Labour’s landslide election win provides Sir Keir Starmer with the largest mandate since the days of Tony Blair, and a 174-seat majority (functionally a majority of 181 as Sinn Féin will not take their seats in the House of Commons) gives the new government license to comfortably enact their full manifesto.
It’s less than a month since the keys of power changed hands and the first Labour budget isn’t expected until October, but what can we expect from the new government when it comes to taxation?
Income tax
Ahead of the election, Labour pledged to not raise taxes on ‘working people’, but the party has promised to retain the freeze, brought in by the Conservatives, on income tax thresholds until April 2028—effectively a tax rise as more people end up paying more tax when salaries increase.
National Insurance Contributions
The Labour Party has pledged to keep NIC rates the same, and there are currently no plans to reverse the NIC cuts brought in by former Chancellor Jeremy Hunt in April’s spring budget.
Capital Gains Tax
Labour’s pledge to not raise taxes on ‘working people’ does not necessarily rule out an increase in the rate of Capital Gains Tax—but they’ve not said they’d raise them, either. However, the Prime Minister has guaranteed that people selling their main home would not have to pay CGT.
We’ll have to wait for the autumn statement to see definitively what Labour will do with CGT.
Inheritance Tax
There was only one policy related to inheritance tax (IHT) in Labour’s election manifesto: a pledge to ‘end the use of offshore trusts to avoid inheritance tax’.
However, there have been reports suggesting that the rules for Business Relief and Agricultural Relief could change in order to raise tax revenues without having to increase the headline rate of inheritance tax, while tax rules on lifetime gifts (currently there’s no IHT due on gifts when the giftor lives for more than seven years after making the gift) could also be reviewed.
Stamp Duty
The Labour government has promised to increase the Stamp Duty Land Tax (SDLT) surcharge on non-UK residents buying property in England or Northern Ireland from 2% to 3%. Note that you’re not considered a UK resident if you’re nnot present in the UK for at least 183 days during the 12 months before your purchase.
VAT
Labour has not promised to make changes to the headline rate of VAT, but one of the major policy pledges in their manifesto was to start applying VAT to private school fees. Starmer had claimed that this would be implemented ‘straight away’, but the new Chancellor Rachel Reeves has said it will not be brought in until the government’s first budget, and may not be enacted until the 2025-26 school year (starting in September 2025).
Pensions
Labour’s plan to reintroduce the lifetime allowance charge was dropped, but this could make other changes to pension tax relief more likely. Indeed, Rachel Reeves has previously campaigned to reduce tax relief for pension contributions for high earners.
Non-doms
The previous Conservative government had announced reforms to the non-dom tax regime in the spring budget, something Labour had been planning to do themselves, but as that legislation had not been enacted it’s likely the new government will look to rewrite it to include Labour’s pledge to ‘abolish non-dom status once and for all’.
Expect to see the plans for the non-dom tax regime firmed up in the autumn.
Tax avoidance
Labour’s manifesto claimed that cracking down on tax avoidance schemes would be the main source of new tax revenue to fund their policy pledges, including plans to increase HMRC compliance activities, investing in new technology, and ensuring there’s a genuine deterrent to tax evasion.
The government will also consider widening the scope of schemes that are reportable under the disclosure of tax avoidance schemes rules and enhancing HMRC’s ability to make people pay the tax they owe.
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