The new Chancellor, Rachel Reeves, has given her first speech as the country’s new Chancellor of the Exchequer. The speech itself was virtually silent on tax policy, instead focusing on planning regulations, homebuilding targets and energy infrastructure.
However, lots of our clients have been asking us what difference the incoming government is likely to make to tax policy and what, if anything, can be done to hedge against possible (some might say likely) tax increases.
We haven’t had an emergency budget/fiscal event, so to find out what exactly Labour’s detailed plans are we need to dig into the available party literature and examine previous statements by the now-Chancellor.
Labour’s manifesto on tax
In their 2024 manifesto (page 21)[1], the Labour party stated that “we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT”. You might say that Capital Gains Tax (“CGT”) and Inheritance Tax (“IHT”) are slightly conspicuous in their absence!
The manifesto also promises to “abolish non-dom status once and for all” and to “end the use of offshore trusts to avoid inheritance tax”. It also promises more broadly to modernise HMRC and tax law and to close the tax gap[2].
Page 31 of the 2024 manifesto confirms that they intend to cap Corporation Tax at its existing rate of 25%.
Other measures mentioned in the manifesto document included a one-off windfall tax on oil and gas giants and increasing the rate of Stamp Duty Land Tax on UK residential property purchases by non-residents by an additional 1%.
Page 127 of the manifesto sets out a cost analysis of their proposed tax policy adjustments. By applying VAT and business rates to private schools, Labour expect to raise £1.51 billion UK-wide. Another £565 million in additional revenue is to be raised by closing the ‘carried interest loophole’[3]. The biggest saving comes from the abolition of the non-dom rules and a pledge of ‘reducing tax avoidance’, clocking in at some £5.23 billion additional revenue.
The mention of the non-dom rules will no doubt give many readers a pang of deja-vu, given the now-former Chancellor Mr Hunt announced in the fiscal event earlier in March that the rules were to be scrapped. However, like other policies announced at the March fiscal event (including the changes to Furnished Holiday Letting rules), draft legislation was not produced before the election was announced.
One definite positive from the manifesto is that it includes a pledge to keep to one major ‘fiscal event’ each year. Hopefully this means we will not see a repeat of the now-infamous growth plan in 2022, with the subsequent reversal following just a matter of days later.
Of course, statements in a manifesto are all well and good, but historical precedent is that manifesto pledges are rarely implemented in full.
Previous statements on tax
It would be fair to say that perhaps all the political parties were not completely transparent during the election campaign when it comes to tax. After all, any admission that certain taxes might have to rise to meet spending is unlikely to be a vote-winner.
It is unlikely that we will see a ‘wealth tax’, given that this was ruled out by Rachel Reeves in August last year[4],[5]. For a while, it was heavily rumoured that the then shadow-Chancellor was considering this as a policy as YouGov polls seemed to show public support for a wealth tax of sorts[6].
Rachel Reeves’ speech at the Labour party conference in October 2023 also seems to be consistent with tax policy statements included in the manifesto[7]. Although, you might say the cynical view is that it by this time it had started to become clear there was an appetite for a change in government, so naturally Labour as the main opposition might shy away from anything too radical for fear of putting off the electorate.
An in-depth internet search shows up a pamphlet produced by the Chancellor[8] back in 2018. The leaflet is largely an in-depth breakdown of Ms Reeves’ political philosophies at the time, but it is relevant here as it contains several interesting statements as regards tax:
- “[Inheritance Tax] needs to be either reset or shifted wholesale to a tax on the receipt of any gifts throughout a lifetime, making tax on all gifts equal and thus avoidance more difficult.”
- “A land tax could help raise tax more fairly from the 0.6 per cent of the population who own 69 per cent of the 60 million acres that make up the UK.”
- “Companies should report on their pay ratios and the differential between their highest and lowest paid workers could be linked to the level of corporation tax they pay.”
- “Council tax, based on 1991 valuations, is at the very least long overdue a re-evaluation and revision of existing bands – a power which could be devolved to local government Fiscal policy to match local needs. We should also consider the case for its overhaul and replacement with a property tax, levied on property owners.”
- “40 per cent of UK wealth is held in private pension funds. To combat this inequality, higher rate pensions contribution reliefs could be restricted and legislation could require that 20 per cent of all pension contributions be invested in employment-creating opportunities in exchange for the tax reliefs currently available to pension funds.”
- “Taxing the savings and investment income of higher rate taxpayers can be increased. Capital gains tax could be reformed, halving the annual allowance, having it paid at income tax rates and improving tax compliance.”
So, what can we expect?
It the absence of a national emergency on a similar magnitude to the pandemic or the 2008 financial crisis, it is unlikely we will see a full fiscal event until the Autumn. Until then, we can only guess what tax measures the Chancellor and the new government might propose.
Save for a legal challenge, the business rates and VAT on private schools is something that will almost certainly go ahead. As will the abolition of the non-dom regime.
The pledge that Income Tax, VAT and NIC will not rise is reassuring. But the omission of CGT in that statement is hinting that changes there are very likely. Most likely, this would be a change in the headline rates, maybe even going so far as to align them with Income Tax rates.
Some clients have raised with us that they are concerned that CGT Business Asset Disposal Relief (‘BADR’, securing a 10% tax rate on qualifying gains) will be cut. This is less clear, given that the BADR lifetime allowance was already slashed in 2020, from £10m down to £1m of qualifying gains, cutting the potential benefit of the relief drastically.
The realities of being in power are likely to temper some of the Chancellor’s more radical tax policy thinking, as outlined in her past brochure. All we can be sure of at this time is that the first fiscal event, earmarked for Autumn, will be a very important and interesting one.
[1] https://labour.org.uk/wp-content/uploads/2024/06/Labour-Party-manifesto-2024.pdf
[2] The ‘tax gap’ is a theoretical concept – it is the difference in the tax that the Treasury think should be payable, versus what is actually collected.
[3] Carried interest is a common method of remuneration for many private equity and hedge fund managers. It is effectively a performance-based fee. Carried interest is taxed to CGT not Income Tax which many perceive to be unfair.
[4] https://www.ftadviser.com/your-industry/2023/08/29/advisers-praise-labour-for-ruling-out-wealth-tax/
[5] https://www.theguardian.com/politics/2023/aug/27/rachel-reeves-rules-out-wealth-tax-if-labour-wins-next-election
[6] https://yougov.co.uk/politics/articles/45044-three-quarters-britons-support-wealth-taxes-millio
[7] https://labour.org.uk/updates/press-releases/rachel-reeves-speech-at-labour-conference/
[8] https://www.rachelreevesmp.co.uk/wp-content/uploads/sites/96/2020/09/374425087-Rachel-Reeves-The-Everyday-Economy-1.pdf
Please be aware that this article should not be considered as financial advice or relied upon in making any financial decisions. Churchgate Accountants Limited (“Churchgates”) or any of its sister or subsidiary companies do not accept any responsibility for any financial loss incurred as a result of actions taken, based upon the content of this article. Please contact Churchgates before making any financial decisions, or for general assistance with your tax or wider financial planning matters. Any opinions expressed in this article are those of the individual writer and do not represent the opinions of Churchgates as an organisation.
