With the general election only 3 days away, unless something incredible happens, it seems certain that the Labour Party will form the next Government with a very healthy overall majority in Parliament. Assuming this will be the case, what might that mean for taxation in the UK.
For Businesses
Labour has pledged a commitment to the main rate of corporation tax not exceeding 25% and are also committed to retaining full expensing for businesses acquiring eligible capital assets. A business tax roadmap has been promised within 6 months of Labour taking office and we would also expect a number of further anti avoidance measures as there remains a perception that large companies to “work the system”
No increases to VAT rates have been promised but it seems certain that there will be extensions to the scope of VAT with school fees for private schooling firmly in the Labour party’s sights.
For Individuals
Labour have promised there will be no increase in the main income tax and national insurance rates though interestingly remained silent on tax thresholds meaning that, say, freezing personal tax thresholds would be a tax rise in effect – this is a very similar policy to that operated currently by the Conservatives.
Capital Taxes
Labour’s manifesto is conspicuously silent in the area of capital taxes and pension taxes which has seen the rumour mill go into overdrive amongst tax professionals. It seems inevitable that the first Budget of the new Parliament will introduce some changes in this area with possibilities being :
- Increasing the CGT rate or aligning it with income tax rates
- Might there be some extra relief for those owning their businesses for a long period, to offset the higher rate ?
- Removal of certain CGT reliefs
- Abolition of inheritance tax reliefs such as business or agricultural property relief
- Consideration of an annual wealth tax to replace inheritance tax
- Removal of the 25% tax free lump sums on private pensions.
Other Matters
We can expect a ramping up of anti avoidance measures, on tax registrations etc and Labour have committed to providing significant added resources to HMRC. Use of offshore trusts and tax breaks for non doms are widely expected to be addressed to.
What Action Could I Take?
There is no certainty over when the first Budget, post election, will take place. There could be a snap Budget within a month of the election or Labour may wait until November, traditionally the month of the Autumn Statement.
Possible action could include :
- If you were planning the succession of your business to your family, you may wish to complete this before any possible changes
- If you are in the process of selling your business, can you push this through quicker to secure current CGT rates
- If you are thinking of cashing in your pension, might you wish to extract your 25% lump sum to ensure a tax free treatment
Your EQ contacts will be on hand, as normal to guide you through any changes that may take place and we will keep you informed as things change. Head of EQ Taxation, David Morrison, commented:
“Whilst the outcome of the election is by no means certain, anything other than a majority Labour government would seem unlikely. Relying on party manifestos can be difficult, particularly in recent times, but given that the main income and corporation tax rates are promised to remain unaffected, any tax raising measures would appear likely to focus on tax avoidance and wealth, so I’d recommend an early chat with your tax adviser in order to consider any preventative action. Our taxation advisers are ready with any help and advice.”
Get in touch to find out more.