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Jon Hickman
Corporate Tax Partner
5 July 2024
With so many pledges, claims and counter claims made by political parties in the countdown to the General Election, it can be hard to recall the detail. We have distilled the Labour party’s tax pledges (and some rumours) into a handy summary table followed by an overview of the policies so that you can review what the new government plans for tax and other business matters.
Category | Labour Party |
Corporation tax | No change |
Levies and windfall taxes | Extend and increase Energy Profits Levy (oil and gas) |
Indirect Taxes | Impose VAT on private school fees |
Net-zero | Re-instate ban on sale of internal combustion cars by 2030. Measures to encourage EV use |
Income tax | Keep thresholds freeze until 2028 Non-dom reforms to go ahead |
Capital gains tax | Changes to taxation of carried interest for private equity
|
Inheritance Tax | All assets in offshore trusts to be liable to IHT |
Employment Taxes | Increase employee rights |
The Labour manifesto did not propose increasing corporation tax and did not suggest any end to the capital allowances full expensing rules but did pledge to maintain the £1m Annual Investment Allowance. It also promised a business tax “road map” for the Parliament (to be published within 6 months of taking office) to give businesses more certainty about investment decisions. We would expect the following proposals to feature in that roadmap.
The current Energy Profits Levy (Oil and Gas) and Electricity Generators Levy, are windfall taxes that are due to expire on 31 March 2029. The Labour party has pledged to extend the duration of Oil and Gas levy until "the end of the next Parliament”, increase the rate by 3% and remove reinvestment reliefs.
Labour proposes replacing the current business rates system to create a more level playing field with 'giant online retailers' – there is no detail on what this would look like, so a consultation process can be expected and, perhaps, a timetable set out in “roadmap”.
The Labour manifesto said that they want to boost investment in UK R&D, citing competing levels of government investment in future years. There has been no mention of changing the current R&D reliefs for corporate investment - good news given all the recent changes in the UK R&D regime.
On wider business investment, the Labour party made a number of pledges focussing on growth and wealth creation including proposals for a state-owned Energy company (GB Energy) to boost investment in net-zero transition, a UK wealth fund seeded with £1.5bn government funding a year to boost investment in specific sectors, an industrial strategy and ten-year infrastructure strategy.
On planning reform, Labour has pledged to speed up development by removing red tape and update national planning policy to give greater priority to development: how quickly this can be delivered remains to be seen.
Labour have pledged not to increase the main rate of VAT but have stated they would impose VAT on private school fees as well as removing businesses rate relief or its future equivalent. There are rumours that there may be anti-forestalling legislation on pre-payment of private school fees.
In common with other parties, Labour pledged to introduce a UK Carbon Border Adjustment Mechanism (CBAM), similar to the current EU CBAM, for imports by 2027.
A pledge to provide HMRC with 5,000 more staff to work on reducing the UK “tax gap” (estimated at £39.8bn for 2022/23) can be expected to result in more compliance enforcement activity over time – perhaps focusing on small businesses as they are estimated to account for up to 60% of the tax not collected by HMRC.
Perhaps the most popular pledge for businesses in the Labour manifesto will prove to be their promise to hold only "one major fiscal event a year, giving...due warning of tax and spending policies".
Labour has proposed various R&D and investment/support mechanisms to help decarbonise the UK economy.
On the ban on the sale of internal combustion engine (ICE) cars, Labour has committed to returning the phase out date to the original 2030 deadline. In addition, Labour pledged to accelerate the rollout of EV charging points. Read more on tax efficient EVs.
The Labour manifesto did not propose any changes to employers’ NIC or the pensions auto-enrolment obligations of employers. However, on the National Minimum Wage; Labour pledged to remove age bands so that there is only one rate. They would also change the remit of the Low Pay Commission to ensure that "the minimum wage is a genuine living wage".
There are significant proposals on employee rights; Labour plans a "New Deal for Working People" by rapidly legislating to ban "exploitative zero hours contracts; ending fire and rehire; and introducing basic rights from day one to parental leave, sick pay, and protection from unfair dismissal".
Labour also proposed to strengthen rights to equal pay and introduce protections from maternity and menopause discrimination. They would also take action to reduce the gender pay gap and create a "Single Enforcement Body" to ensure employment rights are upheld.
Labour have pledged to replace the current Apprenticeship Levy with a "flexible Growth and Skills Levy, with Skills England consulting on eligible courses".
They also pledged to "end the long-term reliance on overseas workers in some parts of the economy by bringing in workforce and training plans for sectors such as health and social care, and construction". This may also ban employers and recruitment agencies from recruiting overseas if they breach employment law and a requirement to advertise jobs to UK residents for a specified period before they are offered to foreign workers.
Labour promised no increases to income tax rates but they also made no proposals to increase tax bands either - resulting in ‘fiscal drag’. Many people will move into a higher tax bracket simply due to rising wages. The Government intends to keep tax bands frozen at their current thresholds until 2028 so, in the meantime, the UK overall tax take will increase.
Labour stated they will not increase NIC for individuals.
Labour plans to ‘close the loophole’ through which private equity carried interest is currently taxed at 28% because it is treated as a capital gain. The rate that might apply in future is yet to be confirmed. Though it has been reported that where a fund manager puts their own capital at risk, capital treatment may be allowed (as in other countries): it is possible that there will be a consultation exercise this year over when carried interest will be taxed as income.
The Labour manifesto makes no mention of other CGT measures and Labour have ruled out introducing CGT on the disposal of a primary residence. However, it has been reported that they are drawing up a list of options to raise tax revenue in the future if needed and that raising the rate of CGT is one of those options. Again, it has been reported that Labour will consult ahead of any changes.
While the Conservative government already proposed abolishing the UK’s tax regime for non-UK domiciled individuals, the Labour manifesto simply confirms that it plans to abolish the ‘non-dom loophole’ although there are no specific proposals for a replacement regime for short term UK residents.
Labour stated in April 2024 that they support many aspects of the original proposals, but they would make some changes should they form the next government. The most significant of these would be to make sure that all foreign assets within trusts would be liable to UK Inheritance Tax. In addition, they would not choose to introduce a tax discount on remittances in the first year of the new rules. Keep up to date with the non-dom changes here.
Aside from the proposals on offshore trusts, there was no other reference to IHT in the Labour manifesto, however, it has been reported that Labour are drawing up tax raising options that include significant changes to IHT. The reports suggest this could relate to scrapping or changing the rules for Business Relief and Agricultural Relief to raise tax revenue without changing the headline rates of IHT.
It is possible that similar changes are also being considered on lifetime gifts, where currently no IHT is due where a person lives for more than seven years after making a gift.
IHT is often described as the UK’s “most hated tax” so it is highly unlikely that changes would be implemented without consultation - it is rumoured that Labour intends to present any reform options to the Office for Budget Responsibility for analysis before announcing any proposals and consultation period.
Labour had previously stated that they would re-introduce the lifetime allowance charge. During the election campaign that plan was dropped, however, that could make other changes to pensions tax reliefs more likely in future.
Currently, individuals receive tax relief (up to 45%) on making pension contributions and can pass on their pension on free of IHT on death (read more here). It has been rumoured that this IHT relief is being considered as part of a wider review of capital taxes (see above).
In addition, previously Rachel Reeves has campaigned to reduce tax relief for pension contributions for high earners, saying that introducing a flat rate of relief at 33% would “be a welcome boost for basic-rate taxpayers and a cut in the savings subsidy for higher earners”.
Under the current rules, individuals can contribute up to £60,000 a year to their pension and can also use up any unused element of this annual allowance for the prior three tax years. For higher earners, it may be worth considering topping up pension contributions ahead of any possible changes – read more in our planning guide.
Labour intend to increase the SDLT surcharge applied when overseas nationals buying UK residential property by 1% (taking this surcharge to 3%).
The first key date following the General Election will be the State Opening of Parliament which is planned for 17 July. This will enable the new government to set out its legislative agenda including any specific Bills on its manifesto pledges.
Labour pledged to have a full Office of Budget Responsibility report to support their Budget proposals. The report will take at least 10 weeks to complete. This makes an ‘emergency Budget’ unlikely. Therefore, the earliest the next fiscal event can occur is mid-September, whether this is an Autumn statement or a full Budget, but it may occur later in the Autumn.
The only other consideration is the ‘first 100 days’ pledges. The Labour manifesto states that the employee rights legislation (“New Deal for Working People”) will be introduced within the first 100 days.
While immediate tax changes may be unlikely, there is little doubt that there will be tax changes under the new government. So while there is no need to panic about future taxes changes, it is sensible to plan ahead and make use of the tax reliefs currently available. For example, now is good time to review your succession and wealth preservation plans.
Please see our 2024/25 tax planning guide for a summary of some key tax ideas that individuals, families and company owners can benefit from by using current tax incentives in UK legislation.
If you are concerned about any specific tax proposals above and would like to discuss how to address those worries, please get in touch.
If you are concerned about any specific tax policies and would like to discuss how to address those worries, please get in touch.
Jon Hickman