Tax For Private Clients In The Election Campaign: What Do We Know?

Tax for individuals has been a major element in the first half of the General Election Campaign, with the Conservatives making tax cutting proposals a key feature of their manifesto and Labour making specific commitments not to increase specific taxes. The campaign itself has generated more heat, than light, especially over the Conservative’s hotly contested claims of specific tax rises Labour would need to make to fund their plans. 

Any comment on the parties’ tax proposals needs a caveat, which I set out below, of the reality that all these plans may need to change to face economic realities. Subject to that, what are the two main parties saying?

The Conservatives manifesto proposes £17 billion in tax cuts. Relevant policies include:

• National Insurance (NI) Reduce employees’ by an additional 2% by 2027 and abolish NI for most of the self-employed – timetable not specified.
• Increase the personal allowance for pensioners by introducing a new age-related personal allowance – to avoid the problem of the personal allowance frozen until 2028 being overtaken by the state pension (with increases protected by its “triple lock”).
• Eliminate Stamp duty land tax (SDLT) on properties valued up to £425,000 for first-time buyers – the current temporary “holiday” increases the maximum property value for First Time Buyers Relief to £625K, until 31 March 2025.
• No increase in income tax, corporation tax or VAT rates.
• Move to a combined household income threshold of £120,000 for the child benefit charge, which can currently mean child benefit is lost if either income exceeds £60K. 
• Capital Gains Tax (CGT) Two-year exemption for capital gains on sales of residential properties by landlords to their tenants. This is an interesting development of the current reduced CGT rate on residential property to encourage sale of short term let property.   
• Tackling tax avoidance and evasion: Raise at least a further £6 billion a year from this elusive “pot of gold” – a target for Labour as well- by the end of the parliament.

Paul Johnson, Director of the Institute of Fiscal Studies think tank (IFS), said that the tax cuts were “definite giveaways” paid for by “uncertain, unspecific and apparently victimless savings”. 

Labour's manifesto contained no tax surprises but did set out plans to generate £8.6 billion in extra tax revenue through a range of previously announced policies:-

• Closing further non-dom tax loopholes and investing in reducing tax avoidance (£5,230m) (NB. Notwithstanding the description this includes broader measures to reduce the tax gap)
• Applying VAT and business rates to private schools (£1,510m)
• Closing carried interest tax loophole (£565m)
• Increasing SDLT on purchases of residential property by non-UK residents by 1% (£40m)
• Windfall tax on oil and gas giants (£1,200m)

 The party plans also include:

• ruling out increasing rates of income tax, NI, corporation tax and VAT. 
• Capping corporation tax at the current level of 25%
• Retaining a permanent full expensing system for capital investment
• Replacing business rates with a new system to level the playing field between the high street and online giants.
• Publish a roadmap for business taxation for the next parliament.
• Commitment to one major fiscal event a year – rather than the current mix of Spring and Autumn events.
• improving tax compliance, modernising HMRC, changing the law to tackle tax avoidance, increasing registration and reporting requirements, enhancing HMRC’s powers, investing in new technology and building capacity within HMRC. 

Responding to the manifesto, Paul Johnson from the IFS described the tax and spending increases announced as ‘trivial’, warning Labour has left itself “no room” within fiscal rules for any more spending than planned by the current government.

The Conservatives claim that Labour is "secretly planning to put capital gains tax on your primary residence” but all we know is that no commitment has been made on CGT, so that could be changed. The Caveat below addresses the potential need for either party to raise taxes in the next Parliament. However, Labour spokespeople have so far resisted calls to extend the list of taxes Labour would not raise beyond the four taxes listed above, sticking to the formulation that they have “no plans” for further tax increases and that nothing in the party’s plans requires additional tax to be raised. 

It appears that Labour will maintain existing plans to keep income tax thresholds frozen if it wins the election. The freeze on the personal allowance is set to continue until 2028, under the “stealth taxation” developed by the current government over the last few years. IHT allowances are also frozen and CGT allowances have been cut. Labour have said that when the finances allow they want to raise thresholds, but the figures are very tight at the moment.  

The Financial Times reports that Labour has dropped plans to reintroduce the pensions lifetime allowance, with concern it would add uncertainty for savers and be complex to deliver. Labour have also said they cannot match the Conservatives’ 2p cut to national insurance because “the money simply isn’t there”. The Conservatives did challenge Labour to match their pledge to freeze the number of council tax bands. While a spokesman has said reforming council tax is “not something that we’re planning to do”, the current valuation of properties for council tax is much criticised as being over 30 years out of date and there is some logic in reviewing this.

Caveat: Bloomberg Economics has now produced analysis to show that whichever party wins the Election, substantial tax rises are likely to be needed to meet the “fiscal rules” set by the Tories but also agreed by Labour, that debt as a share of GDP should fall by the 5^th year. They estimate that “further fiscal tightening” of around £45bn will be required by 2028-29, i.e. major tax increases or substantial expenditure cuts (a further period of “austerity”?) 

This supports commentary from Paul Johnson, director of the Institute of Fiscal Studies (IFS), who has been saying for some weeks that the figures from both parties do not add up. Both parties have tied their hands by promises not to raise so much of their tax raising powers, that (as he told Sky News): "What worries me, I suppose, is that …. because they've ruled out the sort of simple taxes - we'll end up with complicated and actually quite economically damaging taxes," adding: "Whether it's on companies or on investment or what have you, which people can't see." He added: "I just wish they would stop saying what they're not going to do because they tie themselves in knots.”

I am indebted to two trusted sources published on Friday, 14 June, for much of the detail in this article: the Barrister Group Tax, “Tax Law Brief”, and the Chartered Institute of Taxation (CIOT)’s Tax Political Review. CIOT is also publishing explainers on topical tax issues during the campaign to inform public and political debate. One new explainer has been published in the past week and two have been updated:

• UK Domicile and Non-doms (12 June)
• National insurance (10 June, updated 11 June)
• Tax avoidance and the tax gap (7 June, updated 11 June)

In Irwin Mitchell, our team of tax specialists are able to help advise any clients who want specific advice on actions they might take in response to these proposals. The major change, where advice needs to be taken ASAP, is for resident non-doms who wish to consider options from both main parties plans to radically change the taxation of income capital gains and Inheritance Tax. 

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