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Election 24 – The Manifestos – The Liberal Democrats

The Liberal Democrate Manifesto: Robert Salter provides an Analysis of the Key Tax Messages

The Liberal Democrat Manifesto

Overall, it is clear that some of the Liberal Democrats’ proposals (e.g. investing in the NHS) could be popular with the public. Similarly, some of the moves with regard to investing in HMRC would in principle be welcomed by tax advisors and accountants, who have long complaint about the continually poor performance of HMRC, which is a result of their budget being continually cut.

However, despite some sensible ideas / proposals, you might still question whether the Liberal Democrats will actually get the approximately £27bn in extra taxes which they have suggested would be the case from their proposal.

Liberal Democrats

The Liberal Democrat Manifesto: An Analysis of the Key Tax Messages

Inheritance Tax

The Liberal Democrats have not announced any proposed changes to Inheritance Tax (IHT).

As such, we can assume the current IHT threshold (£325,000 per individual) would remain, together with the 40% IHT default rate and the various exemptions and reliefs that we presently have in place.

Income Taxes

The Liberal Democrats have announced no specific changes from an Income Tax perspective – either with regard to Income Tax rates or related issues such as the personal tax allowance or the level at which the tax rate bands apply. As such, in the short to medium-term, we can assume that they would continue to benefit from the ‘fiscal drag’ approach that the Conservatives have previously announced (that is, the fixed allowances and tax bands, which are not presently scheduled to change until April 2028).

As a longer-term aspiration, the Liberal Democrats are, however, keen to increase the personal tax allowance, “when finances allow”, to take the lowest paid out of tax altogether.

Wealth Taxes and Capital Gains Tax

Under the Liberal Democrats’ Capital Gains Tax (CGT) plans, there would be three rates, like there are for Income Tax: 20% (for gains up to £50,000), 40% (between £50,000 and £100,000) and 45% (over £100,000). Unlike now, where your CGT rate is determined by adding together your income and capital gains, the rate would be based solely on your gains.

The Capital Gains Tax-free allowance would go up from £3,000 to £5,000 (although this is still low when compared to historical levels) and the party would introduce a new “inflation allowance”, so that any gains that are purely the result of inflation are not taxed at all. There would also be a targeted relief for small businesses.

While the relief for inflation should be welcomed – the present rules result in many people paying CGT purely based on the impact of inflation – the Liberal Democrats’ changes would result in additional pressure on HMRC from a workload perspective, as they are more complex (and may be more confusing) than the existing approach.

Corporation Taxes

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 Liberal Democrats 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.

From an international perspective, they would look to try and push the Global Minimum Tax Rate for corporate taxes (presently set at 15%) to 21%. In practice, this would appear something which they are very unlikely gain any traction on.

The Liberal Democrats have also pushed to increase the Digital Services Tax to 6% from the existing rate of 2%. The Digital Services Tax is, in broad terms, a turnover tax which targets those internationally based, businesses involved in social media services, online marketplace activities or internet search engine services with a global turnover of at least £500m and UK revenue of at least £25m.

National Insurance Contributions

The Liberal Democrats have not proposed any changes to either employee or employer National Insurance Contributions (NICs) in their manifesto.

Indirect Taxes

The Liberal Democrats are looking to introduce a range of indirect taxes. These are a mix of ‘new taxes’ (e.g. on frequent flying and water sewage / water pollution) and increasing existing indirect taxes (e.g. the bank levy and the energy profits levy).

Other proposals would include the removal of business rates, to be replaced by a commercial landlords level (though how this would work in practice is presently not clear) and the introduction of a Council Tax Surcharge of up to 500% on ‘holiday and second homeowners’. It appears that any decision to impose this Council Tax Surcharge would be at the discretion of local Government rather than Westminster.

In practice, however, it is certainly questionable whether their proposals will necessarily bring in the funds that they are officially estimating. For example, one of the Liberal Democrats proposals is a ‘share buyback’ tax – i.e. when FTSE companies buy back their shares from shareholders. Officially, the Liberal Democrats estimate that this will bring in ca. £1.4bn per annum, though in reality, it is easy to imagine that it will simply change behaviour (so that FTSE companies focus on paying dividends instead) and hence might bring in very little (or indeed nothing) for the Treasury. It is also difficult to understand the ‘logic’ behind the share buyback tax – that is, what type of poor or inappropriate behaviour is it meant be stopping?

It is also questionable whether other Liberal Democrats proposals in this general area – e.g. increasing the Digital Services Tax – are likely to bring in the funds that they expect (approximately £2bn for this specific proposal).


The Liberal Democrats’ core VAT announcements have a directly ‘green tax’ angle to them. For example, they would be looking to remove the VAT exemption on private and first-class flights.

However, no wider or more substantive changes from a VAT perspective have been announced, though the Liberal Democrats have (outside the Manifesto) stated that they do not support the introduction of VAT on private school fees.

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