What does the Labour election result mean for tax planning?
What does the Labour election result mean for tax planning?
What are Labour’s plans?
Probably like many others, I felt Labour’s election campaign was somewhat cagey. So, it is hard to know for sure exactly what they are planning. It is more of a case that we know what they are not planning on doing!
This is because they made a clear promise not to raise income tax, national insurance or VAT. They have also pledged to cap the headline rate of corporation tax at 25% throughout the duration of the next term of Parliament.
Logically this might suggest capital gains tax and inheritance tax are areas that will come under scrutiny.
There was speculation in the past that capital gains tax rates might be aligned with income tax rates. Maybe this will happen? But, if it does, I would expect to see either indexation relief or taper relief reintroduced. Should that be the case, it might not negatively impact those who have owned assets for long periods of time.
The 10% tax rate that applies to sales of some business assets (via business asset disposal relief) has been in place for a while. I don’t think this relief will be scrapped. Perhaps though, the tax rate will be increased, particularly if tax rates for non-business assets are increased.
What wholesale changes should we expect under Labour?
I don’t expect to see wholesale changes to the Inheritance tax rules just yet. If things were to be changed, then maybe a limit might be introduced to how much can be gifted during lifetime without immediate tax consequence. Changes might be made that limit entitlement to business and agricultural reliefs too.
I suspect we will see some tax reliefs and allowances will be frozen or restricted. I would expect the pension annual allowance will be significantly reduced (it is currently at £60,000 per annum).
They also appear to want to target anti-avoidance. And, we know that Non-Doms, Private Equity bosses and VAT on private school fees will be on the hit list.
Timings – when will it all happen?
What can we glean about timings? Well, I would expect to see a budget called for the Autumn. Summer is not an ideal time to be scrutinising such things and Labour will be keen not to repeat the mistakes made by Liz Truss. They will want their fiscal projections to be properly checked and ratified, which will take a bit of time. They have also said they want to give due warning of their tax and spending policies. This, to me, sounds like unfavourable changes will be introduced in a slow and steady manner.
As such, for now at least, I would suggest not panicking. If you are minded to make a change soon (such as selling an asset, packing up a business activity or undertaking some IHT planning), then maybe it would be wise to act sooner rather than later. Otherwise, there is no sense in doing something you weren’t planning too in the hope it may save some tax in the future. As Liz Truss well knows, act in haste, repent at leisure!
Author Bio
Tom Foster – Tax Director
Tom is the Head of Taxation at Lewis Brownlee. Having joined the firm from a top 20 accountancy practice in March 2014. His expertise and dedication led to his promotion to Tax Director in April 2017. With over 20 years of experience as a general tax practitioner, Tom has a wealth of knowledge in assisting both individuals and businesses to manage their tax affairs efficiently and legally.
Tom’s areas of expertise include Capital Gains Tax, Inheritance Tax Planning, EMI Share Schemes, Property Taxation, Personal Tax Planning, EIS and SEIS, Trusts and Estates, Research & Development, and Tax Investigations.
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