Election 24 – The Manifestos – The Labour Party

Inheritance Tax

The Labour Party has not announced any detailed or specific changes from an over-arching Inheritance Tax (IHT) perspective. The only changes that they have announced are limited to the area of non-domiciled individuals and the use of off-shore trusts by such people and would appear to represent only a relatively minor tightening of the rules that the Conservative Party recently introduced in this area (as part of their March 2024 Budget Announcement).

Income Taxes

Labour has confirmed that they would not change the core Income Tax rates (20%, 40% or 45%) in the next Parliament. However, it would look like they would continue to be benefit from ‘fiscal drag’ policies which the Conservative Government have previously announced – i.e. the fact that more and more people get driven into Income Tax generally or higher rates of tax, simply because rate bands and allowances are not presently scheduled to change until April 2028.

However, it is also quite possible, at least in principle, that Labour could impose ‘new taxes’ on particular types of income in the next Parliament (for example, work laptops used personally or workplace car parking), which are presently tax-free benefits. In this regard, it is probable that pension taxes (e.g. the lifetime pensions allowance or possibly the rate at which one gets tax relief for pension contributions), could also be a target for a future Labour Government.

Wealth Taxes and Capital Gains Tax

The Labour Party has confirmed that they would look to tax ‘carried interest’ – this is, some of the ‘compensation’ (for want of a better word) received by Private Equity and Venture Capital executives at Income Tax Rates. This is compared to the special 28% rate of Capital Gains Tax which presently applies to such receipts.

Having said that, there is still some uncertainty as to how this would work in practice. This is particularly where, for example, the PE executives have put forward their own financial contributions to many of these investments (money which is at real risk of loss if the investment doesn’t succeed) and one can genuinely argue that it is correct to continue to regard such receipts as capital in nature rather than income.

There has been some ‘noise’ about whether the Labour Party could change the rules about Principal Private Residence (PPR) relief – this is the relief which typically means homeowners avoid any liability to Capital Gains Tax on the sale of their main homes. However, as things presently stand, the Labour Party are denying that they will change these rules to make main homes (potentially) subject to Capital Gains Tax.

Corporation Taxes

Labour have confirmed that they would look to retain the standard rate of Corporation Tax at 25% throughout the next Parliament. No specific changes have been proposed by the party from a UK corporate tax perspective. As such, the 25% core rate of Corporation Tax would remain in place, though it is not clear, for example, whether the Lib Dems would amend any rules that impact the ‘tax base’ (i.e. the amount which is subject to the corporate tax charge). For example, it is possible that they might just restrict the ‘full expensing’ rules which the Conservative Government introduced recently.

National Insurance Contributions

As with Income Taxes, the Labour Party have confirmed that they are not planning on changing the core rates of employee National Insurance Contributions (NIC), employment NIC or self-employed NICs in the next Parliament.

Labour have not, however, indicated whether they would increase the ‘scope’ of NICs (e.g. so that it could apply to letting income, for example). As such, while there are currently no obvious or specific proposals for such a change, it is possible that a Labour Government could introduce such changes in the future.

Indirect Taxes

The Labour Party have suggested removing the Business Rates system and replacing it with a ‘modern alternative’.

In addition, Labour is proposing to increase the Stamp Duty Land Tax surcharge payable by non-UK resident individuals when purchasing UK domestic property by 1% (up to 3% in total). However, the receipts from this increase are likely to be very marginal (about £40m by Labour estimates) and it is very unlikely to make any substantive change to the attractiveness of the UK property market to foreign-based investors / buyers.

VAT

Labour has, as with Income Tax and NICs, promised not to change the core rate of VAT in the next Parliament.

Indeed, the only substantial change that they have announced from an NIC perspective is their plans to introduce VAT on private school fees (and also to introduce business rates to those private schools which have charitable status (for profit, private schools are already subject to business rates)). While the Labour Party actually claim that the introduction of VAT on private school fees will raise approximately £1.5bn per annum, in practice it is easy to imagine that this proposal will not in the longer term provide them with any additional income.

This is because a number of parents may be forced out of the private educational sector and transfer into state schools, thereby increasing the cost of providing state education, while many of those parents who keep their children in the private sector will simply spend less on other VAT-chargeable services (e.g. meals out, cinema, holidays), than would otherwise be the case.