With the Labour Government now in power, their commitments to spending measures, such as pledges to improve the NHS and education systems, will need to be funded.

There is concern that economic growth alone will not be enough and funding from increased tax revenues will be required.

Below we have highlighted the main areas of tax under consideration, considering the pledges made in Labour’s manifesto and how these might impact on you.

Income Tax and National Insurance

Labour promised they will not raise the rate of Income Tax, National Insurance or VAT; however, they made no mention of increasing the tax bands.  With Income tax bands frozen until 2028 many people will move into the higher rate tax bracket simply due to wages increasing with inflation, the revenues from Income Tax will therefore increase.

Capital Gains Tax

Labour’s promises were silent on Capital Gains Tax and given the fiscal pressure it seems likely there may be an increase to the rate, possibly to align the rates with Income Tax rates, as they have been in the past.  Previously however, there was allowance for inflation and such provisions could be reintroduced.  Talks of abolishing the main residence relief for Capital Gains Tax appear to have been ruled out, whilst speculation remains about whether the tax-free uplift on death will be disapplied, for assets exempt from Inheritance Tax.  Whatever happens, it is safe to say that raising revenues from Capital Gains Tax is one of the options under consideration.

Labour have said they will close an existing loophole which allows private equity carried interest to be taxed as a gain rather than income, whether Income Tax rates will apply to all gains remains to be seen.

Non-domiciled Individuals

Changes to the rules for ‘non-doms’ had already been proposed and in April 2024 Labour stated that they supported many of the aspects of the proposals made by the conservatives on this matter.  We can therefore expect to see detailed changes to the rules for non-UK domiciled persons and those individuals should be seeking advice now, whilst the current rules are still in place.

Inheritance Tax

The only reference to Inheritance Tax in Labour’s manifesto was in relation to offshore trusts, it was therefore silent on other aspects, leading to widespread speculation of changes ahead.  It is entirely possible that Inheritance Tax will increase, perhaps not the rate itself but rather an effective increase by reducing or abolishing current reliefs.  There is speculation that Business and Agricultural relief may be affected which will impact on many clients.

The rules for lifetime gifts could also be under consideration, whereas currently these are exempt if the donor survives 7 years, a ‘gift tax’ is a possibility, like many European systems.

Pensions

Labour previously stated they would reintroduce the lifetime allowance, however this was dropped during the election campaign.  Pensions could still be in focus though, with higher rate tax relief being one of the areas in the spotlight.  The now chancellor has previously supported a move to a flat rate of relief of 33% which would benefit basic rate taxpayers and reduce the relief available for higher earners.    

When are changes expected?

Non-UK domiciled individuals would be wise to expect those changes to come in from April 2025, as was previously proposed. As for the other changes, whether these will be as soon as ‘Budget Day’, or whether Budget Day will introduce consultations on the changes proposed, we simply do not know.  

Given the timings and commitments of parliament, the earliest that a Budget Day could happen would be mid-September.  Whilst immediate tax changes may be unlikely, there is little doubt that there will be changes.

What should you be doing?

We are in uncertain times with much speculation, so whilst you should not panic about future tax changes, it would be wise to plan and make use of the tax reliefs that are currently available.  For example, now would be a good time to review your succession plans, consider your retirement provisions and potentially accelerate the planned sale or gifts of any assets standing at a gain.

If you have concerns about any of the specific tax changes proposed, please get in touch to discuss.

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