Election 24 – The Manifestos – The Green Party

Inheritance Tax (IHT)

While the Greens suggest that they will reform IHT to ‘close loopholes’, it is not clear what meaningful changes, if any, they would introduce in this area.

In practice, this could mean that they are looking at amending some of the rules which presently apply to ‘non-domiciled individuals’ (i.e. those taxpayers with roots outside the UK). However, given the changes that have already been announced by the Conservatives (as part of the March 2024 Budget) and the additional law tightening which the Labour Party is already proposing regarding off-shore trusts as part of their manifesto, it is questionable whether there would be any real/additional substantive changes under the Greens.

Income Taxes

In the first instance, it is clear that the Greens are proposing some substantive changes from an Income Tax perspective, as they are looking to align Income Tax rates on investment income and employment income (and also include NICs as part of this overall alignment process). Moreover, the Greens are proposing to reduce the tax relief available on personal pension contributions to only 20% (whereas it is presently available at one’s top slice of income, which means that tax relief for medium and higher income earners can be at 40% or 45%).

However, these headline proposals still leave a number of unanswered questions. For example, how will employer pension contributions be taxed under the Green Party’s proposals (such employer contributions are typically tax-free contributions for people under the existing tax rules).

Moreover, it is not presently clear what the ‘Income Tax alignment’ would mean for ‘dividend taxes’. Would these be directly aligned to the regular Income Tax rates of 20%, 40% and 45%? If so, what relief, if any, would be provided to recognise that such dividend income has already been subject to corporate taxes at the company level? If the Greens are not careful, it is quite possible that the cumulative, overall tax liability on corporate dividends (across Income Tax, NICs and Corporate Tax), could be considerably higher than the overall tax burden on ‘regular income’, which would, for example, discourage private investment in companies (and reduce the supply of capital for growing businesses).

Wealth Taxes and Capital Gains Tax (CGT)

The Green Party would fundamentally alter the UK tax landscape in this area. For example, they would introduce a wealth tax of 1% per annum on estates worth at least £10m per annum and a 2% rate for estates valued at over £1bn. While the Green Party appears to believe that this would raise billions in taxes, in practice, it isn’t exactly clear, as yet how ‘wealth’ would be defined (e.g. are pension assets part of wealth?) and while wealth taxes have worked reasonably successfully in other countries (e.g. Switzerland), in most cases where they have been introduced, they have been unsuccessful and have been seen to act as an ‘economic disincentive’ and have not necessarily remained in place over the longer-term.

In addition, it is not 100% clear how the Green Party’s proposals to ‘equalise the tax rate’ of CGT with that of Income Tax would work in practice. For example, where the UK has historically had equalised Income Tax and CGT rates, there has been an ‘inflationary protection’ built into the calculation of one’s CGT liability – would this be the approach under the Green’s proposals? Similarly, it is not clear whether taxpayers would retain a specific CGT ‘annual exemption’ under the Green’s proposals.

In practice, if you have equalised CGT rates and no protection for inflation, for example, it will result in many taxpayers being liable to CGT on gains which have arisen purely via inflation rather than representing a real increase in capital values. While this position arises under the existing UK CGT rules, increasing the effective CGT rate from 20% (as at present), to 40% or 45% in many cases could easily discourage investment in British businesses and infrastructure.

Corporation Taxes

No specific changes have been proposed by the party from a Corporate Tax perspective. As such, the 25% core rate of Corporation Tax would remain.

NIC

The main changes by the Green Party would be to introduce NICs on investment income (say bank interest and letting income) and to increase the ‘upper rate’ of NIC (i.e. the rate which applies for salaries above £50,270 per annum from the present 2% to 8%).

For employers, the NIC Employers Allowance would increase from £5,000 per annum to £10,000 per annum.

Indirect Taxes

The Greens haven’t mentioned any changes to areas such as Stamp Duty but would be looking to introduce (or continue) with various types of ‘green taxation’. This includes continuing with the ‘windfall taxes’ on energy companies, for example, and the introduction of a tax charge on frequent flyers (though it isn’t clear what this would look like in practice).

Overall, as one would expect from the Greens, they are looking to ‘de-carbonize’ the UK economy and could use various parts of the tax system to support this movement.

VAT

The Green Party’s manifesto for the 2024 General Election actually doesn’t include any substantive changes from a VAT perspective.  However, they would look to end VAT on cultural activities, though it is not clear exactly how this would be defined in practice.