricultural property.”
Pensions
“Advisers will be on the lookout for any changes to the tax regime for pensions. The Conservatives removed the lifetime allowance (LA) on pensions from 6 April 2024, meaning individuals can grow their pensions freely without attracting an LA charge. Labour has said it will reinstate some form of cap, although it is unclear at what level and how this would operate.
“Other possibilities include the 25 per cent tax-free lump sum, which could be at risk of being removed.
“Only time will tell whether Labour will follow through on its pledge to reduce the burden of tax over time, or if – as the Conservatives would like voters to believe – a tax bombshell is waiting in the wings.”
